TMI Blog2001 (10) TMI 48X X X X Extracts X X X X X X X X Extracts X X X X ..... rposes of the business or profession, the following deductions shall be allowed-- (i) the amount paid on account of current repairs thereto;" The claim for deduction made under the head "Repairs", was made by the assessee despite the fact that it had, in its own books of account, treated this investment as "investment on capital equipment" and the amount had been capitalised in its accounts. The Assessing Officer rejected the claim made, after noting, inter alia, that the new Combidan Mill was installed for obtaining consistent strength in cement and that as claimed by the chairman in the company's annual report for 1985 that: "There has been perceptible improvement in quality with the Combidan cement and the market reaction is very favourable and concluded that, by installing this new mill based on new technology, the assessee has obtained not only an advantage of enduring nature but also a power packed machinery which does the same quantity of work that was done by all the four mills put together." He also noted that the assessee having capitalised the expenditure in its accounts, it had even credited the necessary quantum of investment allowance reserve in the balance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction which the Legislature has permitted under section 10(2)(v) is a deduction where the expenditure is a revenue expenditure and not a capital expenditure." That case before the Bombay High Court had arisen under the provisions of the Indian Income-tax Act, 1922, which contained a provision which was pari materia with section 31(i) of the Income-tax Act, 1961. In the case of CIT v. Mahalakshmi Textiles Mills Ltd. [1967] 66 ITR 710, the Supreme Court upheld the claim of the assessee before it that the introduction of a system known as "Casablanca conversion system" in its spinning plant which involved replacement of certain roller stands and fluted rollers fitted with rubber aprons to the spinning machinery, removal of the ring-frames from certain existing parts, introduction, inter alia, of ball-bearing jockey-pulleys for converting the original band-drivers to tape drivers and other additions and alternations in the drafting mechanism by incurring an expenditure of Rs.93,215 was an expenditure incurred on current repairs to the existing machinery. Mr. R. Krishnamurthy, learned senior counsel appearing for the assessee, submitted that despite the magnitude of the expend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ifficult to accept that for the purpose of determining the allowability of expenditure under the head "Repairs" the entire productive apparatus of a manufacturing company be treated as one single asset and wholesale replacement of complete identifiable and distinct parts be regarded as a "repair" effected to the production facility as a whole. No businessman, even as the assessee in its books and its lenders, would regard the wholesale replacement of four cement mills, by a single sophisticated modem mill as amounting to mere "repair". While judging a claim for deduction under the Income-tax Act the scope of the term "repair" cannot be stretched beyond all recognition. "Repair" implies the existence of a thing which has malfunctioned and can be set right by effecting repairs which may involve replacement of some parts, thereby making the thing as efficient as it was before or as close to it as possible. After repair the thing to which repair was carried out continues to be available for use. Replacement is different from repair. Replacement implies the removal or discarding of the thing that was in use, by a different or new thing capable of performing the same function with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns were made in the background of the facts found by the court that the replacement was merely to a part of a larger item of machinery. We have already referred to the decision of the Supreme Court which dismissed the appeal against that judgment. The decision was upheld on the ground that what had been done by the assessee therein was only to replace parts of a larger integrated unit and that there was no wholesale replacement of a part or the whole of the entire plant. In CIT v. Sri Rama Sugar Mills Ltd., a decision reported in [1952] 21 ITR 191 (Mad), the learned judges who constituted the Division Bench of this court disagreed on the question as to what constituted "repair". It was held by one of the judges therein that renewal is a repair if it is only restoration by renewal or replacement of subsidiary parts of a whole, and that if the reconstruction is of the entirety or of substantially the whole of the subject-matter, it is not a repair but a reconstruction. The court therein upheld the decision of the Tribunal that the installation of a boiler, to replace one of the three boilers which had deteriorated in its efficiency, all the boilers together being necessary for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hinery could not be treated as capital expenditure as such expenditure was incurred for the purpose of continuing the business without breakdown and not for starting a new business. It was also observed in that case that: "The machinery was not replaced wholly nor were new machines added." Learned counsel for the Revenue placed reliance, and rightly so, on the decision of the apex court in the case of Ballimal Naval Kishore v. CIT [1997] 224 ITR 414. In that case the assessee therein had incurred considerable expenditure on new machinery, new furniture, sanitary fittings, replacing electric wiring and had renovated the theatre by extensive repairs to the walls, to the hall, to the flooring and roofing, to doors and windows and to the stage sides. In the background of those facts, the court held that: "... if we look at the facts of this case, it will be evident that what the assessee did was not mere repairs but a total renovation of the theatre. New machinery, new furniture, new sanitary fittings and new electrical wiring were installed besides extensively repairing the structure of the building. By no stretch of imagination, can it be said that the said repairs qualify as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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