TMI Blog1992 (7) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... cording to the Income-tax Officer, the extensive repair and renovation of the existing building had resulted in a new advantage of enduring benefit and so it was a capital expenditure. The assessee appealed to the Commissioner of Income-tax (Appeals) and contended that the building was in a dilapidated condition and, in 1968, the Calcutta Corporation served a notice for its demolition on Sri B. N. Jhunjhunwala, one of the partners of the assessee-firm. The assessee, on receipt of the demolition notice, took time from the Corporation authorities and undertook repairing works and for that it engaged an architect for the repairing work. The said architect submitted a report on April 11, 1973, to the effect that the premises have been thoroughly repaired, that the cracks on most of the walls have been rectified, that the floors have been made secure, that the weak beams are changed and reinforced, that all corrosions of steel works have been removed and that the old parapets have been demolished and rebuilt. It was pointed out that, on the basis of the said report of the architect, the city civil court held that the insecurity of the building has been removed and so it dismissed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e expenditure in question was allowable under section 37, if not under section 30 of the Income-tax Act, 1961. On behalf of the Revenue, it was contended that the assessee was occupying the premises in terms of a lease for 15 years, and, therefore, the decision in the case of Chandra Agro P. Ltd. [1979] 117 ITR 251 (All), was clearly applicable in this case. Reference was made to the report of the architect and it pointed out that the expenditure was mainly incurred for replacement of beams and parapets and so it was capital expenditure in view of the decision in the case of Humayun Properties Ltd. v. CIT [1962] 44 ITR 73 (Cal) and Addl. CIT v. Lawlys Enterprises (P.) Ltd. [1975] 100 ITR 369 (Patna). The Tribunal, in its original order, held that the lower authorities were justified in disallowing the deduction of Rs. 2,12,266 claimed by the assessee as revenue expenditure by observing as under : "We have heard the rival submissions and considered the facts on record. The case of the assessee is that the expenditure was incurred for current repairs to the building which was not owned by it and so this was a revenue expenditure. There is no dispute that an expenditure on current ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see filed a miscellaneous application before the Tribunal requesting for rectification of some mistakes which were said to have crept into the order of the Tribunal dated December 4, 1980. It was pointed out that there was a factual mistake in the aforesaid order of the Tribunal inasmuch as the Tribunal observed that the Corporation of Calcutta served a demolition notice in respect of premises, No. 4, Council House Street, Calcutta, on Shri B. N. Jhunjhunwala, a partner of the assessee-firm, though, in fact, such notice was served on Shri B. N. Jhunjhunwala, care of Messrs. Dewar's Garage, which is a private limited company. It was further pointed out that the Tribunal had not considered the important submission that was made before it at the time of hearing of the appeal to the effect that the expenditure in question was fully allowable as deduction under section 30 and/or under section 37 of the Income-tax Act, 1961, as this was an accumulated arrears of repair for several years. It was also pointed out that the Tribunal failed to consider the principle laid down in the case of CIT v. L. G. Ramamurthi [1977] 110 ITR 453 (Mad), cited before it. At the time of hearing of the miscel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l was substituted by the following paragraph: " We have heard the submissions of both the parties and considered the facts of the case. The undisputed fact is that the expenditure of Rs. 2,12,266 was incurred for thorough repair and renovation of the building in question which was in the use of the assessee for the purpose of its business. The fact that the Calcutta Corporation served on Sri Jhunjhunwala, c/o. Messrs. Dewar's Garage a notice of demolition would go to suggest that for several years in the past no repairing work was undertaken either by the owner or by the tenant in respect of this building. Therefore, the thorough repair and renovation that was undertaken by the assessee was to remedy the effect of several years' wear and tear or neglect. It has been held by the various High Courts in several cases that a sum can be allowed as cost of repairs even though the expenditure incurred in the year of account is heavy on account of the fact that it was undertaken to remedy the effect of several years' wear and tear or neglect. See the decision in the cases of Liberty Cinema v. CIT [1964] 52 ITR 153 (Cal), R. B. Bansilal Abirchand Spg. and Wvg. Mills v. CIT [1957] 31 ITR 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... building and not the owner lends to the expenditure any different complexion. The position of law is that, if the assessee is the tenant of the premises used by him for the purpose of his business or profession, section 30(a)(i) entitles him to a deduction of any amount expended by him on repairs if the terms of tenancy require him to execute the repairs. In this case, it is not controverted that the assessee had undertaken to bear the cost of repairs in his capacity as the tenant. The only controversy is with regard to the question whether replacement of beams and parapets can fall within "repairs". That being the position, the amounts spent by the assessee on repairs to keep the premises serviceable and to remedy and rectify the defects which condemn the building as unfit for human habitation are allowable, because the use of the premises is instrumental to the carrying on of the assessee's business or profession, as the case may be, and is part of his income-earning apparatus. So, if a tenant has undertaken to bear the cost of repairs, the amount spent on such repairs has to be allowed in respect of all types of repairs. The fact that the repairs give the building a fresh leas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibit further use of the building or the room, as the case may be, as a dwelling and shall by such notice call upon the owner or occupier as aforesaid to state in writing any objection thereto within thirty days after the receipt of such notice, and, if no objection is raised by such owner or occupier within such period as aforesaid or if any objection raised by such owner or occupier within such period appears to the Municipal Commissioner invalid or insufficient, he may, with the previous approval of the Mayor-in-Council and by an order in writing, prohibit further use of such building or room as a dwelling.: The provision clearly indicates that even a new building can be declared unfit for human habitation, if it is, so considered by the Municipal authorities for any technical reason or otherwise. Therefore, it is not that the Municipal authorities serve the demolition notice only in cases of total dilapidation of the building. Any cause for the building being unsafe as a dwelling may warrant the service of a demolition notice, irrespective whether the structure is old and decrepit or new and strong. Multiple considerations weigh with the Municipal authorities in declaring a dw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is of a capital nature : see Gulamhussein Ebrahim Matcheswala v. CIT [1974] 97 ITR 24 (Bom). We are of the view that since, by virtue of carrying out the repairs in question, the assessee was able to avoid the statutory notice for demolition issued by the Municipal authorities and enabled itself to maintain the structure and to continue its use as an income-earning apparatus, the expenditure, howsoever large, cannot but be allowed as revenue expenditure. If new beams replace old beams that have lost supporting strength, it cannot be said that the replacement pertains to the capital field. Even if it is called renovation, its purpose was to ensure continuity of its use as a source of revenue. It amounts to maintaining a productive asset. We principally rely on the test laid down by the Supreme Court in CIT v. Kalyanji Mavji and Co. [1980] 122 ITR 49. According to it, where the renovation or reconditioning is for maintaining the continuity of the businesses, the cost thereof shall be a permissible deduction. The facts as well as the principle applicable have been set forth by the Supreme Court in the following words (at page 54): "The business of the assessee was coal mining, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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