TMI Blog1979 (9) TMI 14X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee carried out renovation of the picture house and expended a sum of Rs. 85,620 on this account. In its return for the financial year 1957-58, the assessee claimed deduction of the said sum as expenditure laid out on renovation, under s. 10(2) of the Act. The assessee had also claimed, in addition to the aforesaid sum an expenditure of Rs. 6,796 on account of maintenance and repairs of the cinema building'. The ITO disallowed a sum of Rs. 10,000 out of the expenditure of Rs. 85,620 incurred by the assessee in the renovation of the cinema building and capitalized the rest of the amount, on which depreciation was allowed under the head " buildings ", as in his opinion the expenses incurred by the assessee in respect of renovation of the cinema building was of the nature of capital expenditure. The assessee preferred an appeal against the assessment order and claimed 115 of the aforesaid amount of Rs. 85,620, as he estimated the life of the renovation to be five years. The assessee thought it proper to claim 115 of the amount of expenditure incurred in respect of renovation in that assessment year and 115 each in the remaining succeeding four years. The AAC held that the reno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d September 4, 1964. Thereafter, the Commissioner filed an application for making a reference but the same was rejected by the Tribunal. However, this court directed the Appellate Tribunal to draw up the statement of the case and refer the question of law mentioned above to this court, which arose out of the order of the Appellate Tribunal dated September 4, 1964. Mr. S. M. Mehta, appearing for the revenue, argued that the expenditure incurred by the assessee on renovation of the cinema building could not be allowed as a deduction permissible under s. 10(2)(v) of the Act, because the expenditure was not of the nature of Current repairs. Moreover it was pointed out by the learned counsel that the assessee had separately claimed an amount of Rs. 6,796 on account of maintenance and repairs during the relevant assessment year, which fact also went to show that the amount spent on renovation was not spent on current repairs. On the other hand, Mr. S. K. Keshote, appearing for the assessee, submitted that even if the amount spent on renovation may not be considered as current repairs, so as to come within the purview of cl. (v) of sub-s. (2) of s. 10 of the Act, yet the aforesaid amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red by this court. In Aluminium Corporation of India Ltd. v. CIT [1972] 86 ITR 11 (SC), their Lordships of the Supreme Court observed as under (p. 13): When a question refers to the facts and circumstances in the case, it means the facts and circumstances as found, by the Tribunal. If any party wants to challenge the correctness, of the findings given by the Tribunal either on the ground that the same is not supported by any evidence on record or is based on irrelevant or inadmissible evidence or is unreasonable or perverse, a question raising any one of those grounds must be sought for and obtained. It is needless to say that the jurisdiction of the High Court in a reference under section 66 is only an advisory jurisdiction. That being so it can only pronounce its opinion on the questions referred to it. It is trite to say that it cannot sit as an appellate court over the decision of the Tribunal." In Hazarat Pirmahomed Shah Saheb Roza Committee v. CIT [1967] 63 ITR 490 (SC), the question raised was whether the income of the Roza properties was assessable to tax during the relevant assessment year or were exempted from payment of tax. The Tribunal held that the original purpos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are vitiated for one reason or another." In CIT v. Manna Ramji and Co. [1972] 86 ITR 29 (SC), the question referred to the High Court was whether, on the facts and circumstances of the case, the amount received by the appellant as compensation from the Government for the requisition of a property was taxable as income, and was of the nature of capital receipts in its hands. The Appellate Tribunal found that the business of the assessee had not come to a standstill altogether and that he continued to carry on business, though at a reduced scale, after requisitioning and that if any injury was caused to his business it was to the volume thereof and not to the profit-making apparatus. The High Court of Bombay, on a reference, held that the amount received by the assessee for the requisitioning was in the nature of capital receipt, for damages in the profit-making apparatus. On appeal, the Supreme Court reversed the judgment of the Bombay High Court and held that as the question was framed, the High Court could not go behind the findings of fact recorded by the Tribunal. The observations of their Lordships of the Supreme Court, in this respect, are as under (p. 37): " It may also b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lay down the law applicable to the facts found. Neither the High Court nor this court has jurisdiction to go behind or to question the statements of fact made by the Tribunal. The statement of the case is binding on the parties and they are not entitled to go behind the facts found by the Tribunal in the statement." Similarly, in India Cements Ltd. v. CIT [1966] 60 ITR 52 (SC), their Lordships of the Supreme Court pointed out that the High Court must accept the findings of fact recorded by the Appellate Tribunal and it is for the person who applied for a reference to challenge those findings first by an application under s. 66(1) of the Act. It was held that if he fails to file an application under s. 66(1) of the Act, expressly raising the question about the validity of the findings of fact, that party is not entitled to urge before the High Court that the findings are vitiated for one reason or the other. In that case, the High Court had preferred the findings of the ITO to that of the Appellate Tribunal, while the question referred was " whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the amount expended by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct and it was held that "current repairs" means an expenditure on buildings, machinery, plant or furniture, which is not for the purpose of renewal or restoration but which is spent only for the purpose of preserving or maintaining an already existing asset, and which does not bring a new asset into existence nor does it give to the assessee an advantage of enduring nature. The Bombay High Court did not accept the test laid down by the Allahabad High Court that if the expenditure is petty then it may be claimable as an allowable deduction under s. 10(2)(v) of the Act and if the expenditure was substantial then the deduction cannot be so claimed. On the other hand, it was held that the fair test would be to see as to whether the expenditure was incurred in order to preserve and maintain an existing asset. When the need for repairs arose their Lordships of the Bombay High Court agreed with the decision of the Patna High Court in CIT v. Darbhanga Sugar Co. Ltd. [1956] 29 ITR 21 and of the Madras High Court in CIT v. Sri Rama Sugar Mills Ltd. [1952] 21 ITR 191 and it was pointed out that in the definition given by Buckley L.J., he only considered the expression " repair " while in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... they are not expenditure of capital nature. In Sri Rama Talkies v. CIT [1966] 59 ITR 63 (AP), again a question of expenses incurred by an exhibitor of cinema films in the renovation of the theatre was considered by a Bench of the Andhra Pradesh High Court and the test applied by that court was whether the act actually done is one which in substance is by way of replacement of defective parts or a replacement of the entirety or of the substantial part of the subject-matter. The Andhra Pradesh High Court agreed with the tests laid down by the Calcutta High Court in Human Properties Ltd. v. CIT [1962] 44 ITR 73 (Cal), in relation to the expression " current repairs ". The Andhra Pradesh High Court came to the conclusion that the expenditure incurred by the assessee was not made on necessary repairs which were required for the maintenance of the theatre but were luxury repairs of great magnitude and were carried out for the purposes of giving an enduring advantage to the assessee. Again the famous dictum of Cave L.J. was applied and it was held that the expenditure incurred in obtaining an enduring benefit for the business of the assessee was expenditure of capital nature. In R. B. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of the verandah, office room and bathrooms brought into existence, an advantage of enduring nature and the amount spent for such construction should not be treated as revenue expenditure. Similarly, the replacing of the wooden chairs by steel chairs was also not considered as an expenditure of revenue nature, as it was thought that the replacement was an improvement of enduring nature. However, expenses incurred by the assessee in painting the cinema building was allowed as revenue expenditure. It was held in the aforesaid case that whatever was spent by the assessee for the purposes of forming basis for his private earning machinery would partake of the nature of capital expenditure. In view of the aforesaid decisions, it is difficult to hold that expenditure incurred on the renovation of the picture house, which has been held by the Tribunal to have been spent on carrying out repairs for the upkeep of the picture house, can be considered as " current repairs " within the meaning of cl. (v) of sub-s. (2) of s. 10 of the Act. We, therefore, hold that the assessee is not entitled to claim deduction of the expenditure incurred by him under the head of " current repairs ". But ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... when an expenditure is made, not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade, I think that there is very good reason (in the absence of special circumstances leading to an opposite conclusion) for treating such an expenditure as properly attributable not to revenue but to capital. " The aforesaid test laid down by Lord Cave was approved by their Lordships of the Supreme Court in Assam Bengal Cement Co. Ltd. v. CIT [1955] 27 ITR 34, 43, where Bhagwati J., speaking for the Supreme Court, exhaustively considered the several decisions on the question and approved the following observations made by Mahajan J. in a Full Bench decision of the Lahore High Court in Benarsidas Jagannath, In re [1947] 15 ITR 185 : " It is not easy to define the term 'capital expenditure' in the abstract or to lay down any general and satisfactory test to discriminate between a capital and a revenue expenditure. Nor is it easy to reconcile all the decisions that were cited before us, for, each case has been decided on its peculiar facts. Some broad principles can, however, be deduced from what the learned judges have laid do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s unaffected by it." It was observed by Bhagwati J. in Assam Bengal Cement Co.'s case [1955] 27 ITR 34 (SC) that if the expenditure is made for acquiring or bringing into existence an asset or advantage of enduring benefit to the business of the assessee it is properly attributable to capital and is an expenditure of capital nature if, on the other hand, the expenditure is incurred for running the business or working it with a view to produce profits, then it would be revenue expenditure. His Lordship observed that the aim and object of the expenditure would determine the character thereof. If a new business is acquired or extended or substantially replaced then the outlay made thereon will be in the nature of capital expenditure, but if the expenditure is incurred while the business is going on, not for the purposes of extension of the business or for the substantial replacement of the equipment, but for earning profits, then it is certainly revenue expenditure. The matter again came up for consideration before their Lordships of the Supreme Court in Pingle Industries Ltd. v. CIT [1960] 40 ITR 67 and their Lordships agreed with the law laid down by Bhagwati J. in Assam Bengal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d down in various authorities) is either exhaustive or universal. Each case must depend on its own facts, and a close similarity between one case and another is not enough, because even single significant detail may alter the entire aspect. In deciding such cases, one should avoid the temptation to decide cases ...... by matching the colour of one case against the colour of another." It was also held in the aforesaid case by their Lordships that it is not the law that, in every case, if an enduring advantage is obtained, the expenditure for securing it must be treated as capital expenditure and that is why by Viscount Cave while laying down his dictum inserted the word " in the absence of special circumstances leading to an opposite conclusion " which acknowledge that there can be exceptions to the general rule and in certain cases expenditure made in obtaining an enduring advantage may not be capital expenditure. In Golan Lime Syndicate's case [1966] 59 ITR 718 (SC) it was held that royalty payment, made in connection with a mining lease, was not a direct payment for securing an enduring advantage as it had relation to the raw material to be obtained and as such the payment of r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gents and the managing agents could be got rid of only by paying reasonable compensation. The Tribunal found that the company terminated the services of the managing agents on business considerations. It accepted the plea of the company that, in view of the change in its business activity, the continuance of the managing agents became superfluous. These are findings of fact which are not open to question before this court. In the aforesaid case, the compensation paid for the termination of the services of the managing agents was held to be revenue expenditure, as it was a payment made with a view to save business expenditure in the relevant accounting year as well as in the succeeding years and was not made for acquiring an enduring asset or income yielding asset. In Sassoon J. David and Co. P. Ltd. v. CIT [1979] 118 ITR 261 (SC), Venkataramiah J., speaking for the Supreme court, observed as under (p. 273): " In order to claim deduction under section 10(2)(xv) of the Act, an assessee has to show that the expenditure in question, (i) was not an allowance of the nature described in any of the clauses (i) to (xiv) of section 10(2), (ii) was not in the nature of a capital expendi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring nature, should be considered as capital expenditure and the broad test laid down by Lord Cave has stood the test of time. The observations made by Mahajan J. in Benarsi Das' case [1947] 15 ITR 185 (Lah) [FB] truly enunciates the principles which emerge from the authorities. In cases where the expenditure is made for the initial outlay or for the extension of a business or a substantial replacement of the equipment, there is no doubt that it is capital expenditure. If a capital asset of the business is either acquired or extended or substantially replaced and that outlay, whatever be its source, whether it is drawn from the capital or the income of the concern, is certainly in the nature of a capital expenditure. The question, however, arises for consideration, where an expenditure is incurred while the business is going on and is not incurred either for the extension of the business or for the substantial replacement of its equipment. Such an expenditure can be looked at either from the point of view of what is acquired or from the point of view of what is the source from which the expenditure is incurred. If the expenditure is made for acquiring or bringing into existence an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r capital expenditure. The question has mainly to be viewed in the light of the nature of the business and also from the view-point of an ordinary businessman. If the expenditure is incurred on account of commercial expediency or on the basis of the principles of ordinary commercial trading, then such expenditure should be considered as revenue expenditure. In the present case, the finding of the Tribunal is that the amount of Rs. 85,624 was expended in carrying out repairs for the upkeep of the picture house. The business of the assessee is the showing of cinematograph films and it cannot be denied that the cinema building has to be kept in a presentable condition appropriate for the show business. The amount is said to have been spent on painting, wood panelling and marble flooring. It has not been found by the Tribunal that the marble flooring was being done for the first time. The Tribunal, after examining the details of the expenditure incurred, arrived at a finding that the expenditure was incurred on account of repairs carried out for the upkeep of the picture house and it is not possible for this court to go behind the aforesaid finding of fact recorded by the Tribunal. W ..... X X X X Extracts X X X X X X X X Extracts X X X X
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