1955 (9) TMI 58 - HC - Income Tax

Court allows deduction for machinery repairs under Income-tax Act

The High Court ruled in favor of the assessee, allowing the deduction of Rs. 17,256 spent on machinery repairs under Section 10(2)(v) of the Indian ... - Issues Involved:1. Deduction of expenditure on machinery repairs under Section 10(2)(v) of the Indian Income-tax Act, 1922.2. Interpretation of the terms 'current repairs' and 'repair' under Section 10(2)(v).Detailed Analysis:1. Deduction of Expenditure on Machinery Repairs under Section 10(2)(v):The primary issue was whether the sum of Rs. 17,256 spent by the assessee on machinery repairs could be deducted from taxable income under Section 10(2)(v) of the Indian Income-tax Act, 1922. The assessee argued that the expenditure was necessary due to fair wear and tear and involved replacing parts of a locomotive, rollers, and a sublimer. The Income-tax Officer initially disallowed the deduction, but the Income-tax Appellate Tribunal allowed it, leading to the formulation of the question of law for the High Court's opinion.The High Court held that the expenditure on machinery repairs should be deducted in computing the assessable profits of the assessee. The Tribunal found that the parts replaced were a small fraction of the entire machinery's cost and did not enhance its value or change its identity. The Tribunal's decision was based on the principle that the replacement of worn-out parts due to ordinary use constitutes repairs and falls within the scope of Section 10(2)(v).2. Interpretation of the Terms 'Current Repairs' and 'Repair' under Section 10(2)(v):The High Court examined the meaning of 'current repairs' and 'repair' in the context of Section 10(2)(v). The term 'repair' was interpreted to mean 'restoration by renewal or replacement of subsidiary parts of a whole,' as opposed to the replacement of the entire machinery or a substantial part of it. The Court referenced the English case Lurcott v. Wakely and Wheeler, which distinguished between repair and renewal, emphasizing that repair involves the renewal of subordinate parts, not the whole subject-matter.The Court also discussed the term 'current,' concluding that it refers to repairs in the current accounting year, distinguishing it from past or arrear repairs. The interpretation was supported by the etymological and lexicographic meanings of the word 'current.'The Court disagreed with the view taken by the Allahabad High Court in Ramkishan Sunderlal v. Commissioner of Income-tax, U.P., which interpreted 'current repairs' to mean 'petty recurring expenditure.' The High Court found no basis in Section 10(2)(v) to restrict the term 'current' to petty repairs and emphasized that the magnitude of the expenditure is not a determining factor.The decision cited various cases, including Rhodesia Railways Ltd. v. Income-tax Collector, Bechuanaland, which supported the view that periodic renewal of parts due to wear and tear is an ordinary incident of business and does not constitute a capital charge. The Court also referred to the case of Samuel Jones & Co. Ltd. v. Commissioners of Inland Revenue, which distinguished between integral parts of machinery and independent entities.The High Court concluded that the expenditure of Rs. 17,256 on machinery repairs was allowable under Section 10(2)(v) as it involved the replacement of worn-out parts, which did not enhance the machinery's value or change its identity.Conclusion:The High Court answered the question in favor of the assessee, affirming that the expenditure on machinery repairs was deductible under Section 10(2)(v) of the Indian Income-tax Act, 1922. The Income-tax Department was directed to pay the costs of the reference, with a hearing fee of Rs. 250.