1961 (4) TMI 97 - HC - Income Tax

Renovation expenses disallowed as capital expenditure under Income-tax Act

The court concluded that the expenditure of Rs. 2,17,182 claimed as renovation expenses by the assessee company for two cinema houses could not be ... - Issues Involved:1. Whether the sum of Rs. 2,17,182 claimed as an expenditure on renovation was allowable as a deduction in computing the business income of the assessee company under section 10(2)(v) of the Income-tax Act.Detailed Analysis:1. Nature of Expenditure:- The assessee company, engaged in the business of cinema exhibitors, incurred expenses termed as 'renovation expenses' for two cinema houses, Light House and New Empire, amounting to Rs. 2,17,182.- The Income-tax Officer allowed 10% of the claim as current repairs and disallowed the remaining amount. The Appellate Tribunal affirmed this decision, holding that the renovation was not in the nature of current repairs under section 10(2)(v) of the Income-tax Act.2. Interpretation of 'Current Repairs':- The main question was the interpretation of the term 'current repairs' in section 10(2)(v) of the Income-tax Act, which allows deductions for current repairs to buildings, machinery, plant, or furniture.- Various High Courts provided conflicting interpretations:- Allahabad High Court: Interpreted 'current repairs' to mean petty repairs, usually carried out periodically and not involving large sums of money.- Madras High Court: Differentiated between repair and reconstruction, holding that renewal could be seen as repair if it involved only subsidiary parts, but not if it constituted a reconstruction of the entirety.- Punjab High Court: Held that heavy expenditure could still be considered repairs if it was undertaken to remedy several years of wear and tear.- Patna High Court: Interpreted 'current repairs' to mean repairs in the current accounting year, disagreeing with the notion that 'current' meant 'petty.'- Bombay High Court: Emphasized that current repairs should be those attended to as and when the need arises, not allowing repairs to accumulate.3. Findings of Fact:- The assessee company itself disclosed the disputed expenditure under the head 'renovation' and separated it from other expenses classified as 'current repairs.'- The Income-tax Officer found that the primary purpose of the renovation was to make the halls more attractive and comfortable, thus increasing their value and running capacity. Many of the bills represented expenses of a capital nature, such as plumbing, sanitary works, and new electric installations.- Investigations revealed that 90% of the total expenses under the head 'renovation' were of a capital nature, leading to the disallowance of 90% of the renovation expenses as current repairs.4. Legal Interpretation:- The term 'current repairs' should be understood as repairs necessary to maintain the building, machinery, plant, or furniture in their present working condition.- The expression 'current repairs' implies periodicity and necessity, not luxury repairs or those undertaken at the whim of the assessee.- Accumulated repairs do not satisfy the test of 'current repairs' as they can be postponed, indicating no immediate need.5. Judgment:- The court concluded that the expenditure on renovation amounting to Rs. 2,17,182 could not be deducted as current repairs under section 10(2)(v) of the Income-tax Act.- The question was answered in the negative, against the assessee, with no order for costs due to the conflict of decisions.Conclusion:The High Court held that the renovation expenses claimed by the assessee did not qualify as 'current repairs' under section 10(2)(v) of the Income-tax Act. The expenditure was deemed to be of a capital nature, aimed at enhancing the value and functionality of the cinema houses, rather than merely maintaining their existing condition. Consequently, the claimed deduction was disallowed.