1962 (9) TMI 73 - HC - Income Tax

Boat repairs deemed 'current repairs' under Income-tax Act: Rs. 30,000 expenditure allowed as deductible expense

C.R. Corera and Brothers Versus Commissioner of Income-Tax, Madras

C.R. Corera and Brothers Versus Commissioner of Income-Tax, Madras - [1963] 49 ITR 188 Issues Involved:1. Whether the sum of Rs. 30,000 out of the total outlay of Rs. 31,818 on boat No. 95 is allowable as 'current repairs' under section 10(2)(v) of the Income-tax Act.Detailed Analysis:1. Nature of the Expenditure:The primary question was whether the expenditure of Rs. 30,000 on boat No. 95 could be classified as 'current repairs' under section 10(2)(v) of the Income-tax Act. The assessee, a registered firm engaged in lighterage work, claimed this amount as a revenue expense in the assessment year 1955-56. The Income-tax Officer disallowed most of the claim, allowing only Rs. 1,818 as 'current repairs' and treating the remaining Rs. 30,000 as capital expenditure. The officer's decision was based on the significant amount spent and the absence of a reconstruction account to differentiate between the cost of restoring the asset and any additional expenditure.2. Appeal to Appellate Authorities:The assessee appealed to the Appellate Assistant Commissioner, arguing that the expenditure was necessary to restore the boat to its original profit-earning capacity and did not create a new asset. The appellate authority upheld the Income-tax Officer's decision, reasoning that the extensive repairs over 16 months indicated a major reconstruction. A further appeal to the Tribunal also resulted in the disallowance being upheld, with the Tribunal noting that the boat's efficiency and resale value had significantly increased, suggesting a substantial reconstruction.3. Revised Statement of the Case:Upon the assessee's application under section 66(1) of the Act, the High Court found the Tribunal's approach erroneous and called for a revised statement of the case. The Tribunal's revised statement, however, did not conclusively state its findings but implied that the expenditure might fall under section 10(2)(v).4. Examination of Evidence:The High Court examined the evidence, including certificates from the port officer indicating that the boat's essential structure, such as the keel, ribs, mast, and rudder, remained unchanged. The repairs involved replacing rotten planks, caulking, and copper sheathing, necessary to maintain the boat's sea-worthiness. The court noted that the expenditure, though substantial, did not necessarily mean it was capital in nature. The repairs were intended to restore the boat to its original condition without enhancing its capacity or efficiency.5. Relevant Case Law:The court referred to several precedents, including:- Commissioner of Income-tax v. Sri Rama Sugar Mills: Replacement of an old boiler with a new one was considered a repair as it restored the machinery to its original state without enhancing its capacity.- Commissioner of Income-tax v. Ranjit Singh: Surfacing approach roads to a hotel with concrete was allowed as a repair despite the significant expenditure.- Rhodesia Railways Ltd. v. Income-tax Collector: Periodical renewal of railway tracks was considered a repair, not a reconstruction.- New Shorrock Spinning and Manufacturing Co. v. Commissioner of Income-tax: Repairs that preserve and maintain an existing asset without creating a new one were considered allowable.6. Conclusion:The High Court concluded that the expenditure on boat No. 95 was indeed 'current repairs' under section 10(2)(v). The repairs did not create a new asset or enhance the boat's capacity but merely restored it to its original condition. The court emphasized that the magnitude of the expenditure alone could not determine its nature. The question was answered in favor of the assessee, allowing the entire Rs. 30,000 as a deductible expense under 'current repairs.'The assessee was entitled to costs, with counsel's fee set at Rs. 250. The question was answered accordingly.