Pre-commencement repair expenditure is capital in nature and not deductible as current repairs or business expenditure.

Expenditure incurred before the commencement of a business to put cinema premises into a serviceable condition was not allowable as current repairs under section 10(2)(v) or as business expenditure under section 10(2)(xv) of the Income-tax Act, 1922. Current repairs presuppose an existing business and the preservation of an already existing asset, while section 10(2)(xv) applies only to expenditure laid out for a business already in existence. Where the outlay is made before operations begin, it is directed to bringing a serviceable asset into existence and is capital in nature. Only expenditure incurred after commencement of business could be considered separately for allowance.

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Issues: Whether expenditure incurred before the commencement of the business for putting the cinema premises into a serviceable condition was allowable as current repairs or as business expenditure under section 10(2)(v) or section 10(2)(xv) of the Income-tax Act, 1922.

Analysis: The allowance for current repairs under section 10(2)(v) contemplates expenditure incurred in the course of an existing business for preserving or maintaining an already existing asset. Likewise, section 10(2)(xv) applies to expenditure laid out wholly and exclusively for the purpose of a business already in existence. Where the assessee spends money on repairs before the business starts, the expenditure is not incurred in the running of the business but to bring a serviceable asset into existence. On the facts, the cinema business had not commenced until after the repairs were substantially effected, and the items of expenditure incurred before that date could not be treated as current repairs or as revenue expenditure.

Conclusion: Expenditure incurred prior to the commencement of the business was not deductible under section 10(2)(v) or section 10(2)(xv). Only expenditure incurred after the commencement of business could be considered independently for allowance.

Ratio Decidendi: Expenditure incurred before the commencement of an existing business to make premises or assets serviceable is capital in nature and is not allowable as current repairs or as business expenditure under section 10(2)(v) or section 10(2)(xv).

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