1997 (1) TMI 3 - SC - Income Tax

Appeal dismissed: extensive renovation with new machinery, furniture and structural work treated as capital expenditure, not current repair

SC upheld HC's finding that expenditures were capital, not current repairs. The work was a total renovation involving new machinery, furniture, sanitary ... Cinema Theatre - deduction of the amount spent on 'current repairs' to buildings, machinery, plant, furniture, employed in the business - HELD THAT:- If we look at the facts of this case, it will be evident that what the assessee did was not mere repairs but a total renovation of the theatre. New machinery, new furniture, new sanitary fittings and new electrical wiring were installed besides extensively repairing the structure of the building. By no stretch of imagination, can it be said that the said repairs qualify as 'current repairs' within the meaning of section 10(2)(v). It was a case of total renovation and has rightly been held by the High Court to be capital in nature. Indeed, the finding of the High Court is that as against the sum of ₹ 17,000 for which the assessee had purchased the factory in 1937, the expenditure incurred in the relevant accounting year was in the region of ₹ 1,20,000. The appeal accordingly fails and is dismissed. Issues:- Interpretation of the term 'current repairs' under Section 10(2)(v) of the Indian Income-tax Act, 1922.- Determining whether the expenses incurred by the assessee for extensive repairs to a cinema theatre qualify as 'current repairs' for deduction.Analysis:The judgment addresses the interpretation of the term 'current repairs' under Section 10(2)(v) of the Indian Income-tax Act, 1922. The assessee, engaged in the business of exhibiting films, claimed deduction for substantial expenses incurred on repairs to a cinema theatre. The Income-tax Officer and the Appellate Assistant Commissioner considered the expenses as capital expenditure, disallowing the deduction. However, the Tribunal ruled in favor of the assessee, leading to an appeal and subsequent reference to the Bombay High Court. The High Court, relying on the New Shorrock case, held the expenses as non-deductible capital expenditure.The judgment delves into the definition of 'current repairs' as opposed to mere 'repairs' under the Income-tax Act. Referring to the New Shorrock case, it emphasizes that 'current repairs' involve expenditure aimed at preserving or maintaining an existing asset without creating a new asset or advantage. The commercial expediency test is crucial in determining the necessity of repairs. The judgment highlights the dissenting views of different High Courts on the scope of 'current repairs,' with the Bombay High Court's interpretation prevailing.The judgment underscores that expenses leading to the creation of a new asset or enduring advantage do not qualify as 'current repairs' under Section 10(2)(v). By applying the test laid down in the New Shorrock case, the court concludes that the extensive repairs undertaken by the assessee, including installation of new machinery and furniture, do not constitute 'current repairs.' The renovation of the theatre was deemed a capital expenditure rather than a revenue expenditure, as it transformed the asset significantly beyond mere maintenance.In conclusion, the court dismisses the appeal, upholding the High Court's decision that the expenses incurred by the assessee for renovating the theatre do not fall under the category of 'current repairs' eligible for deduction. The judgment emphasizes the distinction between revenue and capital expenditure, highlighting the importance of preserving existing assets without creating new advantages to qualify as 'current repairs' under the Income-tax Act.