TaxTMI 
TaxTMI 
1973 (7) TMI 23
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....aid business assets. The business of manufacturing matches was stopped from Samvat year 2009 and the godowns once used for that business were let out to different people and rent was received therefrom by letting out the same. Some time prior to Samvat year 2011 the machinery once used for the manufacture of matches was dismantled, collected together and stored in a part of the factory shed. In Samvat year 2011 the Food and Agriculture Ministry, Government of India, took a portion of the factory sheds on lease from January 7, 1955, on a monthly rent of Rs. 1,763. In Samvat year 2011 the assessee received approximately Rs. 12,341 as rents from the Food and Agriculture Ministry in respect of Kurla godowns and sheds property and also received storage charges of Rs. 11,792 from other persons who had stored their goods in other parts of these buildings. The assessee incurred a sum of Rs. 29,356 for certain repairs during this assessment year. As the present reference is not concerned with the assessment year 1957-58, it is unnecessary to refer to the income derived by the assessee during Samvat year 2012. From March 18, 1957, most of the godowns (but not all the floor area) were leased ....
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....ration or improvement or both. Rather than going into the details of the quantum of the amount spent on revenue account or on capital account, it took into account the amounts spent by way of expenditure for repairs during the other years and for Samvat year 2011 it allowed 30% of the receipts of Rs. 24,133 and for Samvat year 2013 it allowed 20% of the receipts of Rs. 58,178 as revenue expenditure. The rest of the amount claimed was treated as being one of a capital nature and no deduction in respect thereof was allowed. As upon an application by the assessee the Tribunal declined to refer the case to the High Court, it made an application to this court in which this court directed the above question to be referred by the Tribunal for our determination. Mr. Kolah on behalf of the assessee contended that the Tribunal was in error in taking the view that only a part of the expenses incurred for repairs during Samvat year 2011 and Samvat year 2013 was of a revenue nature. His admission was that the entire amount spent for repairs was of a revenue nature and that the Appellate Assistant Commissioner was right in allowing the claim in toto and the Tribunal was in error in reducing i....
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.... subsisted during the time when a part of the property was rented out to the Food and Agriculture Ministry in Samvat year 2011 and to Messrs. Mahindra and Mahinda Ltd. during Samvat year 2013. While the property was being occupied by the Food and Agriculture Ministry, more than one letter was written requesting the assessee to carry out the repairs. On February 3, 1955, the Regional Director (Food) wrote to the assessee informing it that at the time of taking over the godown it had promised to repair the godown with dammer and make the roof rain proof ; that the said repairs were not carried out till then ; that it was used for storage of food grains by the Government and that in the event of even mild rain the food grains were liable to damage and damages will be claimed from the assessee. Similar reminders were sent on February 15, 16 and April 25, 1955. It is not disputed in the present case that in Samvat year 2011, the assessee incurred a sum of Rs. 29,356 for carrying out repairs. The Income-tax Officer disallowed this claim, because he was of the view that the expenses so incurred were of a capital nature. According to him temporary roofs had been replaced by concrete roofs ....
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....sited as security with the joint lessors by the lessees as aforesaid. (b) The joint Lessors shall carry out at their cost all the heavy and major repairs including plumbing work and any repairs to the roof and repairs to all drains, sewers and gutters on and loading from the demised premises required to be carried out to the demised premises, provided that the Lessees shall have given reasonable notice in writing requiring the joint lessors to carry out such repairs. The cost of such repairs shall be borne by the joint lessors in proportion to their respective shares in the demised premises and in the event of one or the other co-lessors being required to defray more amount, he or they will be entitled to recover such excess from the other co-lessors as the case may be and the same will be deducted by the lessees from the rent payable to such other co-lessors and paid to the co-lessors defraying such excess." The repairs to be carried out by the lessors are described in the second schedule which is as under : "1. Roof of shed D to be completely removed and asbestos cement sheets roof to be installed. 2. Roof of shed F to be completely repaired (including damaged sheets ....
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....ed that by no stretch of imagination the expenditure on these items could be said to be capital in nature. As regards the remaining items in the schedule, there is no precise or detailed findings, but there is a passing observation to the effect : " There may be some force in the contention of the department as far as the removal of corrugated sheets from the roofs and their replacement by asbestos cement sheets and construction of weather sheds is concerned." According to the Tribunal this expenditure prima facie is of a capital nature being in the nature of alteration or improvement or both. Without precisely finding which of the items in the second schedule can be regarded as repairs of a capital nature and which of them can be regarded as repairs of a revenue nature, it tried to apportion the expenses on repairs. It did not think it necessary to go into the exact amount spent for every item, but looking to the percentage of amounts spent by way of repairs in the other years it took the view that 30% of the receipts of Rs. 24,133 for Samvat year 2011 and 20% of Rs. 58,178 for Samvat year 2013 should be allowed as revenue expenditure. The rest of the items claimed were not per....
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....ed in section 10(2)(v), therefore, means expenditure on buildings, machinery, plant or furniture which is not for the purpose of renewal or restoration, which is only for the purpose of preserving or maintaining an already existing asset which does not bring a new asset into existence or does not give to the assessee a new or different advantage, and they must be repairs which are attended to as and when the need for them arises. The question as to when a building, machinery, plant or furniture requires repairs and when the need arises must be decided by not any academic or theoretical test but must be decided by the test of commercial expediency. It is for a businessman primarily to decide when his building, machinery, plant or furniture requires repairs and it is by that test alone that the question must be decided as to whether the repairs are current repairs or repairs which have fallen into arrears or have been accumulated over a period of time and then expenditure has been incurred in carrying out those repairs. On the facts of this case the High Court took the view that the expenditure was incurred for current repairs with a view to preserve and maintain the asset, even thou....
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....epairs and can be held not to be a capital expenditure even though the expenditure in a particular year is heavy on account of the fact that it is undertaken to remedy the effect of several years of wear and tear or neglect and also in spite of the fact that such expenditure may not be necessary for several years to come after the repairs have been effected. See Commissioner of Income-tax v. S. B. Ranjit Singh. In this case an expenditure amounting to Rs. 24,904 incurred by the assessee in resurfacing with concrete the approach roads fallen into a bad state was allowed as a permissible deduction. A similar view is taken by the Nagpur High Court in R. B. Bansilal Abirchand Spinning and Weaving Mills v. Commissioner of Income-tax. Mr. Kolah relied upon two unreported decisions of this court in the case of Commissioner of Income-tax v. David Mills Ltd. (Income-tax Reference No. 17of 1950, decided by Chagla C.J. and Tendolkar J. on October 10, 1950) and Mevor Mills Ltd. v. Commissioner of Income-tax (Income-tax Reference No. 36 of 1950 decided by the same Bench on March 30, 1951). The judgments in these two cases are to be found at pages 46 and 81 of the volume entitled Unreported I....
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....reconstruction and not of repair. Their Lordships of the Privy Council took the view that the sum so expended was an outgoing not of a capital nature and was expended for the repairs of property occupied for the purpose of trade, and as such was rightly deductible from the income assessable to income-tax. Their Lordships of the Privy Council referred to the observations of Buckley L.J. in Lurcott v. Wakeley and Wheeler : " ' Repair ' and ' renew ' are not words expressive of a clear contrast and " Repair is restoration by renewal or replacement of subsidiary parts of a whole. Renewal, as distinguished from repair, is reconstruction of the entirety, meaning by the entirety not necessarily the whole but substantially the whole subject-matter under discussion." It is pointed out by their Lordships in this case that the periodical renewal by sections of the rails and sleepers of railway line as they were worn out by use is in no sense a reconstruction of the whole railway and is an ordinary incident of railway administration. The fact that the wear although continuous is not and cannot be made good annually does not render the work of renewal when it comes to be effected ne....
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....way's case it was not even open to dispute that, apart from the weight of the new rails that were substituted, steel rails were automatically costlier than the iron rails. We have pointed out earlier that there is no material to indicate that asbestos cement sheets are costlier than corrugated iron sheets. So far as corrosion is concerned, it may be said that they are likely to be less corrosive when compared to corrugated iron sheets, but at the same time they are brittle and are likely to break in case any heavy article falls over them. When such is the position, it is difficult to see how by substituting worn out corrugated iron sheets by asbestos cement sheets a new and fresh advantage or a material alteration or an improvement is effected in the corpus of the property. It will not be out of place to refer to a decision of the Allahabad High Court in Kanpur Agencies Private Ltd. v. Commissioner of Income-tax. The question that arose for consideration in this case was whether the repairs in the shape of putting up flush-out latrines for manual latrines, and putting up cement concrete roofs for tiled roofs are repairs of a revenue nature or of a capital nature. The Allahabad H....