1981 PLP (Trib (PTD)

In the later part of his order, the Income‑tax Officer has allowed initial depreciation at 15% and normal depreciation at 5% totalling Rs. 7,898, in respect of the aforesaid 'capital expenditure'. The assessee assailed the order of the Income‑tax Officer by filing an appeal before the learned Appellate Assistant Commissioner. His contention before him was that ceiling of the show‑room was so dilapidated that the same had to be replaced by a new‑one. Similarly, some wails bad to be repaired extensively. The assessee claimed it as an expense in the nature of current repairs. The learned Appellate Assistant Commissioner repelled this contention stating that the said expense of Rs. 39,438, bad in fact raised the value of toe show‑room and accordingly the expense was of capital nature. Consequently, he maintained the add-back made by the Income‑tax Officer.

2. Making his submission, the learned counsel for the appellant reiterated the same contentions before us which were made before the first appellate authority. He submitted that the full details of the expenditure were available with the assessee and could be placed before the Officers below for their perusal. In support of his contention that the expenses incurred on repairs which were of the nature of 'current repairs' were admissible for allowance under section 10(2)(v) of the Act, the counsel relied upon the reported decisions, i. e. 1968 P T D 523; (1979) 40 Taxation 1 and (1973) 97 I T R 24; besides, an unreported order of the. Appellate Tribunal in I. T. R. Nos. 3040 and 3041 of 1968‑69 dated 27‑10‑1970.

3. The facts of the first above‑mentioned case C. I.‑T. v. Gulistan Cinema Company, Dacca (1968 P T D 523), were that the assessee which derived income from the exhibition of films, had claimed a sum of Rs. 34,000, towards the cost of repair out of which the, I.‑T. O. disallowed the sum of, Re. 20,

803. This amount was made up of Rs. 9,240, spent for oil painting the walls of the Hall, and Rs. 11,563, incurred on account of mosaic flooring of the cinema ball. The assessee was a tenant but he could not produce any agreement to the effect that it was its duty to undertake the repairs. Consequently, the provisions of clause (ii) of subsection (2) of section 10 were held to be in applicable. On appeal, the Appellate Assistant Commissioner allowed as an admissible expense, the amount of Rs. 9,240, but disallowed the sum of Rs. 11,563, which as spent on mosaic flooring, on the ground that it was an expenditure of capital nature. On further appeal, the Appellate Tribunal allowed the deduction in respect of the remaining sum of Rs. 11,563, also, holding that such an amount fell within the expression of 'current repairs' as contemplated in section 10(2)(v) of the Income‑tax Act. In the alternative it also observed that the deduction would be allowable under section 10(2)(xvi) of the Act. On a reference the Dacca High Court upheld the view of the Appellate Tribunal that mosaic flooring was a 'current repair' within the meaning of clause (v) of subsection (2) of section 10 of the Act. In that case, it is pertinent to rote, reliance was placed on behalf of the revenue on a case reported as (1962) 44 1 T R 73, for the submission that converting a floor of white cement into a mosaic floor is a construction or a reconstruction and that neither renovation nor repairs came within the expression 'current repairs'. Their Lordships of the Dacca High Court, relying on a decision reported in (1956) 30 I T R 338 wherein Chagla, C. J. delivering judgment of the Court, took the view that changing of a loom after 60 years would still be a 'current repair' for the loom was a machinery used for the purpose of business and it was repaired when such a need arose held that the Tribunal was right in allowing deduction under section 10(2)(v) of the Act. In this connection, their Lordships observed as under :‑ "It cannot be denied that whitewashing of building or even repairing/oil painting of a wall would be a current repair, for it is done at quick intervals. In the case of mosaic the interval would be a little longer and on the facts found by the Tribunal, it is clear that even mosaic flooring is trot immune from decay and that it also requires repairs after an interval of years."

4. In the case of C. L.T. v. Oxford University Press ((1979) 40 Taxation I), the Bombay High Court while considering the question whether the expenditure of Re. 59,000, incurred by the assessee who was the owner of the building for guniting work (an improved method of plastering and repairing work) and Architect fee of Re. 3,680, in connection therewith were allowable as 'current repairs', held that since the expenditure was incurred only with a view to preserve and maintain the existing asset, it will have to be recorded as allowable deduction. Repelling the contention of the counsel for the revenue that admittedly the effect of repairing work had prolonged the life of the building by at least 15 years and if that, was so it should be held that new advantage of enduring character had been obtained by the assessee by undertaking guniting work. Their Lordships made the following observations:‑ "It would be pertinent to observe that every type of repair carried out to an asset like a building is bound to extent to a certain extent the life of the asset and simply because the assessee's architect claimed that because of the repairs the life of the building had prolonged for at least 15 years, it cannot be said that the expenditure was in the nature of capital expenditure."

5. The question that fell for consideration in the case reported in (1974) 97 I T R 24 was whether the expenses incurred in the removal of garbage from the roof and their replacement by asbestos cement sheets and construction of metal sheets were of capital nature. It was held by the Appellate Tribunal as well as the two Officers below in that case that the expenditure was prima facie, of capital nature being in the nature of alternation of improvement or both. The Bombay High Court, however, upon reference held as under, which is reproduced from the head notes " The expression 'repair' must be understood in-contradistinction to renewal or restoration. The test is to be applied is to see whether as a result of the expenditure what is being done is to preserve and maintain an already existing asset. If the amount is spent for the purpose of bringing into existence a new asset or obtaining a new advantage then such an expenditure would not be revenue expenditure. The more quantum of expenditure is not be itself be decisive of the question whether it is of the nature ref revenue or capital. A sum can be allowed as cost of repairs 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 repairs have been effected.

6. There can be no denying the fact that in the instant case the building which was extensively repaired, was being used for the purposes of assessee's business. It has not been denied by any of the two Officers below that the roof of the building had decayed, or that the wails of the premise, actually needed extensive repairs. It is by now too well established a proposition of law that the volume of expenditure on repairs cannot be determining factor of the nature of expenses. It which is only the nature of repairs that would indicate whether it falls within the ambit of the expression 'current repairs' or not. The authorities cited above clearly lend support to the case of the appellant. And in the facts and circumstances of this case, we find it difficult to uphold the view taken by the two authorities, which is in every case of degree and the test is whether the act to be done is one in substance is the renewal replacement of a defective part, or the renewal or replacement substantially the whole (see 1973 A C 368). Or to put it differently repair is restoration or replacement of a portion of the whole whereas renewal is the reconstruction of the whole.

7. For the foregoing reasons, we would hold that both the Officers below have acted wrongly in adding back the entire expenditure of Rs. 39,

438. It shall now be allowed in full. Consequently, the initial and normal depreciation is the total sum of Rs. 7,898, allowed by the I.‑T. O. treating the sum of Rs. 39,438, as a capital expenditure shall stand knocked off. Appeal allowed.