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Income‑tax Reference No. 82 of 1956, decided on 5th April 1961.
Income‑tax Act (XI of 1922) S. 10 (2) (v)‑"Current repairs" ‑Meaning‑Cinema houses‑Expenses for renovation involving capital expenditure‑Whether allowable,
The assessee company, which carried on business as cinema exhibitors, was the owner of two cinema houses. During the accounting year ending September 30, 1949, in addition to spending the sum of Rs. 81,799 under the separate head of account of repairs the assessee incurred expenses amounting to Rs. 2,41,312 which it termed renovation expenses. The assessee claimed that owing to dearth of materials during the war years it was unable then to execute the necessary repairs to the machinery, building and furniture of the cinema houses and spent in the accounting year the sum of Rs. 2,41,312 in renovating them. On enquiry the Income‑tax Officer found that the primary purpose of the renovation was to make the halls more attractive and comfortable to the public and therefore designed to increase their value and running capacity and that the bulk of the amount of renovation expenses was expenditure of a capital nature e.g., for replace ment of furniture and sanitary fittings and new electrical instal lations. He, therefore, allowed only 10% of the renovation expenses and treated 90% as capitalised expenses. The question was whether the balance of 90% of the renovation expenses amount ing to Rs. 2,17,182 was allowable under section 10(2)(v) of the Indian Income‑tax Act, 1922, as expenditure for " current repairs":
Held, on the facts, that the sum of Rs. 2,17,182 was not allowable under section 10 (2) (v) as expenditure for "current repairs".
Per Mukharji J.‑Only such repairs can be current repairs which have periodicity implicit in the word "current". "Current repairs" include repairs for ordinary wear and tear. Current repairs are necessary repairs and which are needed for the mainte nance of the building, machinery, plant or furniture mentioned in section 10(2)(v) of the Income‑tax Act. The term "current repairs", in its ordinary acceptation, means not luxury repair or repairs which wait upon the whims or choice of the assessee. The element of need is implicit in the expression "current repairs". "Current repairs" must be those that are needed periodically and from that point of view accumulation of repairs will not ordinarily satisfy that test.
Per Bose J.‑The idea which is latent in the expression "current repairs" is the characteristic of re-currency and the expression has reference to repairs effected with the object of maintaining and preserving the existing asset and restoring them to their original condition when they have deteriorated as a result of wear and tear. But when the expenditure is incurred to bring into existence a new asset or an advantage of an enduring nature, it cannot be regarded as an expenditure incurred in current repairs. The word "asset" is an elusive expression and it is difficult to draw a line where an existing asset becomes a new asset as a result of expenditure incurred for its restoration. The test depends on the degree of improvement brought about and the change effected in the identity of the existing asset as a result of the expenditure incurred. Again, to make the repair a "current repair" the need for such repair must have arisen;
Held also, per Bose J.‑(i) that although the question as framed by the Tribunal was of a general nature its scope was limited in this case to the consideration of the aspect whether the renovation was "current repairs" or not ;
(ii) that the High Court was not restricted to what was stated in the statement of the case but was entitled to look into the orders of the Income‑tax Officer and the Appellate Assistant Commissioner which were required by the rules of the High Court to be made part of the paper book in the reference.
Bansilal Abirchand Spinning & Weaving Mills v. Commissioner of Income‑tax (1957) 31I T R 427 (Nag.); Bullcroft Main Collieries Ltd. v. O'Grady (1932) 17 Tax Cas. 93 (K. B.); Commissioner of Income- tax v. Darbhanga Sugar Co. Ltd. (1956) 29 I T R 21 ; Commis sioner of Income‑tax v. Ranjit Singh (1955) 28 I T R 14 (Punj.) ; Commissioner of Income‑tax v. Sheikhupura Transport Co. Ltd. (1961) 41 I T R 336 (Punj.) ; Commissioner of Income‑tax and Excess Profits Tax v. Sree Rama Sugar Mills Ltd. (1952) 21 I T R 191 ; In re Gregory (G. T. M.) & Co. (1937) 5 I T R 12 ; Grey v. Woodhouse (1927) 1 Ch. 242 ; Highland Railway Co. v. Balderston (1889) 2 Tax Cas. 485 ; Indian Molasses Co. (P.) Ltd. v. Commis sioner of Income‑tax (1959) 37 I T R 66 ; Jackson v. Laskers Home Furnishers Ltd. (1957) 1 W L R 69 ; Kusumben D Mahadevia v. Commissioner of Income‑tax (1960) 39 I T R 540 ; Law Shipping Co. Ltd. v. Commissioners of Inland Revenue (1923) 12 Tax Cas. 621 ; Lurcott v. Wakely and Wheeler (1911) 1 K B 905 (C. A.) ; Mann Crossman and Paulin Ltd. v. Compton (1947) 28 Tax Cas. 410 (K. B.) ; New Jehangir Vakil Mills Ltd. v. Commissioner of Income‑tax (1959) 37 I T R 11 ; New Shorrock Spinning & Manu facturing Co. Ltd. v. Commissioner of Income‑tax (1956) 30 I T R 338 ; Philips v. Whieldon Sanitary Potteries Ltd. (1952) 33 Tax Cas. 213 (K. B.) ; Ramkishan Sunderlal v. Commissioner of Income‑tax (1951) 19 I T R 324 (All.) ; Rhodesia Railways Ltd. v. Income‑tax Collector Bechuanaland (1933) A C 368 and Samuel Jones & Co. (Devonvale) Ltd. v. Commissioners of Inland Revenue (1951) 32 Tax Cas. 513 ref.
By this application, presented on August 13, 1956, the appli cant requires the Appellate Tribunal to refer, to the High Court certain questions of law which are said to arise out of the Appellate Tribunal order dated June 5; 1956, in I. T. A. No. 4750 of 1955‑56. Inasmuch as, in our opinion, a question of law does arise out of the aforesaid order, we hereby draw up a statement of the case aid refer it to the High Court of Judicature at Calcutta under section 66 (1) of the Income‑tax Act.
2. The assessee is a company carrying on the business of cinema exhibitors. Amongst other houses, it was the owner of the two show houses, the Light House and the New Empire. The year of account was the year ending on September 30, 1949. During this year of account the assessee incurred certain expenses which it termed as renovation expenses. Under, the Head New Empire renovation the expenses amounted to Rs. 91,994 and under the head Light House renovation the expenses amounted to Rs. 1,49,318. . The Income‑tax Officer allowed 10% of the claim as current repairs while disallowing Rs. 82,796 for New Empire renovation and Rs. 1,34,386 as Light House renovation. Thus the disallowed expenses aggregated to Rs. 2,17,182. A summary of the expenses of the New Empire renovation and Light House renovation are made part of this case and are Annexures "A" and "A‑1." Apart from the renovation expenses the assessee also incurred expenses under the head repairs amounting to Rs. 17,748. The income‑tax department allowed the claim of repairs for the last amount while disallowing the claim of Rs. 2,17,182 (not Rs. 2,18,182 as given in the order of the Income‑tax Officer) as the amount was not incurred for the current repairs.
3. Upholding the decision of the department the Tribunal held that renovation was not in the nature of repairs as envisaged under section 10(2) (v). Following the decision in the case of Ramkishan Sunderlal v. Commissioner of Income‑tax ((1951) 19 I T R 324 (All.)), it held that repair was qualified by the word "current" and only the current repairs for the business could be allowed under the said subsection. The Tribunal found that the assessee company was unable to execute substantial repairs for dearth of materials during the war and as a result after several years the assessee renovated the furniture and buildings and rightly wrote of the amount under renovation. Copy of the Tribunal's order is made a part of the case and is Annexure "B".
4. From the above facts and circumstances the following question of law arises;
"Whether on the facts and circumstances of this case, the sum of Rs. 2,17,182 claimed as an expenditure on renovation was allowable as a deduction in computing the business income of the assessee company "
5. Draft copies of the statement were sent to the parties concerned. The suggestions of the assessee have been appro priately incorporated. The Commissioner of Income‑tax has no
suggestion.
This income‑tax reference under section 66(1) of the Income‑tax Act raises the following question of law for decision;
"Whether, on the facts and circumstances of the case, the sum of Rs. 2,17,182 claimed as an expenditure on renovation was allowable as a deduction in computing the business income of the assessee company "
The facts briefly are as follows : The assessee company, Human un Properties Ltd., carries on business of cinema exhibi tors. Amongst other houses, it is the owner of the two well- known show houses in Calcutta, called the Light House and the New Empire. The accounting year ended on September 30, 1949. During that year of account the assessee incurred certain expenses which it called as "renovation expenses". Under the head "New Empire renovation", the expenditure amounted to Rs. 91,994‑10‑9 and under the head "Light House renovation" the expenditure amounted to Rs. 1,48,318. The Income‑tax Officer allowed 10% of the claim as current repairs and disallowed Its. 82,796 for New Empire renovation and also disallowed Rs. 1,34,386 as Light House renovation. The total of these disallowed renovation expenditure amounted to Rs. 2,17,182. The Appellate Assistant Commissioner upheld the Income‑tax Officer's disallowance of Rs. 2,17,182. The Tribunal also affirmed the decision holding that the renovation was not in the nature of current repairs within the meaning of section 10(2)(v) of the Income‑tax Act.
The Appellate Tribunal expressly states that the only question before them was whether renovation was current repair and whether in part it can be allowed as current repairs. It referred to the decision of Ramkishan Sunderlal v. Commissioner of Income‑tax ((1951) 19 I T R 324 (All.)), a decision of the Allahabad High Court of Mallik, C. J., and Bhargava J., and the Madras decision of Satyanarayana Rao J. and Raghava Rao J. in Commissioner of Income‑tax v. Sree Rama Sugar Mills Ltd. ((1952) 21 I T R 191 (Mad.)).
The main question on this reference is the interpretation of the words "current repairs" in section 10(2)(v) of the Income -tax Act which reads as follows;
"Such profits or gains shall be computed after making the following allowances, namely;
In respect of current repairs' to such buildings, machinery, plant or furniture, the amount paid on account thereof."
As usual there are a number of conflicting decisions on the meaning and interpretation of the expression "current repairs." A brief review of them is both inevitable and essential. The first decision is that of the Allahabad High Court in Ramkishen Sunderlal v. Commissioner of Income‑tax, a decision of the Division Bench of Mallick C. J. and Bhargava J. It quotes the well‑known observations of Buckley L. J. in Lurcott v. Wakely and Wheeler ((1911) 1 K B 905 at 923‑4 (C. A.)), where it is said that the words "repair" and "renew" are not words of clear contrast, for repair always involves renewal and repair may be restoration by renewal or replacement of subsidiary parts of a whole, and where renewal, as distinguished from repair, is said to be reconstruction of the entirety, meaning by the word "entirety" not necessarily the whole but substantially the whole subject‑matter. The Allahabad High Court in Ram Kishen's case ((1951) 19 I T R 324, 328 (All.)) observed;
"In the Indian Income‑tax Act the word repair' is further qualified by the word current' which would further restrict its meaning to petty repairs, usually carried out periodically and will not include repair or renewal costing a large sum of money which has to be spent after a machine has been run for a number of years."
The next case is of the Madras High Court in Commissioner of Income‑tax v. Sree Rama Sugar Mills Ltd. ((1952) 21 I T R 191 (Mad.)), a decision of a Division Bench of Satyanarayana Rao and Raghava Rao JJ.
There in that case Satyanarayana Rao J. observed at page 197 as follows;
"Renewal is a repair if it is only restoration by renewal or replacement of, subsidiary parts of a whole if, on the other hand, it amounts to a reconstruction of the entirety or of substantially the whole of the subject‑matter it is not a repair but a reconstruction. The test, therefore, which decides the question whether a thing is a repair or not is to see whether the act actually done is one which in substance is a replacement of defective parts or a replacement of the entirety or a sub stantial part of the subject‑matter."
The same learned Judge then proceeded to analyse the well- known decisions of the Judicial Committee in Rhodesia Railways Ltd. v. Income‑tax Collector, Bechuanaland ((1933) 1 I T R 227 (P.C.)), and Highland Railway Co. v. Balderston ((1889) 2 Tax Cas. 425 (Exch.)), and also the decision of Rowlatt J. in Bullcroft Main Collieries Ltd. v. O'Grady ((1932) 17 Tax Cas. 93 (K.B.)), and then disagreed with the view of the Allahabad High Court by holding at page 202 of the report;
"The dictionary meaning of the word current' is not petty, but it means belonging to the present time, prevailing', and with great respect to the learned Judges, it is difficult to accept such a restricted construction of the expression current repair' in the clause."
Raghava Rao J., who delivered a separate judgment in that case, expressed the view that the replacement of the old boiler by the new boiler was a case of repair but was not current repair within the meaning of section 10(2)(v) of the Income‑tax Act.
The next case is of the Punjab High Court in Commissioner of Income‑tax v. Ranjit Singh ((1955) 28 I T R 14 (Punj.)), a decision of a Division Bench of Bhandari, C. J. and Falshaw J. This was also a hotel repair case. This case, however, as pointed out by Falshaw J., shows that a sum can be allowed as the cost of repairs and can be held at the same time not to be a capital expenditure in spite of the fact that the expenditure in a particular year happened to be specially heavy on account of the fact that it was undertaken to remedy the effect of several years of wear and tear or neglect and also in spite of the fact that such expenditure might not be necessary for some time to come after the repairs have been effected. But at page 22 of the report Falshaw J., dealing with the Allahabad decision construing "current repairs" as "petty repairs", observed as follows (1955) 28 I T R 14, 22 (Punj) .
"I am not at all sure that I entirely agree with this view if it means that the only test is that a particular item of expendi ture must be one which is constantly recurring and not one which may only recur after a few years and it seems to me that other factors must also be taken into consideration."
The next case is the decision of the Patna High Court in Commissioner of Income‑tax v. Darbhanga Sugar Co. Ltd. ((1956) 29 I T R 21 (Pat.)), a decision of a Division Bench of Ramaswami and Imam JJ. According to this authority the expression "current repairs" in section 10(2) (v) of the Income‑tax Act means repairs in the current accounting year, It disagreed with the Allahabad view that "current" meant "petty". It also disagreed with the view taken by Raghava Rao J. in the Madras case, that "current repairs" meant expenditure on repairs of the plant and machinery in a running condition and if the repair was effected after the machinery or the plant came to a standstill, they could not be regarded as "current repairs". Ramaswami J., delivering the judgment of that Division Bench at page 28, observed;
"I, therefore, think that the expression current repairs to machinery' which occurs in section 10(2)(v) must be interpreted to mean repairs to machinery in the current accounting year. In other words, current' is used in contradistinction to past or arrear repairs."
The next decision is of the Bombay High Court in New Shorrock Spinning and Manufacturing Co. Ltd. v. Commissioner of Income‑tax ((1956) 30 I T R 338 (Bom.)), a decision of the Division Bench of Chagla C. J. and Tendolkar J. This decision followed the Patna and the Madras decisions but dissented from the Allahabad decision. It holds that the expression "repairs" in this section 10(2)(v) must be understood in contradistinction to renewal or restoration. Chagla C. J., observed as follows at page 3 44 of the report;
"The definition of repair' really does not create much difficulty, but the difficulty is created by the adjective which qualifies the expression repairs', and that adjective is current', and as already pointed out, the legislature did not intend that the assessed should be permitted all repairs, even though the expenditure may be a revenue expenditure, as a permissible deduction under section 10(2)(v).
"What we have to consider is in what way has the legislature circumscribed the expression repairs' and to what extent has the legislature limited the right of the assessee to claim deduction in respect of repairs. One or two views are possible of the expression current'. It may be said that current' is used in contradistinction to heavy and that small petty repairs are the only repairs which can fall within the ambit of section 10 (2) (v).
"The other view is a view more in fitting with the etymol ogical meaning of the expression current' and it is that they are such repairs which are attended to when the need for them arises and are not allowed to fall into arrears to be accumulated. If a building, machinery, plant or furniture needs some repairs and those repairs are attended to as and when the need arises then the repairs are current repairs.
"But if the assessed, although the need has arisen, does not attend to that need and allows the repairs to get accumulated, then it could not be said that when he is expending money on these repairs he is expending them on current repairs.
Again, it seems to have been the intention of the legislature, that if the assessed could carry on with his building, machinery, plant or furniture without attending to its repairs and spends an amount at a later date when the arrears are accumulated, such expenditure partakes more of the nature of capital expenditure than of revenue expenditure."
In the same case the learned Chief Justice of the Bombay High Court proceeds to observe at page 345 of the report further (1956) 30 I T R 338, 345 (Bom.)
"In our opinion, therefore, the expression current repairs' used in section 10(2)(v) 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 assessed a new or different advantage, and they must be repairs which are attended to as and when the need for them arises."
The last of the Indian cases is of the Nagpur High Court in Bansilal Abirchand Spinning and Weaving Mills v. Commissioner of Income‑tax ((1957) 31 I T R 427 (Nag.)), a decision of the Division Bench of V. R. Sen and G. P. Bhutt JJ. That authority also considers the question of interpretation of the words, "current repairs" in section 10(2)(v) of the Income‑tax Act. It comes to the following conclusion ((1957) 31 I T R 427, 432).
"The term repairs' has to be understood to contradistinction to reconstruction. When the existing asset is only maintained or preserved, the case is one of repairs and not reconstruction . . . . The question of the amount of expenditure does not count in such cases, for that does not change the nature of the expenditure. In Commissioner of Income‑tax v. Ranjit Singh ((1955) 28 I T R 14 (Punj.)) it was held that a sure can be allowed as the 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 the repairs have been effected. As no new asset has been created by the replacement of these parts, the expenditure must be held to be in respect of current repairs. We hold that the expenditure is revenue and not capital expenditure."
This concludes a survey of the relevant Indian decisions on the point before us and shows the conflict of interpretation. Before I express my views it would be appropriate to notice two English decisions to which our attention has been drawn. It is necessary however to staid at the outset that the English statute does not contain any section which uses the words "current repairs" which we have to interpret in. section 10(2)(v) of the Income‑tax Act. Thu English decision f Law Shipping Co. Ltd. v. Commissioners of inland Revenue ((1923) 12 Tax Cas. 621 (Sess)) deals with the question of an assessee's claim for deduction of the cost of repairs in respect of a ship. Lord President Clyde of the Court of Sessions, Scotland, in delivering the opinion at page 625 of the report observed as follows;
"The expense laid out in keeping a ship, which is employed in trade, in proper repair is certainly an expense necessary for the purposes of the trade . . . . . Repairs may be executed as the occasion for them occurs ; or if they are such as brook delay, they may be postponed to a convenient season; but, in either case, they truly constitute a constantly recurring incident of that continuous employment of the ship which makes them necessary . . . . . Accumulated arrears for repairs are, in short, nonetheless repairs necessary to earn profits, although they have been allowed to accumulate."
This view is contrary to the view of the Bombay High Court that due to the special word "current" in the expression "current repairs" in section 10(2)(v) of the Indian Income‑tax Act, repairs which could be accumulated and whose need could be postponed, could not be brought under the expression "current repairs" in India.
The other English case has already been mentioned in some of the Indian decisions which I have cited and that is Rhodesia Railways Ltd. v. Collector of Income‑tax, Bechuanaland ((1933) A C 368 ; 1 I T R 227 (P C)), where Lord Macmillan, delivering the advice of the Judicial Committee of the Privy Council, expresses the view that the words "repairs" and "renewal" are not expressive of a clear contrast and the fact that the wear and tear of the rails and sleepers of a railway line although continuous is not made good annually does not render the work of renewal, when it comes to be effected, necessarily a capital charge.
This concludes my survey of all the relevant English and Indian authorities on the point. In the facts of the present case before us the signal consideration remains that the assessee company itself disclosed this disputed expenditure under the head "renovation" and clearly separated this expenditure from other expenses which he himself classed as "current repairs" and which the Income‑tax Officer allowed. The assessee's own opinion may not be conclusive if it is a question of law or legal inference but it becomes a matter of great importance when it is a question of fact how far the expenses listed as renovation could be claimed really as current repairs. If they are really renovation which could be separated from repairs, as the assessee himself did separate, then clearly this renovation expen diture is not the same thing as expenditure on repairs at all, far less "current repairs". Indeed, it is a finding of fact by the Income‑tax Officer that the primary purpose of the renovation in this case was to make the halls more attractive and comfort able to the public and therefore designed to increase the value and running capacity of the halls. The further finding of fact is that many of the bills represent expenses of capital improve ment nature as, for example, plumbing and sanitary works consisting of purchase of new shanks, basins, pipes and new electric installations. In fact, enquiries and investigations were conducted at the office of the contractors of the assessee and it was thereupon found that the bulk of the expenditure was of capital nature and upon an examination and investigation of the relevant bills, vouchers and enquiries from the contractors it was established that 90% of the total expenses under the head "renovation" were of capital nature. Therefore, only 10% of the renovation expenses was allowed as current repairs and as such 90% was disallowed.
The words "current repairs" in section 10(2)(v) of the Income‑tax Act mean first that the expenditure must be on repairs and, secondly, that such repairs must be current repairs. Neither for the word "repair" nor for the expression "current" can there be a rigid or any hard and fast formula. To embark on a discussion as to when replacement or renewal is a repair or when replacement of a part can be 'said to be a kind of repair for the whole, or to attempt to define the quantity of expenditure that can come within the expression "current repairs" so that above which it will be "heavy" and below which it will be "petty", will be pursuing the controversial task of defining "current repairs" when the legislature has chosen to leave it undefined.
The plain ordinary meaning of the expression "current repairs", without attempting to be doctrinaire and pedantic on the subject, should be the governing test in the facts, of each case. Only this much is certain that the expression must be construed as not only to mean "repairs" but "current repairs. .from this it must follow that repair in its ordinary connotation should be the test and only such repairs can be current repairs which have periodicity implicit in the word "current". It is not possible nor desirable to define what that period should be, whether it should be a month or half‑yearly or annual or still longer intervals. All that will depend on the nature of the repairs in the facts of each case.
Certainly "current repairs" include repairs for ordinary wear and tear. Current repairs are necessary repairs and which are needed for the maintenance of the building, machinery, plant or furniture mentioned in section 10 (2) (v) of the Income‑tax Act. Without attempting to oversimplify matters, it is safe, in my view, to say that "current repairs" include maintenance repairs, that is, repairs necessary to maintain the building, plant, machinery or furniture in their present working condition.
The Bombay view of the need for repairs is well emphasised. "Current repairs" in its ordinary acceptation mean not luxury repairs or repairs which wait upon the whims or choice of the assessee. The element of need therefore is implicit in the expres sion "current repairs". Here again, desire to draw a formula should be avoided, such as, how much the need should be, how pressing should that be and whether one can go to the length of saying that building or machinery or plant or furniture must he in such a state where it is impossible to use them before repairs can be allowed. On this point again a reasonable view should be taken of what an ordinarily common man in business would do. It is not necessary, in my view, that the business should be at a stand‑still if the repairs are not done, before an expenditure under "current repairs" can be permitted under section 10(2)(v) Equally, on the other hand, where there is no need whatever for the repair but expenditure is incurred by the assessee because he fancies them, then that expenditure will not be on "current repairs." The expression "current repairs" in section 10(2)(x) must therefore be judged on the facts of each case with regard to the specific items, the nature, quantity and volume of such items, the nature of business in which they are entailed, and the relevant, past, present and future contexts. If any mile post can be indicated in such a content it can only be that such current repairs must be those that are needed periodically and expenditure actually incurred on them either during the accounting or the assessment year .
From that point of view accumulation of repairs will not ordinarily satisfy the test, because ex‑hypothesi such repairs can be postponed and, therefore, the need is not there. In this case a point was made that the expenses here, could not be incurred because no materials were obtainable due to the dearth and shortage caused by .the last world war. No evidence is on record to show that it in any way affected the business even to the slightest degree. Therefore, these renovation expenses could not now be claimed on ‑the facts of this case' as current repairs. What Will happen in a case where current repairs are needed but cannot be attended to for reasons beyond the control of the assessee by such events of international war, and then, when war is over after many 'years, large and heavy expenditure on the accumulated current repairs is incurred in the accounting year, is a question which cannot be answered as a general proposition of law. It will depend on many facts such as whether the lack of such repairs and the need for them were such as to affect business, whether the repairs were of a periodic nature, and other relevant Circumstances which I have discussed above and it will be unwise to categorise them as principles of law or rigid practical tests.
In this view .of the interpretation of the words "current repairs" in section 10(2)(v) of the Income‑tax Act I am of opinion that the answer to the question asked should be in the negative and that the expenditure on renovation in the present case amounting to Rs. 2,17,182 cannot be deducted as current repairs on the facts under section 10(2)(v) of the Income‑tax Act. Having regard to the conflict of decisions there will be no order for costs in this reference.
BOSE, J.
‑The question debated before us in this reference under section 66(1) of the, Indian Income‑tax Act is whether a sum of Rs. 2,17,182 claimed as an expenditure on renovation is allowable as a deduction under section 10(2)(v) of the Indian Income‑tax Act.
The assessee company is the owner of two cinema houses in Calcutta known as Lighthouse and New Empire and carries on business of exhibitors of cinematographic films in the said cinema houses. In the year of account ending on September 30, 1949, the assessse incurred expenses which it had termed as renovation expenses in respect of the said two cinema houses. The renovation expenses in respect of the Lighthouse amounted to Rs. 1,49,318 and in respect of the New Empire the expenses amounted to Rs. 91,994. The details of the expenditure disclose that the renovation expenses were incurred in connection with the buildings, furniture and fittings in the said cinema houses. The case of the assessee is that during the war years the assessee company was unable to execute the necessary repairs to the machinery, buildings and furniture of the said cinema houses and so after several years the assessee company renovated the furniture and the buildings and incurred expenses amounting to Rs. 2,41,312 and claimed the sum as an allowable deduction. The Income‑tax Officer allowed only 10% of the claim as current repairs which amounted to Rs. 24,130 and disallowed expenses aggregating to Rs. 2,17,182. It appears that the Income‑tax Officer also allowed the assessee's claim under a separate head of repairs amounting to Rs. 81,799 which was claimed in respect of the said two cinema houses for the said accounting period, apart from the said renovation expenses amounting to Rs. 2,41,312. The 'Appellate Assistant Commissioner upheld the finding of the Income‑tax Officer that the expenses on renovation could not be held to be in the nature of repairs within the meaning of section 10(2)(v) of the Indian Income‑tax Act. Upon further appeal to the Appellate Tribunal the latter also found that the expenses under the head of renovation could not be regarded as current repairs which according to the Tribunal necessarily means repairs for the current business of the assessee and not repairs undertaken to renovate the deterioration of assets as a result of use for a number of years. The Tribunal held that the sum of Rs. 2,17,182 had been rightly disallowed, but inasmuch as in the opinion of the Tribunal a question of law arose out of. this order, it drew, up a statement of case and referred it to the High. Court under section 66 (1) of the Indian Income‑tax Act.
Section 10(1) of the Indian Income‑tax Act is as follows :
"The tax shall be payable by an assessee under the head Profits and gains of business, profession or vocation' in respect of the profits or gains of any business, profession or vocation carried on by him."
Section 10(2) is as follows :
"Such profits or gains shall be computed after making the following allowances, namely:‑
(v) in respect of current repairs to such buildings, machinery, plant, or furniture, the amount paid, on account thereof."
So the sole question for determination is what is the true connotation of the expressions "current" and "repairs" Mr. Sampath Iyengar appearing on behalf of the assessee has drawn our attention to several decisions of the Indian Courts and English Courts. The English Courts have held that the word "repair" is of indefinite connotation. It ordinarily means "to make good defects including renewal where that is necessary , but it does not include a total reconstruction. According to the New Oxford Dictionary the word "repair" means "to restore to good condition by renewal or replacement of decayed or damaged part" or "to renew or renovate something or part". The oft‑quoted passage which attempts to give a workable meaning to the expression "repair" is of Lord Justice Buckley in the case of Lurcott v. Wakely and Wheeler ((1911) 1 K B 905 (C A)). At page 923 the following observation occurs
" Repair' and renew' are not words expressive' of a clear contrast. Repair always involves renewal ; renewal of a part ; of a subordinate part. A skylight leaks ; repair is effected by hacking out the putties, putting in new ones, arid renewing the paint. A roof falls out of repair'‑ the necessary work is to replace the decayed timbers by sound wood ; td substitute sound tiles or slates for those which are cracked, broken, or are Missing ; to make good the flashings, arid the light. Part of a garden wall tumbles down'; repair is effected by building; it up again with new mortar, and, y so, far as necessary, new bricks or stone. Repair is restoration by renewal of '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. I agree that if repair of the whole subject‑matter has become impossible a covenant to repair does not carry an obligation to renew or replaces.
This exposition of the connotation of the word "repair", though not made by Lord Justice Buckley in connection with a case dealing with the Income‑tax Act, was approved by the Judicial Committee in the case of Rhodesia Railway Ltd. v. Income‑tax Collector, Bechuanaland ((1933) A C 368.) which was a case relating to income‑tax laws. In this case the railway company claimed deduction from its profits large sums spent by it for renewal of 74 miles of railway track out of 394 miles of the total length of the track. In upholding the claim of the assessee Lord Macmillan made the following observation (1933) 1 I T R 227, 232 (P C) :
"The periodical renewal by sections of the rails and sleepers of a railway line as they wear 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 necessarily a capital charge. The expenditure here in question was incurred in consequence of the tails having been worn out 'in earning the income of previous years on which tax had been paid without deduction in respect of such wear and represented the cost of restoring them to a state in which they could continue to earn income. It did not result in the creation of any new asset ; it was incurred to maintain the appellant's existing line in a state to earn revenue."
The attention of this Court was also drawn by learned counsel for the respective parties to the cases of Samuel Jones & Co. (Devonvale) Ltd. v: Commissioners of Inland Revenue ((1951) 32 T C 513 (Sess.)) ; Phillips v. Whieldon Sanitary Potteries Ltd. ((1952) 33 T C 213 (K B)) ; .Mann Crossman and Paulin Ltd. v. Compton ((1947) 28 T C 410 (K B)); judgment of Atkinson, J. ; Jackson v. Lasker Home Furnishings Ltd. ((1957) 1 W L R 69) judgment of Danckwerts, J. and several other English cases. But it is not necessary to deal with them at any length. It may' be noted; however, that the English cases to which reference has been made in course of the hearing and not had to deal with the interpretation of the expression "current repairs" in any of these cases. The Supreme Court has pointed out; that, in dealing with cases expounding English‑income‑tax laws, it must be borne in mind that the scheme of legislation there is not the same as in India. It is true that a certain amount of assistance can with caution 'be taken from them but the problem under the Indian income‑tax laws must be resolved, in the ultimate analysis, with reference to Indian laws. Hence, the English decisions should be read with considerable caution. (Indian Molasses Co. (Private) Ltd' v. Commissioner of Income‑tax ((1959) 37 I T R 66 (S C)) per‑Hidayatullah, J. page 73 .and page 76 of the judgment).
Now the Indian decisions on the point which have been brought to our notice speak with a divided voice. ;The Allahabad High Court, in the case of Ramkishan Sunderlal v. Commissioner of income‑tax ((1951) 19 I T R 324 (All.)) has held that the expression "current repairs" restricts its meaning to petty repairs usually carried out periodi cally and will not include repair or renewal costing a large sum of money which has to be spent on extensive repairs after long intervals. But this view has not been accepted by the Bombay, Patna and Punjab High Courts. In the case before the Punjab High Court, Commissioner of Income‑tax v. Ranjit Singh (1955 28 I T R 14 (Punj.).) a slim of Rs. 24,904 incurred by the assessee in resurfacing with concrete the approach roads to the Imperial Hotel during the relevant account period was claimed as a deduction under section 10(2)(v) of the Indian Income‑tax Act. Falshaw, J. (with whom Bhandari, C. J. concurred) observed as follows :‑
"The principle deducible from these decisions is that a sum, can be allowed as the cost of repairs and. can be held not to be a capital expenditure in spite of the fact that the expenditure in a particular year happens to be particularly 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 some time to come after the repairs have been effected.
"It seems to me that these principles ought to be applied to the facts of the present case in which obviously the resur facing of the whole of the roadways of the hotel had become necessary on account of several years' wear and tear and neglect and I am inclined to agree with the view of the Appellate Tribunal that the fact that further repairs may not be necessary for some time to come makes no difference."
In the case of Commissioner of Income‑tax v. Durbhanga Sugar Co. Ltd. ((1956) 29 I T R 21 (Pat.)) a sum of Rs. 17,256 was spent on machinery repairs, namely, for replacing a fire box for locomotive, for replacing a cast iron headstock for rollers, and for purchase of a cast iron sublimer for generating sulphur gas and it was claimed that these replacements were necessary because :of fair wear and tear. Ramaswami, J. (Imam, J. concurring) held that a renewal may be a repair or reconstruction. The test is whether the act of replacement is one which is in substance replacement of defective parts or replacement of the entire machinery or sub stantial part of the entire machinery. It was further held that the expression "current repairs to machinery" which occurs in section 10 (2) (v) must be interpreted to mean repairs to machinery in the current accounting year and the word "current" is used in contradistinction to past or arrear repairs. The learned Judge dissented from the Allahabad view and pointed out that there is nothing in section 10 (2) (v) to suggest that the expenditure on repairs cannot be allowed as a proper deduction if the repairs are not petty, inasmuch as the section does not say anything about the magnitude of the expenditure. The deduction claimed by the assessee was, therefore, allowed under section 10(2)(v).
In the Bombay case of New Shorrock Spinning & Manu facturing Co. Ltd. v. Commissioner of Income‑tax ((1956) 30 I T R 338 (Bom.)) the assessee company spent a sum of Rs. 30,557 for replacing certain parts in 646 looms out of 864 looms in certain textile mills. The particular part that was replaced was a device which helped in keeping a certain tension for the working of the looms. The new parts that had been used for replacement were lighter in weight than the old parts and conformed to the international labour standard and were superior to the old parts and these new parts had to be used because the, old parts‑were not available in the market and if an attempt had been made to prepare parts similar in kind or to acquire them, the cost would have been disproportionately high. It also appears that the old looms had been worked with these old parts for a period of 60 years as no need had arisen during all these years for replacing the old parts. The assessee claimed the amount spent as an allowable deduction under section 10(2)(v). Chagla, C. J. held that the expression "current repairs" means expenditure which is not for the purpose of the renewal or restoration but 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 any new or different advantage and they must be repairs which are attended to as and when the 'need for them arises. It was further held in this case that the question as to when a building, machinery, plant or furniture requires repairs and when the need arises must by decided by not any academic or theoretical test but by the test of commercial, expediency. The learned Chief Justice did not accept the view expressed by the Allahabad High Court as correct. The following observation of the learned Chief Justice may be set out hereunder (1956) 30 I T R 338, 344 (Bom.) :
"But if the assessee, although the need has arisen, does not attend to that need and allows the repairs to get accumulated, then it could not be said that when he is expending money on these repairs he is expending them on current repairs.
In the case of Bansilal Abirchand Spinning & Weaving Mill v. Commissioner of Income‑tax ((1957), 31 I T R 427 (Nag.)) which is a decision of the Nagpur High Court, the assessee, who owned a spinning mill, incurred in the year of account an expenditure of Rs. 9,330 on the replacement of .a cylinder in a sizing machine of the mill and spent a sum of Rs. 15,000 on renovation of the wooden flouring of the spinning department of the mill. It was held by V. R. Sen, J. and G. P. Bhutt, J. that the said amounts were revenue expenditure and could be allowed as expenditure incurred for current repairs , under section 10(2)(v): It was pointed out that the term "repair'' in the expression "current repair" occurring .in section 10(2)(v) is to be understood in contradis tinction to reconstruction and when the existing asset is only maintained and preserved and no new asset is created by replacement or improvement, the case is one of repairs and not reconstruction. The cases decided by the Punjab, Patna and Bombay High Courts were followed in this case. Our attention was also drawn to a recent case of the Punjab High Court. Commissioner of Income‑tax v. Sheikhupura Transport Co. Ltd. ((1961) 41 I T R 336 (Punj.)) which held that a comparatively small expenditure incurred it renewing the bodies of pertain, lorries fell within the definition of "current repairs" and was allowable as a deduction under section 10(2)(v).
It will thus appear that the views of the different High Courts with regard to the connotation of the expression "current repairs" are not at alt uniform and they are not easy to reconcile. It appears to me, however, that the idea which is latent in the expression "current repairs" is the characteristic of re-currency and the expression has, reference to repairs effected with the object of maintaining and preserving the existing asset and restoring them to their original condition when they have deteriorated as a result of wear and tear. But when the expenditure is incurred to bring into existence a new asset or an advantage of an enduring nature, it cannot be regarded as an expenditure incurred in current repairs. The word "asset" is an. elusive expression and it is difficult to draw 'a line where an existing asset becomes a new asset as a result of expenditure incurred for its restoration. The test, I think, depends on the degree of improvement brought about and the change effected in the identity of the existing asset as a result of the expenditure incurred. Again to make the repair a "current" repair the need for such repair must have arisen.
In the case of Gray (Public Trustee) v. Woodhouse ((1927) 1 Ch. 242 at 250) in construing subsection (2) (b) of section 102 of the Settled Land Act, 1925, which contained inter alia the following expression "to erect, pull down, rebuild, and repair houses, and other building's and erections", Clauson, J. observed;
"It is suggested that some part of the repairs were of a character that excluded them from repairs' within the meaning of subsection (2)(b). It is suggested that a line ought to be drawn between current repairs and repairs of a more substantial nature or repairs occasioned by the fact that for some years the property had not been properly or sufficiently repaired from year to year. But I do not think that I am justified in cutting down the expression repairs' in subsection (2)(b) of section 102. I have looked at the specification. There are only one or two stall items that it might be suggested are on a rather different footing to the other items. In my view they all come within the term repairs' in the broad sense in which the term is used in subsection (2) (b), and I do not think that having regard to the fact that the legislature has put (as in my opinion it has) expense of repairs' and expense of rebuilding' on the same footing, it was intended by the legislature to give a restricted meaning to the word repairs'. I think that the intention of the Act is to save the trustee from being too meticulous in construing the character of the repairs, whether they are normal current repairs or whether they go beyond that."
In the case before us the necessity for executing the repairs arose admittedly during the war period, but the repairs could not be effected for dearth of materials. The further question that arises is whether as a result of the repairs or renovation the existing assets in respect of the said two cinema houses have been replaced by new assets in their entirety and the identity of the old assets is gone. This is a question of fact. The finding of the Income‑tax Officer is inter alia as follows :
The primary purpose of the renovations was to make the halls more attractive and comfortable to the public and is therefore designed to increase the value and earning capacity of the halls. Accordingly I called for further details and accounts together with bills, vouchers and conducted outdoor enquiries, the results of which are summarised below :
New Empire
Rs.
Renovation ... ... 91,995
Repairs ... ... 32,177
In order to ascertain the true nature of the expenses, I examined bills and vouchers but in most cases the bills were drafted in such a way that the actual character of the expenses could not be rightly ascertained. Many of the bills suggest expenses of a capital nature, as, for example, plumbing and' sanitary works consisting of purchase of shanks, basins, new pipes and new electrical installation etc. Carpenters were paid on daily wage basis but the actual work done has not been properly described in most of the bills. Some of the bills again referred to replacement of existing furniture. Bills relating to building materials referred to purchase of shanks, line etc. There were other bills relating to purchase of collapsible gates, aluminium disc etc. Enquiry was accordingly made at the office of the contractor and it was found that the bulk of the expenditure was of a capital nature. Thus taking the overall view of the nature of work done it can be said that 90% of the total expenses were of a capital nature."
Then dealing with the Lighthouse Cinema, the Income‑fax Officer considers the following heads :
Rs.
Renovation ... ... 1,49,318
Current repairs... ... 49,622
and observes "from the details furnished as well as from vouchers produced it appears that the bulk .of the expenses is of a capital nature and the remarks made in connection with New Empire equally apply in this case. Accordingly 90% of the expenses are capitalised."
It is thus clear that the Income‑tax Officer went into the evidence and from the materials available to him recorded the conclusions which I have set out above.
The Appellate Assistant Commissioner also scrutinised the evidence and came to the following conclusion and made inter alia the following observations :
"The bills and the vouchers in the renovation expenses are produced before me also. I find that the Income‑tax Officer is right in saying that the expenses on renovation could not be held to be in the nature of repair within the meaning of section 10 (2) (v) of the Income‑tax Act. For current repairs to building and plant and machinery the assessee had also debited a considerable amount in the year in question in addi tion to the debit in renovation."
The Income‑tax Appellate Tribunal upheld the decision of the department and observed :
"In the present case the assessee company was unable to execute substantial repairs, as was stated, for dearth of materials during the war. As a result, after several years the assessee renovated the furniture and building and rightly wrote off the amount under the head renovation'. In our opinion the circumstances are such that the expenses under the head of renovation could not be called current repairs which necessarily mean repairs for the current business of the assessee and not repairs undertaken to renovote the deterioration of assets as a result of use for a number of years. Therefore, we concur with the department that the amount could not be allowed."
So there are these concurrent findings of, fact based upon evidence in this case. The assessee company has in its own books of account drawn a distinction between renovation expenses and repair expenses. It is true that the mere use of a particular nomenclature, such as "renovation" in the present case, is not conclusive on the point and the treatment of the transaction in the assessee's business accounts is no more than a pointer. But it is clear that the department has taken pains to go into details of the various items and, after carefully examining the materials before them, has come to the conclusion that the entire expenditure incurred under the head of renovation could not be regarded as expenditure incurred on current repairs within the meaning of section 10 (2) (v) of the Indian income‑tax Act. It cannot be said that the findings of the department with which the Appellate Tribunal had agreed are not supported by any evidence. In the circumstances, it will not be proper for this Court in a reference under section 66(1) of the Indian Income- tax Act to upset these concurrent findings of fact and to come to a different conclusion as to the nature of the work done and the expenses incurred. There is thus no escape from the conclusion that the sum of Rs. 2,17,182 has been rightly dis allowed by the income‑tax department and the Appellate Tribunal.
It was argued that even if it is found that the deduction claimed is not allowable under section 10 (2) (v) the claim should be admitted under section 10 (2) (xv). But this question does not appear to have been raised before the Appellate Tribunal. The only question raised before the Tribunal was whether the renovation was current repair and any part of it could be allowed as such, and the Tribunal concurred with the department that the claim could not be allowed. So the claim of the assessee under section 10 (2) (xv) cannot be entertained by us at this stage. It was pointed out that the question as framed by the Tribunal, in its statement of case, is of a general nature and therefore it is open to the assessee to raise the question whether the claim is allowable under section 10(2)(v). The question framed is as follows :
"Whether, on the facts and circumstances of this case, the sum of Rs. 2,17,182 claimed as an expenditure on renovation was allowable as a deduction in computing the business income of the assessee company "
But the scope and implications of the question have to be ascertained by reference to the context and upon perusal of the entire statement of case and the order of the Tribunal which is made a part of the statement of the case. It is clear that the question is limited to the consideration of the aspect whether the renovation was "current repair" or not.
It was also argued that this Court is not entitled to look into the orders of the Appellate Assistant Commissioner and the Income‑tax Officer and the materials or findings contained therein, inasmuch as these orders are not parts of the statement of the case. But the Rules of the High Court require that these orders and records of certain proceedings before the income‑tax department have to be printed in the paper book in a reference under section 66 of the Indian Income‑tax Act. Moreover in the case of In re Gregory ((1937) 5 I T R 12 (Cal.)) Panckridge, J. has pointed out that the point of law to be decided by a High Court in an income‑tax reference is not a hypothetical point but specific points raised by the facts of a particular case and the documents and proceedings annexed to the statements of the case are annexed for the consideration of the High Court which is entitled to look into them even if there be no specific reference to them in the body of the Commissioner's statement. (See also New Jehangir Vakil Mills Ltd. v. Commissioner of Income‑tax ((1959) 37 I T R 11 (S C)), where it has been pointed out that it is facts in the order of the Tribunal or in the record before it which should form the foundation for the raising of any question of law).
It was also argued that we should call upon the Tribunal to submit a supplementary statement of case stating facts which would enable the Court to determine the question whether the claim is admissible under section 10(2)(xv). It is, however, well‑settled that it is not open to the High Court in the exercise of its jurisdiction under section 66(4) to raise a new question and to require the Tribunal to entertain a fresh line of enquiry, hear the parties in regard to the same and record fresh findings of fact which would enable the assessee or the Commissioner to advance a case which had not been made before the income‑tax authorities or the Tribunal. The Supreme Court has further pointed out in the case Kusumben D. Mahadevia v. Commissioner of Income -tax ((1960) 39 I T R 540 (S C)) that section 66 of the Indian Income‑tax Act does not confer on the High Court jurisdiction to decide a different question of law not arising out of the order of the Appellate Tribunal. "It is possible that the same question of law may involve different approaches for its solution, and the High Court may amplify the question to take in all the approaches. But the question must still be one which was before the Tribunal and was decided by it. It must not be an entirely different question which the Tribunal never considered ((1960) 39 I T R 540, 544 (S C))."
In the circumstances it is not permissible to call upon the Tribunal to submit a supplementary statement which will have the effect of opening a fresh line of enquiry and of compelling the Tribunal to decide a question which was not raised before it previously.
I agree that the question referred should be answered in the negative and against the assessee and there should be no order for costs.
Question answered in the negative.
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