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PETITIONER: M/S. BALLIMAL NAVAL KISHORE & ANR.

       Vs.

RESPONDENT: COMMISSIONER OF INCOME TAX

DATE OF JUDGMENT:       10/01/1997

BENCH: B.P. JEEVAN REDDY, K.T. THOMAS

ACT:

HEADNOTE:

JUDGMENT:                       J U D G M E N T B.P. JEEVAN REDDY.J.      Section 10(2)(v)  of the  Income Tax  Act, 1922  allows deduction of  the  amount  spent  on  "current  repairs"  to buildings,  machinery,  plant,  furniture  employed  in  the business. The  assessee-appellant carries on the business of exhibiting films  in a  theatre called  "Naval  Talkies"  at Panipat. He  had purchased the said building in 1937. It was a ginning factory then. He ran the factory till 1940. In the year 1945,  he converted  it into  a cinema  theatre and was exhibiting films  therein. During  the period  1960 to March 1961, the  assessee  extensively  repaired  the  theatre  by expending substantial amounts. The amounts spent by him are: on machinery Rs.16,002/-, new furniture Rs.27,889/- sanitary fittings Rs.5,225/-  and replacement  of  electrical  wiring Rs.13,604/-.  In   addition  thereto,   a  total  amount  of Rs.62,977/- was  spent on extensive repairs to walls, to the hall, to  the flooring and roofing, to doors and windows and to the  stage sides  etc. Actually  the theatre  had  to  be closed  during   the  aforesaid  period  for  effecting  the repairs.      In the  assessment proceedings relating to the relevant assessment year,  the  assessee  claimed  deduction  of  the aforesaid amount  of  Rs.62,977/-.  The  Income  Tax  Office disallowed  the  same.  According  to  him  it  was  capital expenditure. On  Appeal,  Appellate  Assistant  Commissioner affirmed the  view taken  by  the  Income  tax  Officer.  On further appeal,  however, the Tribunal upheld the assessee’s case whereupon  the following  question was  referred to the Bombay High  Court under  Section 66(1) of the Indian Income Tax Act,  1922, at  the instance of the Revenue: "Whether on the facts  and circumstances  of the  case, in computing the Income of  the assessee  for the  material  year  a  sum  of Rs.62977/- or  any portion  thereof is deductible?" The High Court answered  the question  in favour  of the  Revenue and against the  assessee following  the earlier decision of the said  court  in  New  Shorrock  Spinning  and  Manufacturing Company Ltd. vs Commissioner of Income Tax [30 I.T.R.338].      The expression  used in  Section 10(2)(v)  is  "current repairs" and  not mere "repairs". The same expression occurs

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in Section  30(a)(ii) and in Section 31(i) of the Income Tax Act, 1961.  The question  is what  is  the  meaning  of  the expression in  the context of Section 10(2). In New Shorrock Spinning  and   Manufacturing  Company   Ltd.,  Chagla,C.J., speaking  for   the  Division   Bench,  observed   that  the expression "current repairs" means expenditure on buildings, machinery, plant  or furniture  which is not for the purpose of renewal  or restoration but which is only for the purpose of preserving  or maintaining  an already existing asset and which does  not bring a new asset into existence or does not give to  the assessee  a new  or  different  advantage.  The learned Chief Justice observed that they are such repairs as are attended  to as  and  when  need  arises  and  that  the question when  a building,  machinery etc.  requires repairs and when the need arises must be decided not by any academic or  theoretical   test  but   by  the   test  of  commercial expediency. The Learned Chief Justice observed:      "The  simple   test  that  must  be      constantly borne in mind is that as      a result  of the  expenditure which      is claimed  as  an  expenditure  or      repairs what  is really  being done      is  to  preserve  and  maintain  an      already existing  asset. The object      of the  expenditure is not to bring      a new  asset into existence, nor is      its object  the obtaining  of a new      or fresh advantage. This can be the      only   definition    of   ‘repairs’      because it  is only  by  reason  of      this definition of repairs that the      expenditure    is     a     revenue      expenditure.      If the  amount spent  was  for  the      purpose of  bringing into existence      a new  asset  or  obtaining  a  new      advantage, then  obviously such  an      expenditure   would   not   be   an      expenditure of a revenue nature but      it would  be a capital expenditure,      and it  is clear that the deduction      which,    the    Legislature    has      permitted under Section 10(2)(v) is      a deduction  where the  expenditure      is a  revenue expenditure and not a      capital expenditure."      In  taking  the  above  view,  the  Bombay  High  Court dissented from the view taken by the Allahabad High Court in Ramkrishan Sunderlal  vs. Commissioner  of Income  Tax, U.P. [(1951) 19 I.T.R..324] where it was held that the expression "current repairs"  in Section  10(2)(v)  was  restricted  to petty repairs  only which  are carried out periodically. The Learned Judge  agreed with  the view taken by the Patna High Court in  Commissioner of Income Tax vs. Darbhanga Sugar Co. Ltd. [(1956)  29 I.T.T.21]  and by  the Madras High Court in Commissioner of  Income Tax  vs. Sri  Rama Sugar  Mills Ltd. [(1951) 21 I.T.R.191]      In  Liberty  Cinema  vs.  Commissioner  of  Income-Tax, Calcutta [52  I.T.R.153], P.B.  Mukharji, J., speaking for a Division Bench  of the  Calcutta High  Court, held  that  an expenditure incurred  with a  view to bring into existence a new asset  or an advantage of enduring nature cannot qualify for deduction under Section 10(2)(v).      In our  opinion the test involved by Chagla C.J. in New shorrock Spinning  & Manufacturing  Company Limited  is  the

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most appropriate  one having  regard to the context in which the said  expression occurs.  It has also been followed by a majority of the High Courts in India. We respectfully accept and adopt the test.      Applying he  aforesaid test, 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 Rs.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 Rs.1,20,000/-.      The appeal accordingly fails and is dismissed. No Costs