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PETITIONER: SIR SHADI LAL AND SONS, SHAMLI

       Vs.

RESPONDENT: COMMISSIONER OF INCOME-TAX, KANPUR

DATE OF JUDGMENT27/11/1987

BENCH: VENKATACHALLIAH, M.N. (J) BENCH: VENKATACHALLIAH, M.N. (J) KANIA, M.H.

CITATION:  1988 AIR  424            1988 SCR  (2)  87  1988 SCC  Supl.   42     JT 1987 (4)   517  1987 SCALE  (2)1476

ACT:      Income Tax  Act, 1961:  Section  24(1)(i)(a)  and  (b)- Tenant  undertaking  to  ’bear  cost  of  repairs’-Deduction towards cost  of ’repairs’-Whether  owner entitled  to claim deduction on assessable income-Idea of ’repair’-Meaning of.      Words & Phrases: ’Repair’-Meaning.

HEADNOTE: %      The appellants,  a Hindu undivided family, leased out a house owned  by them.  The covenant in the lease deed stated that the  tenant will maintain and keep the demised premises in good and habitable condition, tenantable, repair, execute all repairs  including  annual  white  washing,  repairs  of electric  and   sanitary  fittings   etc.  at  the  lessee’s expenses, and  that the lessors shall undertake at their own cost major  repairs such  as repairs against collapse of the house.      Originally in  the assessments  for the  years 1954-55, 1960-61  and  1961-62,  the  annual  letting  value  of  the property  was  arrived  at  RS.36,000  and  a  deduction  of Rs.6,000 was allowed for repairs under s. 24(1)(i)(a) of the Income Tax,  Act, 1961.  Subsequently, the  assessments were re-opened on  the ground  that the  assessee had  got excess relief.      In the re-assessments, the Income Tax officer held that as the  lessee had  undertaken to  keep the premises in good and habitable  condition, execute all repairs, the deduction of Rs.6,000 was impermissible. He accordingly determined the annual letting  value  of  the  property  at  Rs.40,000  and allowed  a  deduction  of  Rs.4,000  towards  repairs  under s.24(1)(i)(a) of the Act. In the reopened assessment for the year 1954-55, the assessee’s claim for deduction of Rs.5,645 being the  cost  of  the  repairs  undertaken  by  them  was disallowed on  the ground  that this  was a  case where  the tenant had  undertaken to  bear the cost of the repairs and, therefore, the  allowance for  repairs was  limited  to  the limit  permissible   under  s.  24(1)(i)(b).  The  Appellate Assistant Commissioner and the Income Tax Appellate Tribunal affirmed the above view. 88

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    At the  instance of the assessee, the Tribunal stated a case and referred it to the High Court which though answered against the  assessee, granted a certificate under s. 261 of the Act,  regarding the  applicability of s. 24(1)(i)(b) and reconsideration of  deduction of  the expenditure  which was not allowed  in the  original assessment  in the  course  of reopened assessments.      In the  appeal by  special leave, it was urged that the covenant for repairs embodied in lease deed did not cast the burden to  carry out  the repairs  exclusively on the lessee and that  since the  lessor had also undertaken to carry out some of  the repairs,  s. 24(1)(i)(b)  was not attracted and the benefit of s. 24(1)(i)(a) was therefore available.      On the  question whether, having regard to the terms of the  covenant,   it  could  be  said  that  the  tenant  had undertaken to  bear the  cost of repairs within the meaning, and for purposes, of s. 24(1)(i)(b) of the Act.      Dismissing the appeals, ^      HELD: 1.1  This is  clearly not a case where the burden of carrying  out repairs  as understood in the context of s. 24(1)(i)(b) of  the Income  Tax Act,  1961 is shared between the lessor  and the  lessee. The obligation is on the lessee alone. The  obligation under the latter part of the covenant does not relate to such repairs. [93G-H]      1.2 The  idea of  ’repair’ may  include replacement  or even a  renewal. But  the converse  may  not  be  true.  All replacements or  renewals need not necessarily be ’repairs’. In the  case of  a building,  restoration  of  stability  of safety of  a subordinate  or subsidiary  part of  it or  any portion  of  it  can  be  considered  as  repair  while  the reconstruction of the entirety of the subject matter may not be so regarded. [93B-C]      A general  covenant to repair without any such words as tenantable or  habitable or  good repair is satisfied if the premises are kept in a substantial state of repair. [92H]      Having regard  to somewhat  comprehensive nature of the obligations  that   go  with   and  are  attachment  to  and recognised under  the tenant’s  covenants for  ’repairs’, it must be  held that  the covenant  in the present case is one under which  the tenant has undertaken ’substantial repairs’ and it must, accordingly, be held to fall within clause 89 (b) of  s. 24(1)(i)  of the  Act and not under clause (a) of the section  and that  the allowance for repairs must be one under, and limited to that provision. [93F]      Commissioner of  Income-tax v.  Parbutty Churn  Law, 57 ITR 609;  Lurcoff v.  Wakely and Wheeler, [1911] I K.B. 905; Rodesia Railway  Ltd. v. Income-tax Collector, [1933] Appeal Cases 368;  Ravenseft Properties Ltd. v. Davstone (Holdings) Ltd., [1980]  Q.B. 12  and Halsbury’s  Laws of  England, 4th Edn., paragraph 286, referred to

JUDGMENT:      CIVIL APPELLATE  JURISDICTION: Civil Appeal Nos. 960 to 962 (NT) of 1975.      From the  Judgment and  order  dated  2.3.1973  of  the Allahabad High  Court in  Income Tax  Reference No.  721  of 1970.      S.L. Aneja,  Pawan  Aneja  and  K.L.  Tarieja  for  the Appellants.      C.M. Lodha,  Ms. A.  Subhashini and  K.C. Dua  for  the Respondents.

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    The Judgment of the Court was delivered by      VENKATACHALIAH,  J.   These  assessee’s   appeals,   by certificate, arise  out of  the  Judgment  and  order  dated 2.3.1973 of  the Allahabad  High Court  in I.T.R. No. 721 of 1970 answering  certain questions  of law  referred for  the opinion of the High Court against the assessee.      2. The  assessee  is  a  Hindu  Undivided  Family.  The assessment years  are  1954-55,  1960-61  and  1961-62.  The principal controversy  in  these  appeals  pertains  to  the allowance of  and deduction  for ’repairs’  in respect  of a house property  at Delhi  leased out  to the Chinese Embassy under a deed of lease dated 30.5.1952.      Originally assessments were completed including therein the annual  letting value  of this property at Rs.36,000 and allowing a  deduction of  Rs.6,000 for repairs under Section 24(1)(i)(a)  of  the  Income-tax  Act,  1961  (Act)  or  the corresponding provisions  of the  Act of 1922. Subsequently, the  assessments  were  reopened  on  the  ground  that  the assessee had got excess of relief. In the re-assessments the Income-tax officer  held that  as the  lessee had undertaken ’to keep 90 the premises  in good  and habitable  condition, execute all repairs’, the  deduction of  Rs.6,000 was impermissible. The Income-tax officer accordingly determined the annual letting value of  the property  at Rs.40,000 and allowed a deduction at Rs.4,000  towards ’repairs’  under Section 24(1)(i)(b) of the Act.  In respect  of the  assessment year  1954-55,  the assessee claimed  unsuccessfully  that  he  had  undertaken’ considerable repairs  and that  a sum  of Rs.5,645 should be allowed. This  claim was negatived by the Income-tax officer who  confined   the  allowance  for  repairs  to  the  limit permissible under  Section 24(1)(i)(b)  of the  Act  on  the premise that this was a case where the tenant had undertaken to bear  the cost  of repairs. This view was affirmed by the Appellate Asst.  Commissioner of  Income Tax and the Income- tax Appellate Tribunal (’Tribunal’).      It is,  perhaps, relevant  to mention  that some of the assessment years  are governed by the provisions of the 1922 Act. But, having regard to the similarity of the provisions, this  does   not  assume  any  significance  or  affect  the substance of the matter.      3. At the instance of the assessee, the Tribunal stated a case and referred the following three questions of law for the opinion of the High Court:      (1) "Whether  on the  facts and in the circumstances of the case, the assessments for the years 1954-55, 1960-61 and 1961-62 were  validly reopened  under Section  147(a) of the Income Tax Act, 1961?"       (2)  "Whether on the facts and in the circumstances of the case,  the provisions  of  Section  24(1)(i)(b)  of  the Income-tax Act, 1961, were applicable?"       (3)  "Whether on the facts and in the circumstances of the case,  the  expenditure  which  was  not  allowed  while completing the  original assessments could be considered for allowance in  course of  assessments re-opened under Section 147(a)?" As stated  earlier, the  High Court  answered the  questions against  the  assessee,  but  granted  a  certificate  under Section 261  of the  Act as  in its  opinion  two  important questions arose  out of the judgment. The questions the High Court had in mind are questions No. 2 and 3, supra. 91      4. It  must,  at  the  outset,  be  observed  that  the question as  to  the  validity  of  the  re-opening  of  the

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assessments which  was raised before the High Court was not, in our opinion rightly, re-agitated here Learned counsel for the appellants urged that the High Court was in error in its opinion on  questions 2  and 3.  The third question referred was whether where once an assessment is re-opened by a valid notice, the  whole proceedings  of assessment  were at large and all  the claims and allowances which had been disallowed in the  original-assessment  could  be  re-agitated  by  the assessee. The  High  Court  has  answered  this  proposition against the assessee.      We may take up and dispose of this contention first. It is seen  from the  order of the Tribunal that though certain reliefs were claimed by the assessee before the authorities, the matter before the Tribunal was, however, confined to the question of  allowance for  repairs. The relief on the claim for repairs,  if otherwise  tenable,  can  be  granted  even without going  into this  larger question. It is, therefore, unnecessary to consider this contention in this case.      5. We  may now  turn to question No. 2 as formulated in the reference.  Learned counsel  urged that the covenant for repairs embodied  in the  lease-deed did not cast the burden to carry  out the repairs exclusively on the lessee and that since the  lessor had  also undertaken  to carry out some of the repairs,  Section 24(1)(i)(b) was not attracted and that in the  circumstances the benefit of Section 24(1)(i)(a) was available to  the assessee. Counsel relied upon Commissioner of Income-tax v. Parbutty Churn Law, 57 ITR 609.      6. Section 24(1)(i)(b) of the Act provides that where a property  is   in  the  occupation  of  a  tenant  "who  has undertaken to  bear the  cost  of  repairs",  the  deduction towards repairs  which the  assessee-owner is entitled to is either the  excess of  the annual  value over  the amount of rent payable  for a  year by  the tenant;  or a sum equal to one-sixth of  the annual value whichever is lesser. There is no dispute  that if  Section 24(1)(i)(b)  is applicable  the computation would be correct.      The only question, therefore, is whether, having regard to the  terms of  the covenant,  it could  be said  that the tenant had undertaken to bear the cost of repairs within the meaning and  for purposes of Section 24(1)(i)(b) of the Act. The covenant in this behalf in the lease deed dated 9.9.1952 is in terms following:           "To maintain and keep the demised premises in good           and 92           habitable condition,  tenantable,  repair  execute           all  repairs   including  annual   white  washing,           repairs of electric and sanitary fittings etc., at           the  lessee’s  expenses.  Major  repairs  such  as           repairs against  collapse of the house etc., shall           be undertaken by the lessors at their own cost." The view  of the  High Court,  in substance,  is  that  this covenant satisfies  the requirements of and attracts Section 24(1)(i)(b) .  The correctness  of this view turns upon what in the  law of  landlord and  tenant is,  the content  of  a covenant for  ’repairs’ and  whether by  the  terms  of  the present agreement, the tenant is said to have undertaken the burden of such ’repairs’.      Referring to  what is  implicit in and carried with the covenant for "repairs", Halsbury states:           "Under a covenant to repair, a tenant is liable to           repair but  not to  renew. ’Repair’  in this sense           means the restoration by renewal or replacement of           subsidiary parts  of the  whole, whereas ’renewal’           as  distinguished   from  repair,  means  the  re-

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         construction of  the whole or of substantially the           whole. Where  the demised  building is  erected on           in-herently defective  foundations, the  tenant is           not liable to substitute new foundations .. "           (See Halsbury’s Laws of England 14th Edn.           paragraph 285)      In regard  to the  Standard of  Repairs,  Halsbury,  at paragraph 286, states:           "If he  has expressly  covenanted to  put a  house           into tenantable  repair and  to keep  it  in  such           repair, and  it is not in tenantable repair at the           commencement of  the tenancy,  the tenant  must do           the necessary  repairs, not with standing that the           building is thereby put in a better condition than           when the  landlord let  it. The effect is the same           if, without  expressly covenanting  to put it into           repair, the  tenant only  covenants  to  keep  the           house  in   tenantable  repair.  Such  a  covenant           presupposes putting  the house in such repair, and           keeping  it   in  repair   during  the  term.  The           construction of  the covenant  is the same whether           the covenant specifies ’tenantable’ or ’habitable’           or ’good’  repair. A  general covenant  to  repair           without  any   such  words  is  satisfied  if  the           premises  are  kept  in  a  substantial  state  of           repair.  (emphasis supplied) 93      7. The oft quoted observations in Lurcott v. Wakely and Wheeler, [1911]  1 K.B. 905 as to what is meant by ’repairs’ are generally considered apposite. This has been referred to and relied  upon by  the High  Court.  The  observations  in Lurcott’s case  was referred  to with  approval by the Privy Council in  Rodesia Railway  Ltd. v.  Income-tax  Collector, [1933] Appeal cases 368.      The idea  of ’repair’ may include replacement or even a renewal. But  the converse may not be true. All replacements or renewals  need not  necessarily be ’repairs’. In the case of a  building, restoration  of stability  or  safety  of  a subordinate or  subsidiary part  of it  or any portion of it can be considered as repair while the re-construction of the entirety of  the subject  matter may not be so regarded. The somewhat comprehensive  import of  the word ’repair’ in this context is  evident  from  the  reliance  by  Forbes  J.  in Ravenseft  Properties  Ltd.  v.  Davstone  (Holdings)  Ltd., [1980] Q.B.  12 on the following observations of Sir Herbert Cozens-Herdy MR in Lurcott’s case (supra):           "It seems  to me  that we should be narrowing in a           most dangerous  way the  limit and extent of these           covenants if  we did  not hold that the defendants           were liable under covenants framed as these are to           make good  the cost  of repairing this wall in the           only sense in which it can be repaired, namely, by           re-building it  according to  the requirements  of           the county council." Having  regard  to  somewhat  comprehensive  nature  of  the obligations that  go with and are attached to and recognised under the  tenant’s covenants for ’repairs’, it must be held that the covenant in the present case is one under which the tenant has  undertaken ’substantial  repairs’ and  it  must, accordingly, be  held to  fall within Section 24(1)(i)(b) of the Act  and that  the allowance  for repairs  must  be  one under, and  limited to,  that provision.  The  case  of  the assessee that  it should  fall under Section 24(1)(i)(a), we are afraid, is very nearly unarguable. There is no substance

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in the contention.      This is clearly not a case where the burden of carrying out  repairs   as  understood  in  the  context  of  Section 24(1)(i)(b) is shared between the lessor and the lessee. The obligation is  on the lessee alone. The obligation under the latter part of the covenant does not relate to such repairs. The appellant’s  reliance on  Commissioner of  Income-tax v. Parbutty Churn  Law, supra  is in  the facts  of the present case misplaced. 94      9. In  the result,  for  the  foregoing  reasons  these appeals fail  and are  dismissed, but  in the circumstances, without an order as to costs. N.P.V.                                    Appeals dismissed. 95