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Issues involved:
Interpretation of whether expenditure on repairs of a house property is capital or revenue expenditure for income tax assessment. Summary: The case involved a reference u/s 256(1) of the Income-tax Act, 1961, for the assessment year 1977-78, regarding the deductibility of Rs. 35,000 spent on repairs of a house property in Calcutta. The assessee claimed the amount as revenue expenditure, while the Income-tax Officer considered it as capital expenditure due to renovation. The Commissioner of Income-tax (Appeals) found that only a portion of the amount was for essential repairs to make the building habitable. The Tribunal, however, held that the expenditure on renovation and replacement could not be treated as revenue expenditure, citing the necessity for repairs to have a periodicity to qualify as current repairs. The Tribunal's decision was based on the premise that the expenditure for renovation did not result in the creation of a new asset but rather brought the existing asset to a habitable state. The Tribunal overlooked the fact that the property was dilapidated, necessitating extensive repairs. The Tribunal's reliance on a previous court decision regarding renovation for attracting more customers was deemed inapplicable in this case, as the renovation did not substantially improve the property beyond necessary repairs. The High Court disagreed with the Tribunal's conclusion, emphasizing that the expenditure was necessary to restore the property to a habitable state and did not result in a substantial improvement to the property's value. The Court held that the expenditure should be allowed as general revenue expenditure under section 37 of the Act, even if not classified as current repairs. Therefore, the Court ruled in favor of the assessee, allowing the expenditure in computing the income. In conclusion, the High Court answered the question in the reference negatively and in favor of the assessee, with no order as to costs. Both judges concurred with the decision.
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