1954 (12) TMI 37 - HC - Income Tax

Summary

Issues Involved:
1. Whether the cost of resurfacing the cement approach road to the Imperial Hotel was incurred in respect of current repairs and is allowable as a deduction under section 12(4) read with section 10(2)(v) of the Indian Income Tax Act.
2. Whether the resurfacing expenditure should be classified as capital expenditure or current repairs.
3. Applicability of section 12(4) and section 10(2)(v) to the case.
4. Classification of the assessee's income from the lease of the Imperial Hotel.

Issue-wise Detailed Analysis:

1. Applicability of Section 12(4) and Section 10(2)(v):
The Tribunal held that the case fell under section 12(4) read with section 10(2)(v) of the Indian Income Tax Act. The Tribunal found that the income from the lease of the Imperial Hotel, which was leased as a going concern with furniture and fittings, fell under section 12(4). Consequently, the resurfacing of the roadways was considered current repairs within the meaning of section 10(2)(v), as the repairs were necessary in the ordinary course of using the premises.

2. Classification of the Resurfacing Expenditure:
The Tribunal rejected the Income Tax authorities' argument that the resurfacing could not be classified as current repairs because the roadways would not need further repairs for several years. The Tribunal concluded that the resurfacing was necessary due to wear and tear and was thus allowable as current repairs.

3. Argument by the Commissioner:
The Commissioner contended that the case was not covered by section 12(4) and 10(2)(v) because an approach road or drive does not qualify as a building. The Commissioner argued that the term "buildings" in these sections should be strictly construed and that resurfacing the roadways was not current repairs but rather capital expenditure.

4. Argument by the Assessee:
The assessee argued that the income from the lease of the Imperial Hotel should be considered ordinary income from business under section 10(2)(xv), which allows deductions for expenses incurred wholly and exclusively for business purposes. The assessee's counsel pointed out that the income was shown under the heading of business in the assessment order and included in the excess profit tax assessment.

5. Tribunal's Decision on Classification of Income:
The Tribunal decided that the income from the lease of the Imperial Hotel was correctly categorized under section 12(4) and not as business income. The Tribunal emphasized that the assessee was not running the hotel as a business but had leased it out, making section 12(4) applicable.

6. Whether the Roadways are Part of the Building:
The Tribunal did not entertain the new argument by the Commissioner that the resurfacing expenditure was not incurred on the building leased. The Tribunal noted that the question framed referred to the hotel premises, indicating no dispute that the roadways were part of the premises.

7. Case Law and Principles Applied:
The Tribunal referred to various case laws to determine whether the resurfacing expenditure qualified as current repairs. The Tribunal cited decisions that emphasized the context and circumstances of each case. The Tribunal concluded that the resurfacing expenditure, although heavy, was necessary due to several years of wear and tear and should be allowed as current repairs.

Conclusion:
The Tribunal answered the question in the affirmative, allowing the assessee to deduct the resurfacing expenditure as current repairs under section 12(4) read with section 10(2)(v). The Tribunal held that the expenditure was not capital in nature and awarded costs to the assessee, with a counsel's fee of Rs. 250. The reference was answered accordingly, with A.N. Bhandari, C.J., concurring.