1969 (8) TMI 16 - HC - Income Tax

Issues Involved:

1. Whether the sums of Rs. 15,774 (1958-59) and Rs. 10,466 (1960-61) represented revenue expenditure deductible in computing the income of the assessee under section 10 of the Income-tax Act, 1922.
2. Applicability of section 10(2)(ii), section 10(2)(v), and section 10(2)(xv) of the Income-tax Act, 1922.
3. Determination of whether the expenditure was capital or revenue in nature.

Issue-wise Detailed Analysis:

1. Deductibility of Expenditure under Section 10:

The primary issue was whether the sums of Rs. 15,774 and Rs. 10,466 incurred by the assessee for repairs to its godowns and dye-houses could be considered as revenue expenditure deductible under section 10 of the Income-tax Act, 1922. The Tribunal initially disallowed these expenses, treating them as capital in nature, but allowed depreciation at prescribed rates. The question referred to the court was whether these amounts represented revenue expenditure deductible in computing the income of the assessee.

2. Applicability of Section 10(2)(ii), Section 10(2)(v), and Section 10(2)(xv):

Section 10(2)(v):
According to the Tribunal, allowance for current repairs under section 10(2)(v) could only be made to an assessee who is the owner of the depreciable asset. However, the court noted that the language of section 10(2)(v) does not restrict the allowance to owners alone. The term "current repairs" was interpreted in previous cases to mean petty repairs, not substantial repairs. The court distinguished the present case from previous cases, noting that the repairs did not enhance the value of the buildings but merely made them fit for business use.

Section 10(2)(ii):
The court found that under the terms of the lease, the landlords were not bound to carry out any repairs, and there was no obligation on the lessee to undertake substantial repairs. Therefore, the expenses in question were not allowable under section 10(2)(ii).

Section 10(2)(xv):
For an expenditure to be allowable under section 10(2)(xv), it must not be covered by clauses (i) to (xiv), must not be capital or personal expenditure, and must be incurred wholly and exclusively for business purposes. The court found that the expenditures were not covered by section 10(2)(ii) or section 10(2)(v), thus satisfying the first condition. The court also determined that the expenditure was not capital in nature, as it did not create an enduring benefit for the assessee's business, given the short duration of the lease. The expenditures were incurred wholly and exclusively for the purpose of the assessee's business, satisfying the remaining conditions of section 10(2)(xv).

3. Nature of Expenditure:

The court addressed the contention that the expenditure was capital in nature due to its substantial amount. However, it emphasized that the test is not the quantum of expenditure but whether it resulted in the creation of an asset or advantage for enduring benefit. Since the assessee was a lessee for a short period, the repairs did not provide a permanent benefit, and thus, the expenditure was not capital in nature. The court referenced the principle laid down by Viscount Cave in Atherton v. British Insulated and Helsby Cables Ltd., which was approved by the Supreme Court, to support this view.

Conclusion:

The court concluded that the expenditures of Rs. 15,774 and Rs. 10,466 were allowable as business expenditures under section 10(2)(xv) for the respective assessment years 1958-59 and 1960-61. The assessee was entitled to deduct these amounts in computing its income. The court answered the question in the affirmative and in favor of the assessee, awarding costs of Rs. 200 to the assessee.

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