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TMI Blog1998 (2) TMI 175X X X X Extracts X X X X X X X X Extracts X X X X ..... 1988] 169 ITR 538/[1987] 35 Taxman 76. Aggrieved by the same, the present appeal has been preferred by the revenue. 3. The learned departmental representative Mr. Manish Gupta has raised an interesting contention that nature of expenditure whether capital or revenue is irrelevant if the claim of the assessee falls within the provisions of sections 30 to 36 of the Act. Whether the expenditure is of revenue or capital in nature is relevant only where the claim of the assessee falls under section 37. In this connection, he relied on the decision of the Mysore High Court in the case of Hanuman Motor Service v. CIT [1967] 66 ITR 88. He further expanded his argument by submitting that claim under section 37 can be considered only if such a claim does not fall within the ambit of provisions of sections 30 to 36, as is apparent from the provisions of section 37 itself. According to him, the case of the assessee falls within the provisions of section 31 as it deals with repairs of 'plant or machinery'. It is his submission that replacement of petrol engine by diesel engine falls within the definition of word 'repair' and therefore, such claim cannot be allowed under section 37. He further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chinery' as per the decision of the Supreme Court in the case of CIT v. Mir Mohammad Ali [1964] 53 ITR 165 and therefore, the assessee is entitled to depreciation under section 32. Consequently, section 37 cannot be invoked. In this connection, he also referred to the decision of the Bombay High Court in the case of Maneklal Vallabhdas Parekh v. CIT [1959] 37 ITR 142 and the decision of the Madras High Court in the case of Mir Mohd. Ali v. CIT [1960] 38 ITR 413. 3.4 Lastly, he distinguished the Bombay High Court decision in the case of Polyolefins Industries Ltd. relied upon by the CIT(A), inasmuch as in that case, the question referred to the High Court was not with reference to section 31 but was with reference to section 37. The only question was whether the replacement of petrol engine by diesel engine amounted to capital or revenue expenditure. Similar is the position with the latest case of the Bombay High Court in the case of CIT v. Jafarbhai Akbarali & Bros. [1995] 211 ITR 496/78 Taxman 320. 4. The learned counsel for the assessee Mr. Pathak has vehemently opposed the contentions raised by the learned D.R. His submission is that various High Courts have held that replacem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hai Akbarali & Bros, does not deal with the issue of current repairs under section 31. The question referred to the Court was with reference to deduction under section 37. According to him, the present case is covered by the Supreme Court decision in the case of Ballimal Naval Kishore, inasmuch as a new advantage has been created in the present case. It was further submitted by him that the other decisions of High Courts relied upon by the assessee's counsel are in conflict with the decision of the Supreme Court. 6. Rival contentions of the parties and the case law referred to by them have been considered by us carefully. At the outset, we may mention that the Assessing Officer as well as the CIT(A) have considered the issue under section 37 inasmuch as the Assessing Officer has disallowed the claim of the assessee on the ground that the expenditure was of capital in nature and the CIT(A) has deleted the disallowance on the ground that it was of revenue in nature. There is no dispute that if section 37 is applicable then the present case would be covered in favour of the assessee by the decision of the Bombay High Court in the case of Polyolefins Industries Ltd. and in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on'ble High Court has followed, the following observations of Justice Buckley L. in the case of Lurcott v. Wakely & Wheeler [1911] 1 KB 905, 923, 924 (CA): "'Repair' and 'renew' are not words expressive of a clear contrast. . . Repair is restoration by renewal or replacement of subsidiary parts of a whole. Renewal, as distinguished from repair, is reconstruction of the entirety, meaning by the entirety not necessarily the whole but substantially the whole subject-matter under discussion... the question of repair is in every case one of degree, and the test is whether the act to be done is one which is substance is the renewal or replacement of defective parts, or the renewal or replacement of substantially the whole." 7.3 After considering the various decisions of the High Court including the decision of the Bombay High Court in the case of New Shorrock Spg. & Mfg. Co. Ltd and the decision of the Mysore High Court in the case of Hanuman Motor Service and the decision of the Hon'ble Supreme Court in the case of Mahalakshmi Textile Mills Ltd., it was held by the High Court that replacement of old engine by a new engine in a motor vehicle amounted to 'current repairs' and the same w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in conflict with the recent Supreme Court decision in the case of Ballimal Naval Kishore. Let us go through the said decision. In that case, the assessee had purchased a building in 1937 for Rs. 17,000 which was being used as a Ginning Factory. In 1945, the assessee converted it into a cinema theatre and exhibited films therein. Subsequently, in 1960-61 extensive repairs of the theatre were carried out by the assessee. It spent amount of Rs. 16,002 on new machinery, Rs. 27,889 on new furniture, Rs. 5,225 on sanitary fittings and Rs. 13,604 on electrical wiring. In addition thereto a total sum of Rs. 62,977 was spent on extensive repairs to the walls, hall, flooring, roofing, doors, windows and to the stage sites. The theatre had to be closed during period of repairs. The question before the Court was whether the expenditure of Rs. 62,977 should be treated as current repairs within the meaning of section 10(2)(v) of the 1922 Act. It was held that it amounted to total renovation of the theatre and should not be treated as current repairs. In coming to this conclusion, the following test was laid down. "Having regard to the content in which the expression 'current repairs' occurs in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounted to total renovation of the theatre. But the principles laid down by the Court are rather favourable to assessee. 10. All the High Courts, to which we have made reference have held that by replacing the petrol engine by diesel engine, the asset remains the same and no new asset is brought into existence. The learned D.R. has stressed that fresh advantage is obtained by the assessee and this concept has not been considered by any of the High Court and therefore, the decision of the Supreme Court is contrary to the High Court decision relied on by the assessee. But in our opinion, that is not the case. In the first decision in the case of Hanuman Motor Service, the Mysore High Court has considered the above test as laid down by the Bombay High Court in the case of New Shorrock Spg. & Mfg. Co. Ltd. which has been approved by the Hon'ble Supreme Court and decided the issue in favour of the assessee. Besides this, we are of the view that fresh advantage as mentioned in the above test must be in the capital field as the Hon'ble Supreme Court and the Bombay High Court has emphasised on the fact that expenditure must be on revenue side. It is not every advantage which will take out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sonable construction of sections 31 and 37 would that expenditure which are not deductible under sections 30 to 36 can be allowed as deduction under section 37 subject to the conditions mentioned therein. In our opinion, the contention of Mr. Manish Gupta that all repairs other than the current repairs cannot be allowed either under section 31 or section 37 would be too technical and contrary to the spirit of the enactment. The repairs to the plant and machinery not in the capital field is permissible deduction against the business profits even according to the settled principles of accountancy. If the contention of Mr. Manish Gupta is accepted, that would, in our opinion, frustrate the object of the Act, since it would amount to taxing which is not the income at all. Therefore, we are of the considered view that any repairs which does not fall within the ambit of section 31 would be allowable under section 37, if it is of revenue nature. The Bombay High Court in the case of Polyolefins Industries Ltd and in the case of Jafarbhai Akbarali & Bros, has already held that replacement of petrol engine by diesel engine is revenue expenditure. 12. In view of the above, we uphold the orde ..... X X X X Extracts X X X X X X X X Extracts X X X X
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