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TMI Blog2013 (8) TMI 766X X X X Extracts X X X X X X X X Extracts X X X X ..... ng or replacement of a part or a supporting part and not complete replacement or reconstruction. Reliance had been placed upon the decision in the case Commissioner of Income Tax vs. Modi Industries Ltd. [2010 (9) TMI 162 - DELHI HIGH COURT] apart from various other decisions – In the instant case, the assessee has in fact averred that enduring benefit has accrued to him as it would help in long term since the foreign clients visit his factory/ office. A new asset of enduring benefit in form of completely new flooring of marble, different and distinct from the earlier flooring, has come into existence – Decided against the Assessee. - ITA No. 364/2013 - - - Dated:- 22-8-2013 - Sanjiv Khanna And Sanjeev Sachdeva,JJ. For the Appellant : Mr. Kedar Nath Tripathy, Advocate. For the Respondent : Mr. N. P. Sahni, Advocate. ORDER Sanjiv Khanna, J. This appeal under Section 260A of the Income Tax Act 1961 (Act, for short) by the assessee, an individual, relates to assessment year 2007-08. 2. The appellant is engaged in export of garments and had incurred an expenditure of Rs.12,72,564/- in replacing the entire floor measuring about 9000 square feet with marble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was inserted by Finance Act, 2003 w.e.f. 1st April, 2004 and is applicable to the year under assessment. In present factual position, Section 30(a)(i) is not applicable as it relates to amount spent or paid by a tenant on account of repairs. The appellant is not a tenant. Clause (ii) to Section 30(a) applies to an occupant who is not a tenant i.e. the appellant herein and stipulates that amount spent on current repairs would be allowed as deduction but the explanation states that current repairs should not include expenditure of capital nature. It is, therefore, clear that twin conditions have to be satisfied. Firstly, amount spent should be in nature of current repairs and secondly it should not be in nature of capital expenditure. When twin conditions are satisfied, deduction under Section 30(a)(ii) can be allowed. 7. In CIT vs. Saravana Spinning Mills (P) Ltd. (2007) 293 ITR 201 (SC), Supreme Court examined the expression current repairs and observed that it denotes repairs which involves renewal. However, the word repairs‟ is not to be read in isolation, since the precise term used in the section is current repairs . The word repairs means to preserve and maintain an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture of expenditure as to whether it is current repairs or not. (viii) Enduring benefit is no longer a criterion. After current repairs, machine becomes usable for or number of years. That does not mean that the expenditure on current repairs is in the capital field. (ix) Replacement of worn out parts in the process of current repairs is not the replacement of the plant and machinery itself. It was further held that:- Moving on to the issue of `current repairs under section 31 of the Act, the decision of this Court in CIT v. Saravana Spinning Mills (P) Ltd. (supra) is again relevant. This court has laid down that in order to determine whether a particular expenditure amounts to `current repairs the test is "whether the expenditure is incurred to `preserve and maintain an already existing asset and not to bring a new asset into existence or to obtain a new advantage. For `current repairs determination, whether expenditure is revenue or capital is not the proper test." It is our opinion that the entire textile mill machinery cannot be regarded as a single asset, replacement of parts of which can be considered to be for mere purpose of `preserving or maintaining this asset. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sset into existence or does not give to the assessee a new or different advantage. The learned Chief Justice observed that they are such repairs as are attended to as and when need arises and that the question when a building, machinery etc. requires repairs and when the need arises must be decided not by any academic or theoretical test but by the test of commercial expediency. The learned Chief Justice observed: The simple test that must be constantly borne in mind is that as a result of the expenditure which is claimed as an expenditure or repairs what is really being done is to preserve and maintain an already existing asset. The object of the expenditure is not to bring a new asset into existence, nor is its object the obtaining of a new or fresh advantage. This can be the only definition of 'repairs' because it is only by reason of this definition of repairs that the expenditure is a revenue expenditure. If the amount spent was for the purpose of bringing into existence a new asset or obtaining a new advantage, then obviously such an expenditure would not be an expenditure of a revenue nature but it would be a capital expenditure, and it is clear that the deduction which, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er or not the expenditure are for the purpose of preserving or maintaining the already existing assets i.e. the building and do not bring into existence a new asset or give an assessee new or a different advantage. The expenditure should be in the nature of preserving or maintaining the existing asset and not for bringing a new asset into existence or obtaining a new advantage. 12. This apart, in terms of the legislative edict, w.e.f 1st April, 2004, as noticed above, expenditure of capital in nature has to be excluded and cannot be treated as expenditure incurred on current repairs‟. In Empire Jute co. Ltd. vs. CIT [1980] 124 ITR 1 (SC), it has been observed as under:- There may be cases where expenditure, even if incurred for obtaining advantage of enduring benefit, may, nonetheless, be on revenue account and the test of enduring benefit may break down. It is not every advantage of enduring nature acquired by the assessee that brings the cases within the principle laid down in this test. What is material to consider is the nature of the advantage in a commercial sense and it is only where the advantage is in the capital field that the expenditure would be disallowable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pairs and capital expenditure to the present case, we are of the firm view that the expenditure in question was a capital expenditure and even otherwise cannot be classified as current repairs‟. The earlier flooring was removed and completely replaced by marble flooring in an area of 9000 sq. ft. consisting of basement, ground floor, first and second floor. The effect thereof was that an entirely new flooring came into existence. It was not mere repair‟ or current repair‟, as is understood in commercial sense or in terms of the tests specified above. The said expenditure was not necessary for maintaining or preserving the building but was done with the view to make distinct improvement and upgrade the appearance and ambience. The expenditure incurred would have entailed specific benefits and a new advantage. The word repair‟ involves renewal‟ of existing or replacement of a part or a supporting part and not complete replacement or reconstruction. This distinction was drawn by Calcutta High Court in Humayun Properties Ltd. vs. Commissioner of Income-tax [1962] 44 ITR 73, wherein the following passage was quoted from the speech of Lord Justice Buck ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en earlier were delayed and made subsequently in one go/time. However, the expenditure was to preserve and maintain the original structure, which had not undergone a change. In the present case, non-marble flooring was ripped apart and replaced in an area covering 9000 square feet with new type of flooring i.e. marble flooring. The new flooring was of different type and a distinct advantage of permanent character occurred. The petitioner has claimed and stated that the new flooring was attractive and had a distinctive advantage over the earlier flooring. It was done because the factory/office was frequented by foreign buyers. It was not a mere restoration. 17. In case the said expenditure has been incurred at the initial stage, when the assessee had purchased the building or at the time of construction in case the assessee was constructing the building, it would have undoubtedly been capital expenditure. The assessee has in fact averred that enduring benefit has accrued to him as it would help in long term since the foreign clients visit his factory/ office. A new asset of enduring benefit in form of completely new flooring of marble, different and distinct from the earlier floor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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