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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 ..... ober, 2010. The Tribunal has upheld the view taken by the lower authorities by the impugned order dated 17th December, 2004. 3. In the appeal, by order dated 5th August, 2013, the following substantial question of law was framed: "Whether the Income Tax Appellate Tribunal was right in holding that the expenditure of Rs.12,72,564/- for laying/fixing marble flooring is not covered under „Current Repairs‟ as defined in Section 30(a)(ii) of the Income Tax Act, 1961 read with the Explanation?" 4. The contention of the appellant is that the entire floor of the office and factory premises, located at Okhla Industrial area, was in bad shape and, therefore, the appellant had no choice but to replace the flooring. He has submitted that the factory was purchased five years back and, due to wear and tear, repair was necessary. 5. Section 30 of the Act reads as under: "30. In respect of rent, rates, taxes, repairs and insurance for premises, used for the purposes of the business or profession, the following deductions shall be allowed- (a) where the premises are occupied by the assessee- (i) as a tenant, the rent paid for such premises ; and further if he has undertaken to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich the said words explained the principle or ratio. The Supreme Court in the said case was examining Section 31(a)(i) which relates to repair of machinery, plant and furniture. In respect of machinery, plant and furniture, it is of utmost relevance whether or not a new asset comes into existence. Here we are not concerned with machinery, plant or furniture which require constant replacement of old parts with new ones on account of wear and tears, stress and strains etc. Replacement of parts of a machinery normally could qualify for the revenue deduction under the head „current repairs‟ but, as observed in Sarvana Spinning Mills Pvt. Ltd. (supra), replacement generally would not fall under the definition "current repairs", though replacement of old machinery, in use for over 40-50 years or where old parts are not available in the market, may fall under the expression „current repairs‟. Whether expenditure qualifies as "current repairs" depends upon several factors like nature of expenditure, nature of business activity, the asset subject matter of "repair" etc. 9. The Supreme Court in CIT vs. Sri Mangayakarasi Mills P. Ltd. (2009) 315 ITR 114 (SC), on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r a period of time. Thus, replacement of assets as in the instant case cannot amount to `current repairs‟. The decision in Saravana Mills (supra) case clearly mentions that replacement of a derelict ring frame by a new one does not amount to `current repairs. Further in Ballimal Naval Kishore (supra) this Court has held that a new asset or new/different advantage cannot amount to `current repairs, which has been subsequently approved in the Saravana Mills (supra) case. For these reasons, the expenditure made by the assessee cannot be allowed as a deduction under section 31 of the Act. The judgment of this Court in the Saravana Mills (supra) case mentions two exceptions in which replacement could amount to current repairs, namely: Where old parts are not available in the market (as seen in the case of CIT v. Mahalakshmi Textile Mills Ltd., AIR 1968 SC 101, or Where old parts have worked for 50-60 years." 10. On the question of current repairs, it would be appropriate to refer to an earlier decision of the Supreme Court in Ballimal Naval Kishore & Anr. vs. CIT (1997) 224 ITR 414 (SC). In this case referring to the decision of the Bombay High Court in New Shorrock Spinning & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only which are carried out periodically. The Learned Judge agreed with the view taken by the Patna High Court in Commr. of Income-tax v. Darbhanga Sugar Co. Ltd [1956] 29 ITR 21(Pat) : TC 15R 323 and by the Madras High Court in Commr. of Income-tax v. Sri Rama Sugar Mills Ltd. [1952] 21 ITR191(Mad) : TC 16R 1068. In Liberty Cinema v. Commissioner of Income-tax, Calcutta [1964] 52 ITR153 (Cal): TC 16R 157, P.B. Mukharji, J., speaking for a Division Bench of the Calcutta High Court, held that an expenditure incurred with a view to bring into existence a new asset or an advantage of enduring nature cannot qualify for deduction under Section 10(2)(v). In our opinion the test involved by Chagla, C.J. in New Shorrock Spinning & Manufacturing Company Limited (supra) is the most appropriate one having regard to the context in which the said expression occurs. It has also been followed by a majority of the High Courts in India. We respectfully accept and adopt the test. Applying the aforesaid test, if we look at the facts of this case, it will be evident that what the assessee did was not mere repairs but a total renovation of the theatre. New machinery, new furniture, new sanitary fitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 's case (supra) : "(i) It is not a universally true proposition that what may be a capital receipt in the hands of the payee must necessarily be capital expenditure in relation to the payer. The fact that a certain payment constitutes income or capital receipt in the hands of the recipient is not material in determining whether the payment is revenue or capital disbursement qua the payer. (ii) There may be cases where expenditure, even if incurred for obtaining an advantage of enduring benefit, may, none the less, be on revenue account and the test of enduring benefit may break down. It is not every advantage of enduring nature acquired by an assessee that brings the case 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 on an application of this test. If the advantage consists merely in facilitating the assessees trading operations or enabling the management and conduct of the assessees business to be carried on more efficiently or more profitably while leaving the fixed capital untouched, the expenditu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es for those which are cracked, broken, or are missing; to make good the flashings, and the light. Part of a garden wall tumbles down; repair is effected by building it up again with new mortar, and, so far as necessary, new bricks or stone. 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. I agree that if repair of the whole subject-matter has become impossible a covenant to repair does not carry an obligation to renew or replace." 15. Thus, if a section or part of floor cracks and repair is effected, it may qualify for current repairs. Such repairs may be required and carried on the entire building to bring the original flooring into original shape or even marginally improve it. However, it would not be "current repairs" if in place of old flooring a new flooring of different type is laid in the entire structure, entailing a new and distinct advantage. Therefore, renewal and installation of entire flooring of 9000 sq. ft. in the entire building with new flooring is n ..... X X X X Extracts X X X X X X X X Extracts X X X X
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