9911796707
TMI Blog1951 (5) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... ive each of them some rest. It was, therefore, submitted that the three boilers were regularly used for the purpose of manufacture of sugar. One of these three boilers deteriorated in its efficiency and during the relevant accounting year the assessee company had to purchase another boiler at a cost of ₹ 86,496. 2. The assessee company claimed this sum as a revenue expenditure. The Income-tax Officer/Excess Profits Tax Officer as well as the Appellate Assistant Commissioner disallowed it on the ground that it was a capital expenditure. In order to establish that the expenditure is of a capital nature one must be satisfied that the new boiler is an improvement on the old one producing bigger outturn of sugar or that it is not a part of the machinery used for the purpose of such production. The claim of the assessee company has always been that it was merely a replacement of the old one having the same pressure which the old one possessed when it was new and which is doing the same work which the old one was doing previous to its deterioration. The Tribunal accepted this. Before the Tribunal it was also stressed by the departmental representative that the boiler should not be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tly in use. The third boiler is necessary and has to be used when any one of the other boilers have to be cleaned up at intervals and have to be given rest. One of these three boilers deteriorated in its efficiency during the relevant accounting period and the assessee was obliged to purchase another boiler at a cost of ₹ 86,496 and the old boiler was sold for a sum of about ₹ 15,000. The assessee company claimed this sum as a deduction from and out of its profits as expenditure chargeable to revenue. The deduction was not allowed by the Income-tax Officer and the Excess Profits Tax Officer and his decision was confirmed by the Appellate Assistant Commissioner. They held that it was a capital expenditure and not an expenditure chargeable to revenue. On a further appeal, the Appellate Tribunal reversed this decision and upheld the claim of the assessee company. Hence this reference. The question whether the expenditure incurred for the purpose of trade is properly debitable to the incomings of the trade or is capital expenditure is not always easy to decide. The scheme under the Indian Act adopted in Section 10 in computing the profits of a business is the allowances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ountancy the deduction must be treated as in the nature of a capital expenditure, while it is equally open to the assessee to show that it is chargeable to the incomings of the business. Bearing these principles in mind, it would be convenient now to consider the decisions cited at the Bar to elucidate the distinction between capital and revenue expenditure. Though in the question formulated and in the arguments before the Income-tax Officer and the other authorities which dealt with this question, the point was considered only from the point of view of clause (xv) to sub-section (2) of Section 10, in the arguments before us, reference was made to sub- clause (v) of that sub-section relating to repairs and also to clause (xv). If the substitution of the new boiler for the old by the assessee can aptly be described as a "repair" of the machinery, the claim for allowance must be upheld under clause (v) of Section 10(2) and no further question whether it is in the nature of capital expenditure or expenditure which is to come out of revenue arises for consideration. It has been held by this Court very early in Ratan Singh v. Commissioner of Income-tax, Madras*, that these cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it would be seen, a renewal may be a repair or a reconstruction. Renewal is a repair if it is only restoration by renewal or replacement of subsidiary parts of a whole. If, on the other hand, it amounts to a reconstruction of the entirety or of substantially the whole of the subjectmatter it is not a repair but a reconstruction. The test, therefore, which decides the question whether a thing is a "repair" or not is to see whether the act actually done is one which in substance is a replacement of defective parts or a replacement of the entirety or a substantial part of the subject-matter. A reconstruction of a wall, it was held in that case, was a repair and was covered by the obligation of the tenant who was under a covenant to repair the leasehold property. The reason given for this conclusion appears at page 927. It was held to be a "repair" because it merely restored the stability and safety of a subordinate part of the whole like replacing a new floor of a house. The Judicial Committee had occasion to consider a similar question under the Bechuanaland Income Tax Proclamation--see Rhodesia Railways Ltd. v. Income-tax Collector, Bechuanaland*. That case rela ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of relaying the line so as to restore it to its original condition and the cost of relaying the line so as to improve it is well brought out in the passage just quoted, and while the former is recognised as a legitimate charge against income the extra cost incurred in the latter case in the improvement of the line is equally recognised as a proper charge against capital." The distinction drawn in Highland Railway Company v. Special Commissioners of Income Tax* was that if what was done was a substitute of one kind of rail for another, steel rails for iron rails, that would have been a material alteration and an improvement in the corpus of the heritable estate of the company and in such a case, the cost of such an improvement would be a charge against capital. If, however, the old rails were replaced by substantially the same kind of rails and no improvement in the corpus was effected, it would follow that there was no creation of any new asset, to use the language of Lord Macmillan, but the expenditure would merely be one incurred to maintain the existing line in a state to earn revenue. It was therefore held that it was both a repair within the meaning of Section 15, sub-se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re is no reason why one should stop at a particular point and not proceed with the division further. A fly wheel may be treated as one unit because it performs one function in the larger unit. If such a fly wheel is replaced, the expenditure incurred in that behalf, if the argument is correct, may as well be treated as capital expenditure as it amounts to replacement of a unit. But Mr. Rama Rao Sahib is not prepared to go so far and is driven to accept the position that in such a case the expenditure will be a revenue expenditure as it is a repair and not capital expenditure. The test laid down by Viscount Cave in British Insulated and Helsby Cables Limited v. Atherton** to distinguish an expenditure which is in the nature of a capital expenditure from an expenditure properly debitable against incomings of a trade in computing profits has been adopted and applied in later decisions and that test holds the field even today. Lord Dunedin in Vallambrosa Rubber Co. v. Farmer*** laid down a rough test that capital expenditure was "a thing that was going to be spent once for all while revenue expenditure was a thing that was going to recur every year." But as pointed out by Vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the Appellate Tribunal applied the correct test and came to a right conclusion on the facts in holding that the amount claimed was a revenue expenditure deductible under Section 10(2)(xv) of the Indian Income-tax Act and not a capital expenditure. Our attention was drawn to a decision of the Allahabad High Court in Ramkishen Sundarlal v. Commissioner of Income-tax, U.P.#, where it was held that the expression "current repair" occurring in Section 10(2)(v) of the Indian Income-tax Act is confined only to "petty" repairs usually carried out periodically and will not include repair or renewal costing a large sum of money which was spent after the machine has been run for a number of years. The dictionary meaning of the word "current" is not petty, but it means "belonging to the present time, prevailing" and with great respect to the learned Judges, it is difficult to accept such a restricted construction of the expression "current repair" in the clause. The answer to the question referred to us must, therefore, be in the negative and against the Commissioner of Income-tax. As the Commissioner of Income-tax has failed in this refe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore dealing with the more important of the cases bearing on the matter it is as well to draw attention to the material provisions of the Indian Income-tax Act. After providing in Section 10(1) that "The tax shall be payable by an assessee under the head 'profits and gains of business'......in respect of the profits or gains of any business...carried on by him," the statute proceeds in sub-section (2) to provide for specified allowances to be taken into account in computing the profits or gains. Of the allowances so provided for, the one with which we are directly concerned is that contained in clause (xv) of sub-section (2) which runs as follows:- "any expenditure (not being in the nature of capital expenditure.....of the assessee) laid out or expended wholly and exclusively for the purpose of such business....." This is the provision with reference to which the matter has been considered so far in all the stages of the case. There is another provision which has also entered into the argument before us and that is the one in clause (v) which runs thus:- "in respect of current repairs to such......machinery, plant...... the amount paid on accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vass the meaning of the word "repairs" as well as the meaning of the word "current". The Concise Oxford Dictionary treats "repair" and "renovate" as interchangeable terms and annotates one as equivalent to the other. Etymologically "repair" is derived from O.F. reparer which in its turn is derived from L re (reparare i.e., again to make ready;) while "renovate" is derived from L re (novare, i.e., make new again). The two terms are therefore not terms of mutual contrast or antithesis but of interchangeableness and equivalence. "Repair" is a comprehensive word which means "to make good defects" and which therefore must include renewal where that is necessary: Inglis v. Buttery*. A covenant to "repair" may well stand satisfied by "patching where patching is reasonably practicable, but where it is not, you must put in a new piece" (Per Lord Blackburn, Ibid, 579-vide Stroud's Judicial Dictionary, page 1719). In relation to a building as such what a covenant to repair exactly means had to be considered by the Court of Appeal in England in Lurcott v. Wakely and Wheeler**. That was a ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matter has become impossible a covenant to repair does not carry an obligation to renew or replace." If the replacement of the old boiler by the new in the present case is regarded as in the nature of a restoration of the machinery or plant of which the boiler is a part by a renewal of it, that obviously is tantamount to repair within the meaning of Buckley, L.J'.s exposition, as well as within the dictionary meaning of the word "repair" as an equivalent of "renovate" to which I have already adverted. It is true that Buckley, L.J., was not dealing with a case under the Income Tax Act but I see no reason after the careful consideration I have bestowed upon the matter since reservation of judgment why our interpretation of the word "repairs" occurring in the relevant provision of the Indian Income-tax Act now under consideration should not be guided by Buckley, L.J.'s interpretation of the expression which undoubtedly has been accepted by the Privy Council as a clue to the proper interpretation of the expression in the Bechuanaland Protectorate Income Tax Proclamation in Rhodesia Railways v. Income Tax Collector, Bechuanaland*. Lord Macmill ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the machinery or plant comes to a stand-still and ceases to run, they must be regarded as not current repairs. Whether the repairs involve a high or low degree of expenditure does not matter, so long as the machinery or plant is actually running and the consideration of pettiness or contra of which the Allahabad case makes a point is really immaterial. Whatever the bigness or smallness of the repairs, so long as they are "current" repairs they fall within clause (v), while if they are not that, they fall outside it. If the worn-out boiler became at the time of its replacement something with which it was impossible to run the plant or machinery of which it was a part, it seems to me that the replacement cannot reasonably be regarded as in the nature of current repairs. On the other hand, any repairs to any part of the machinery or plant such as may lie in a patching up during the running of the machinery or plant for the business, must, in my opinion, be regarded as in the nature of "current" repairs. This meaning of the expression "current repairs" gains point in my opinion from what Rowlatt, J., has said in O'Grady (H.M. Inspector of Taxes) v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relied upon by Mr. Rama Rao Saheb is the one reported in Margrett (H.M. Inspector of Taxes) v. Lowestoft Water and Gas Company*, where the question arose with reference to the cost of replacement of a reservoir which was part of the apparatus for water supply by the respondent company to Lowestoft and district. It was held by Finlay, J., that there was no evidence upon which the Commissioners could arrive at their conclusion that any part of the cost of the reservoir was other than capital expenditure. At page 487 of the report the learned Judge first observes thus as the reasoning of his conclusion:- "What strikes one who is familiar with the long line of cases on this sort of subject is that this looks like the plainest case of capital expenditure. If a reservoir is antiquated or worn out and the people responsible, instead of repairing it and letting it go on for a bit longer, discard it or scrap it and build a new, a better and different, reservoir elsewhere, one would have thought that that was, as I say, the plainest possible case of capital expenditure." Then he refers to the case before Rowlatt, J., in O'Grady v. Bullcroft Main Collieries Ltd.**, as a case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a new one, that is enough to make of the expenditure capital expenditure. Of course if it is a better or different one-which was an accident of fact in that case-that is a fortiori a case of capital expenditure. But then there is the case of the Privy Council in Rhodesia Railways v. Income Tax Collector, Bechuanaland**, which I must consider in this connection. It is true that Finlay, J., said of this case that it did not seem to him to throw any real light upon the case before him. There is no reason given by the learned Judge for saying so of the Privy Council decision. Whether right or wrong Lord Macmillan in the Privy Council case does give reasons for his view that the expenditure there in question was not of a capital nature. Apparently, Finlay, J., who could not but be alive to those reasons would not accept them, though he does not say so in so many terms. In order to understand the reasoning of the Privy Council, it is necessary to state the facts of the case before their Lordships. The appellants there were assessed to income-tax under the Bechuanaland Protectorate Income Tax Proclamation, 1922, in respect of profits from 394 miles of their railway line in the Protectora ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iron rails. No question was raised as to the cost of relaying the rails except as regards the additional weight and the cost of the improved rails as compared with the original rails. The railway company claimed to deduct the additional cost as a proper charge against revenue on the ground that no permanent improvement of their property had been effected by the substitution of the heavier and costlier steel rails and that they derived no additional revenue from the outlay. The Lord President (Inglis) in rejecting the company's contention said*: "It must be kept in view that this is not a mere relaying of line after the old fashion. It is not taking away rails that are worn out or partially worn out and renewing them in whole or in part along the whole line. That would not alter the character of the line ; it would not affect the nature of the heritable property possessed by the company. But what has been done is to substitute one kind of rail for another-steel rails for iron rails. Now, that is a material alteration, and a very great improvement in the corpus of the heritable estate belonging to the company, and so stated, surely is a charge against capital. All that is do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear and tear. On the scheme of the Proclamation there in question the Privy Council seems to have thought that what had to be regarded as repairs within one provision of it could not be regarded as an outgoing of a capital nature within another part of it with the result that the analogy of a wasting asset relied upon by the Court below could not be accepted by the Privy Council as germane to the case before them. At the same time, it is also clear to my mind that as to what capital expenditure means, the test suggested is whether or not it has resulted in the creation of a new asset as distinct from the mere maintenance of an existing asset, in other words, whether or not the expenditure has merely restored the situation to its original condition or improved it by extra quality. Applying to the case on hand this test of the Privy Council ruling, with which I shall have to deal further, later in the course of this judgment, it may seem as clear that the department should fail, as that it should succeed, as already observed by me on the application of Margrett (H.M. Inspector of Taxes) v. Lowestoft Water and Gas Company*. The question is ; between which of these two decisions if in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot; into finished commodities. Wool is converted by successive steps into clothing, grain into bread, stone and timber into a house, but a process, the same in essentials, takes place with tools and machinery. Suppose a printing machine lasts for one year only being worn out and worthless at the close of the year. The books printed with its aid are the product not only of the labour applied to make the paper and other materials and of that applied by the compositors and other workmen in the printing office, but also of that applied in the construction of the printing machine itself, which in fact in due course may disappear by wear and tear. So of all machinery and all plant. It wears out sooner or later and may be said sooner or later to ripen into goods that satisfy our wants: (Page 70, ibid). All forms of material wealth wear out in course of time. Some sorts of capital are indeed very durable such as irrigation dams and granite docks; some last a considerable time as buildings and machinery; others are used up very quickly as the coal which is burnt under the boiler. All need to be replaced as time goes on, some slowly in proportion as they last long, some quickly in proportion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... normally, so as to help us to understand aright the reasoning behind the Privy Council decision in Rhodesia Railways v. Income Tax Collector, Bechuanaland*. In the light of what is said by Taussing, it is easy to understand why Lord Macmillan in delivering the judgment of the Privy Council in Rhodesia Railways v. Income Tax Collector, Bechuanaland*, emphasises the consideration that the expenditure of which deduction was sought by the assessee in that case really represented the cost of repairs from year to year for which no deduction had been claimed in the matter of the tax paid in previous years. It is also easy to understand in that light why his Lordship rejects the analogy of a wasting asset relied upon by the Special Tribunal in that case which would really be applicable only to a case where a particular asset got completely exhausted by wear and tear in the process of use, not merely antiquated or worn out just to be repaired and "let go on a bit longer", to use the language of Finlay, J., in Margarett (H.M. Inspector of Taxes) v. Lowestoft Water and Gas Company*. In a case reported in Coltness Iron Company v. Black** the question arose whether a tenant of miner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The phrase 'capital exhausted' does not occur anywhere in the Income Tax Acts. It is taken from a passage in Mr. McCulloch, on Political Economy, where he says:- 'Profits must not be confounded with the produce of industry primarily received by the capitalist. They really consist of the produce on its value remaining to those who employ their capital in an industrial undertaking after all their necessary payments have been deducted, and after the capital wasted and used in the undertaking has been replaced. If the produce derived from an undertaking after defraying the necessary outlay be insufficient to replace the capital exhausted, a loss has been incurred; if the capital is merely sufficient to replace the capital exhausted, there is no surplus, there is no loss, but there is no annual profit, and the greater the surplus is, the greater the profit.' I do not feel at all inclined to dispute the sufficiency of this definition." It is clear from this passage in the speech of Lord Blackburn that while according to the author of the Work on Political Economy referred to by his Lordship if the produce derived from an undertaking after defraying the necessary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e question arose thus:- "A company, which carried on the business of manufacturers of insulated cables, established, under the powers of its memorandum of association, a pension fund for its clerical and technical salaried staff. The fund was constituted by a trust deed which provided that members should contribute a percentage of their salaries to the fund and that the company should contribute an amount equal to half the contributions of the members ; and further that the company should contribute a sum of £ 31,784 to form the nucleus of the fund and to provide the amount necessary in order that past years of service of the then existing staff should rank for pension. This sum was arrived at by an actuarial calculation on the basis that the sum would ultimately be exhausted when the object for which it was paid was attained. On the winding up of the fund the whole amount was to be distributed among the members. The company, having paid the sum of £ 31,784 out of current profits, claimed that it was an admissible deduction in computing its profits for the purpose of assessment to income-tax for the financial year 1917-18." On these facts it was held (by Vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. v. Dale (H.M. Inspector of Taxes)# where the facts were as follows:- "By agreements made in 1910 and 1914 the appellant company appointed another limited company as its agents in Persia and the East, for a period of years, upon the terms (inter alia) that the agents should be remunerated by commission at specified rates. With the passage of time the amounts payable to the agents by way of commission increased far beyond the amounts originally contemplated by the company, and after negotiation between the parties, the agreements were cancelled in 1922, the agent company agreeing to go into voluntary liquidation and the company agreeing to pay to the agents £ 300,000 in cash. This sum was in fact paid and the company contended before the Special Commissioners that it was an admissible deduction in computing the company's profits for purposes of income-tax and corporation profits tax. The Special Commissioners rejected this contention and the company appealed." Rowlatt, J., in the first instance and the Court of Appeal presided over by Lord Hanworth, M.R., in confirmation of Rowlatt, J.'s decision held that the payment to the agents was not in the natur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his observation at page 225 of the Report:- "It is clear from the terms of the trust deed, as already pointed out, that in no sense was the sum an investment, that it would be eventually exhausted in payment of the pensions, and that in the event of a winding up of the company it could never form any part of the assets of the company." The tests suggested by the observation are (i) whether the sum in question is one which gets eventually exhausted over payments required to be made for the actual working of the business, and (ii) whether in the event of a winding up of the company the sum in question could ever form any part of the assets of the company. Then to turn to the speech of Lord Blanesburgh the same considerations are brought out at page 236 of the Report. After pointing out at an earlier page (233) in terms of Lord Loreburn's statement of the law in the case of Usher** that "profits and gains must be estimated on ordinary principles of commercial trading by setting against the income earned the cost of earning it, subject to the limitations prescribed by the Act", a statement of the law which is not dissimilar to what has been quoted by me earli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital asset or any other. I may add in this connection that there is just another test suggested by Highland Railway Co. v. Balderston*, a case decided in Scotland in the Court of Exchequer, First Division. In that case there was an acquisition by a railway company of a certain section of the railway line which they needed to bring up to the standard of the rest of the main line in their ownership to make of the whole thing a continuous railway line. There was also certain expenditure incurred over the alterations of the main line itself. The expenditure under the two heads was shown in the account books of the company as capital expenditure. The contention however was that it was in the nature of expenditure chargeable against income. The contention was overruled. The Lord President (Inglis) observes thus with reference to the way in which the account books deal with the expenditure:- "I think it is a pretty good indication to the Commissioners upon their part that they could not properly make it a charge against income at all. At the same time, although this is the condition of the appellant's books, I do not by any means say that it is conclusive, if they can show w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of the line; it would not affect the nature of the heritable property possessed by the company. But what has been done is to substitute one kind of rail for another, steel rails for iron rails. Now that is a material alteration and a very great improvement on the corpus of the heritable estate belonging to the company, and so stated is surely a charge against capital." From the foregoing it seems to me that the entries in the account books of the assessee as showing expenditure either under head of capital expenditure or under the head of revenue expenditure are prima facie, though not conclusive, evidence of the character of the expenditure in question in any particular case. Further it also follows from the quotations that I have made that where the price paid for the acquisition of an asset is something lower than what it would have been, had the asset been in perfect condition, any improvement of the asset in order to repair the deficiencies of the condition in which it was purchased would be in the nature of capital expenditure. Further again where the heritable corpus of a company is so far improved that in quality or calibre something better replaces it, that is a ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he law Lords in that case. In relation to each particular case it may be that one or more particular test or tests necessarily appeal to one's mind as the thing or things of predominant significance and therefore most relevant and conclusive. That is why Costello, J., in his judgment in In re Imperial Chemical Industries (India) Ltd.** in which his colleague Lort Williams, J., concurred, after quoting from Lord Hanworth, M.R.'s judgment in Golden Horse Shoe (New) Ltd. v. Thurgood*** observes as follows:- "That is only to say once more that the matter really resolves itself in the last resort into a question of fact in each particular case, and there is no sure touch-stone which can be applied universally to solve a problem of the kind involved in the present proceedings." In this connection I may also advert to a case of this court reported in Ratan Singh v. Commissioner of Income-tax# which was originally dealt with by Sir Murray Coutts Trotter, Kt., C.J., and Beasley, J., as an Original Side Appeal from the judgment of Kumaraswami Sastri, J., and later dealt with by those two learned Judges as well as by Curgenven, J., on a reference by the income-tax commiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enewal of the car could only be described as an increase of capital. But apart from that, we have the provision of sub-section (2)(ix) which speaks in general terms of any expenditure (not being in the nature of capital expenditure) incurred solely for the purpose of earning such profits or gains. Without committing ourselves to a view as to what are current repairs within the meaning of clause (v), we think it reasonably clear that the cost of repairs set forth in the list that was handed up to us must be treated as an expenditure incurred for the purpose of earning the profits or gains of the business, and we do not think that it can properly be treated as capital expenditure which is excluded from the operation of clause (ix)." This part of the judgment which deals with the question of the application of Section 10, sub-section (2), clause (v), I need not dilate upon as I have already considered the question in the present case with reference to this statutory provision and come to the conclusion that the repair in question here which is the replacement of the old worn out boiler by a new one cannot be regarded as current repair because the old boiler had not ceased to fun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ital expenditure, which may be allowed for under clause (ix)." It is contended by Mr. Rama Rao Sahib for the Department that applying the tests of Curgenven, J., in the passage quoted the sum spent over the purchase of the new boiler in replacement of the old changed the identity of the machine, effected a substantial improvement and resulted in such substantial extension of the period of serviceableness as to be liable to be regarded as capital rather than revenue expenditure according to the test of Curgenven, J., irrespective of the superiority of quality of the new boiler as compared with the old. I am not satisfied, I must say, that any change in the identity of the machine has come about within the language of the test of the learned Judge by reason of the sum so spent. The argument of learned counsel that the expenditure has resulted in the kind of substantial improvement or substantial extension of the period of serviceableness contemplated by the learned Judge seems however to stand on a different and stronger footing. The view of the two other Judges who dealt with the matter on the Original Side Appeal and affirmed the opinion therein expressed in their judgment af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cil case if the sums spent could really be regarded as for repairs within one part of the Proclamation there in question, they would according to the reasoning of their Lordships certainly stand excluded from the sphere of capital expenditure in relation to the other part of the Proclamation. That was the way in which the Privy Council dealt with the matter of the two parts of the section of the Proclamation together, and arrived at the conclusion that the renewals were repairs within the meaning of Section 15, sub- section (1)(b), of the Proclamation and the cost of them did not constitute an outgoing of a capital nature within the meaning of Section 15, sub-section (1)(a). In the present case the fact that the cost of the new boiler is not within "current repairs" of one part of the statute does not necessarily involve that it is or is not of a capital nature within the other part of the Statute. The latter question has to be considered on its own merits, and considering it so, and applying the principles of the English cases in O'Grady (H.M. Inspector of Taxes) v. Markham Main Colliery Ltd.* and Margrett (H.M. Inspector of Taxes) v. Lowestoft Water and Gas Company* ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... That apparently is the reason why his Lordship does not refer at all to the authority of British Insulated and Helsby Cables v. Atherton*. In his Lordship's opinion on the facts of the case before the Privy Council the test which applied was the one which his Lordship deduced from Highland Railway Co. v. Special Commissioners of Income Tax** with which I have already dealt. In the light of all this discussion of the law on the matter the finding of the Appellate Tribunal that the boilers were part of a unit of the machinery required for the manufacture of sugar and so could not be treated as a separate unit by themselves is of no materiality whatsoever even if well founded. It may be that as Mr. Subbaraya Ayyar has rightly pointed out the entire sugar works is treated as a single unit or class of asset for the determination of the allowance under the head of depreciation contemplated by Section 10, sub-section 2(vi) of the Act. (Vide page 306 of the Income-tax Manual issued by authority of the Central Government, 10th Edition, Parts II and III). But that, in my opinion, does not throw any light on the question whether for the purpose of the applicability of Section 10(2), cla ..... X X X X Extracts X X X X X X X X Extracts X X X X
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