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TMI Blog1962 (9) TMI 73X X X X Extracts X X X X X X X X Extracts X X X X ..... enue expense allowable towards current repairs under section 10(2)(v) of the Act in the computation of its business income. The Income-tax Officer disallowed the claim being apparently obsessed with the view that it was a huge expense. He thought that the assessee did not maintain a reconstruction account by means of which it would be clearly seen what was the cost of replacing the asset bringing it to its original condition and which was the extra expenditure which was incurred beyond this point of restoration. He took the view that the written down value of this boat was only about ₹ 4,248 and that this fact itself glaringly shows that the huge expenditure is without doubt capital . Nevertheless, he purported to allow a sum of ₹ 1,818 under the head current repairs and disallowed ₹ 30,000 as being expenditure of a capital character. An appeal was taken to the Appellate Assistant Commissioner, it being contended before him that there was no creation of a new asset and that the outlay represented expenditure which only brought the boat back to its original profit-earning capacity. Before the appellate authority, it was contended that the expenditure in questi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e up by reason of the repairs effected, the Tribunal must have considered the materials available to it to find out whether in effecting the repairs, the assessee had done anything more than bringing the boat in question to its original sea-worthy condition or whether any permanent improvements had been effected to it. It is no doubt true that the onus of establishing that the sum expended was on current repairs is on the assessee. The assessee has tried to discharge that onus by producing his books of account. It cannot be taken as a matter of assumption that simply because expenses had come up to a large sum of money, the repairs carried out must necessarily amount to reconstruction of a substantial portion of the boat. We are not satisfied that the statement of the case submitted by the Tribunal can be said to contain all the relevant and material facts that were before the Tribunal or that the Tribunal had in its order dealt with the real question at issue by considering all the material facts bearing thereon. It was the duty of the Tribunal to have considered the available evidence to find out whether the assessee had discharged the onus of showing that the repairs claimed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h May, 1943. Apparently, the boats are re-registered from time to time. Though it is not quite clear whether 7th May, 1943, given as the date of registry in annexure X-3 refers to the re-registration after some extensive repairs or not, it appears probable that whenever these boats are dry-docked and repaired, their sea-worthiness has to be certified by the concerned port authorities and entries in the register appear to be made on such occasions. After the launching of the boat on the 21st July, 1954, another entry appears in the register and the date of the registry is given as 24th July, 1954. Further details in this register furnish the measurements of the boat and its tonnage. It is not the case of the department that any extensive repairs were effected during the past several years. It is true that in 1950, 1951 and 1952, repairs were claimed to have been effected at a cost of between ₹ 3,000 and ₹ 4,000 per year. Though no accounts are available, it is presumable from the fact of the entries in the port books in 1943, that some major repairs might have been effected at that time. According to the assessee, the boat, though no doubt it was sea-worthy, in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... within the category of current repairs. In Commissioner of Income-tax v. Sri Rama Sugar Mills 1952] 21 I.T.R. 191 this court had to consider a case where in the case of a sugar manufacturing plant, an old boiler was replaced by a new and exactly similar boiler. This boiler had deteriorated in its efficiency and the expenditure of ₹ 86,496 incurred in the purchase, erection and fitting of the new boiler was claimed to be a business expenditure. Satyanarayana Rao J. pointed out that even restoration by renewal or replacement of subsidiary parts would be a repair and unless substantially the whole of the subject-matter is involved by way of reconstruction or replacement, it would not be anything but a repair. The substitution of the new boiler did not bring any additional advantage to the business and there was no improvement effected thereby. The machinery was only brought to its original state and the use of the new boiler did not increase the productive capacity of the manufacturing unit. In this view, it was held that it was an allowable item of expenditure. It is true that the other learned judge, Raghava Rao J., took a different view in the particular feature present in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enue...........Nor do their Lordships agree that expenditure in order to form a permissible deduction must have been incurred in the production of the actual year's income which is the subject of the assessment, if by this it is meant that the benefit of the expenditure must not extend beyond the year of assessment, for very many repairs have the result of enabling income to be earned in future years as well as in the year in which they are effected... We may observe that practically in all the decisions in which the question of allowance of an expenditure of the present kind arose, the above observations of Lord Macmillan have been quoted again and again as laying down the law relevant to the subject. Chagla C.J. in New Shorrock Spinning and Manufacturing Co. v. Commissioner of Income-tax 1956] 30 I.T.R. 338 pointed out that the test to understand the expression repairs is that as a result of the expenditure what is really done is to preserve and maintain an already existing asset. But if the amount spent was for the purpose of bringing into existence a new asset or obtaining a new advantage, then such an expenditure would be capital expenditure. It was also laid dow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve to determine the nature of an allowance claimed. Looking at the facts in the present case, except that a large amount has been spent upon the repairs, it is impossible to agree that a new asset had been brought into existence in the sense that the repair is a substantial reconstruction with improved facilities and enhanced ability for earning income. The certificates of registration of 1943 and 1954 place this matter beyond doubt altogether. Structurally the boat has not been altered in any way. No improvements have been effected thereto which have increased either its loading capacity, its performance or other features. It may be that the expenditure is very high compared to the written down value of the boat. That is not a circumstance at all germane for determining the nature of the repairs. As we pointed out in the order calling for a revised statement of the case, the view of the Tribunal that the boat had gone up in re-sale value or its efficiency had increased is all speculative and is certainly belied by the certificates of registration. The expenditure was incurred only in replacing rotten planks, in sheathing the bottom of the boat with copper sheets and re-caulking ..... X X X X Extracts X X X X X X X X Extracts X X X X
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