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TMI Blog1964 (11) TMI 108X X X X Extracts X X X X X X X X Extracts X X X X ..... managing partner of the lessor firm brought a suit in ejectment with a further claim for mesne profits in the court of the District Judge, Krishna, at Masulipatam. The assessee thereupon started negotiations with the partners of the lessor firm. He was successful in obtaining a sale deed for 98 out of 160 shares in the land. He entered into an agreement of sale with regard to 39 shares more, but that transaction did not materialise into a registered sale deed. He, therefore, brought a suit for specific performance. His efforts for purchase of the remaining 23 shares which belonged to the managing partner of the firm did not meet with success. While so, the District Court granted a decree for eviction fixing, at the same time, mesne profits payable at ₹ 2,000 per annum from May 1, 1950. The suit for specific performance brought by the assessee with regard to 39 shares was dismissed. The assessee went in appeal to the High Court and applied for stay of the execution proceedings of the District Court's decree for eviction. The stay was granted on July 29, 1957, subject to certain conditions. The assessee was directed to deposit in cash in court the mesne profits on 62 shares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2) (xv) of the Indian Income-tax Act. Section 10, so far as is material for this case, runs thus: 10. (1) The tax shall be payable by an assessee under the head 'Profits and gains of business, profession or vocation' in respect of the profits or gains of any business, profession or vocation carried on by him. (2) Such profits or gains shall be computed after making the following allowances, namely: (i) any rent paid for the premises in which such business, profession or vocation is carried on, provided that when any substantial part of the premises is used as a dwelling-house by the assessee, the allowance under this clause shall be such sum as the Income-tax Officer may determine having regard to the proportional annual value of the part so used;... (v) in respect of current repairs to such buildings, machinery, plant or furniture, the amount paid on account thereof;......... (xv) any expenditure (not being an allowance of the nature described in any of the clauses (i) to (xiv) inclusive, and not being in the nature of capital expenditure or personal expenses of the assessee) laid out or expended wholly and exclusively for the purpose of such busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enditure incurred essentially on ordinary repairs as are needed for the maintenance and upkeep of the building or theatre. Such an expenditure having regard to its nature must be one in respect of current repairs within the meaning of that term in the said provision. It may be noted that the expression used, namely, current repairs is peculiar to Indian law. The English statute does not contain any section which uses that expression. There the expression used is repairs . So the English authorities are not of much assistance in understanding the connotation of current repairs. The view taken by the High Courts in India in relation to the true meaning and implication of this term is not at all uniform, and is conflicting enough. The Allahabad High Court in Ramkishen Sunderlal v. Commissioner of Income-tax [1951] 19 I.T.R. 324 referred with approval to the observations of Buckley L.J. in Lurcott v. Wakely Wheeler [1911] 1 K.B. at pages 923-924, which are to the effect that repair and renew are not words expressive of a clear contrast, for repair involves a renewal and it may be restoration by renewal or replacement of subsidiary parts of a whole; that renewal, as distinguish ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e deduction as expenditure incurred for current repairs. In the Bombay case, New Shorrock Spinning and Manufacturing Co. Ltd. v. Commissioner of Income-tax [1956] 30 I.T.R. 338 where certain parts of the majority of the looms used in the textile mills were replaced as a device for keeping certain tension for the working of the looms and the new parts used were comparatively lighter in weight conforming to international standards and were superior to the old parts and were used because the old parts were not available in the market and besides the cost of preparation of similar type would have been disproportionately high and the old parts were being replaced after a lapse of sixty years, Chagla C.J. observed that the expenditure was an allowable deduction under section 10(2)(v). The term current repairs , according to the learned Chief Justice, means expenditure which is not for the purpose of renewal or restoration but for the purpose of preserving or maintaining an already existing asset which does not bring into being a new asset or does not give to the assessee a new or different advantage and they must be repairs which are attended to as and when the need arises. He further o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the authorities in Humayun Properties Ltd. v. Commissioner of Income-tax [1962] 44 I.T.R. 73 and reached the following conclusions in relation to the expression current repairs : (1) that current repairs are necessary repairs which are needed for the maintenance of the building and machinery, etc., referred to in section 10(2)(v). They are not luxury repairs, the element of need being implicit in the expression. As they must be such as are needed periodically, the accumulation of repairs will not ordinarily satisfy the test. Further, the need for such repairs must have arisen in order to make the repairs current repairs. (2) Inasmuch as the idea latent in current repairs is periodicity and recurrence, when the expenditure is incurred to bring into existence a new asset or an advantage of an enduring nature, it cannot be regarded as an expenditure on current repairs. (3) The degree of improvement brought about and the change effected in the identity of the existing asset as the result of the expenditure incurred should afford a test in order to determine whether the asset has become a new or substantially a new asset. Applying the above tests, the learned judges held th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut with a set purpose of giving an enduring advantage to the assessee to keep pace or outstrip in the competition with the new theatre which had recently sprung up, the expenditure of this nature cannot fall within the scope of section 10(2)(v). Even if there were a few items which could come within the scope of section 10(2)(v), it is clear that the assessee did not take care to specify them separately but mixed them with expenses on substantial improvements so closely that it is difficult to make out what part thereof could be allowable deduction. In such a case, it is idle to contend that certain portion of the expenses on items ought to have been held as allowable deduction. We next consider whether the said items come under section 10(2)(xv). In order to attract sub-clause (xv), it must be established that the expenditure is not an allowable deduction coming in any of the clauses (i) to (xiv) and further it is not in the nature of capital expenditure or personal expenses of the assessee and was laid out wholly and exclusively for the purpose of business. The claim under sub-clause (v) being negatived, it may be safely held on the facts of the case that it does not fall with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofits it is a revenue expenditure. If any such asset or advantage for the enduring benefit of the business is thus acquired or brought into existence it would be immaterial whether the source of the payment was the capital or the income of the concern or whether the payment was made once and for all or was made periodically. The aim and object of the expenditure would determine the character of the expenditure whether it is a capital expenditure or a revenue expenditure. The source or the manner of the payment would then be of no consequence. It is only in those cases where this test is of no avail that one may go to the test of fixed or circulating capital and consider whether the expenditure incurred was part of the fixed capital of the business or part of its circulating capital. If it was part of the fixed capital of the business it would be of the nature of capital expenditure and if it was part of its circulating capital it would be of the nature of revenue expenditure. These tests are thus mutually exclusive and have to be applied to the facts of each particular case in the manner above indicated. We are concerned in this case with the expenses on theatre. It admits of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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