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TMI Blog1979 (8) TMI 46X X X X Extracts X X X X X X X X Extracts X X X X ..... Press Co. Ltd. v. ITO [1977] 108 ITR 620, to contend that the view expressed therein accords with the view of the Mysore High Court. It may be stated that though the facts of the case in Guntur Merchants Cotton Press Co. Ltd. v. ITO [1977] 108 ITR 620 are different, the earlier decision of this court in R. B. Shreeram Co. (P.) Ltd. v. CIT [1968] 67 ITR 428 was not brought to its notice. We, therefore, think it proper that this Referred Case should be referred to a Full Bench for its decision. JUDGMENT OF THE FULL BENCH The judgment of the court was delivered by KONDAIAH C.J.--This is a reference under s. 256(1) of the I.T. Act, 1961 (hereinafter called " the Act "), by the Income-tax Appellate Tribunal, Hyderabad Bench, for the opinion of this court on the following question of law : " Whether, on the facts and in the circumstances of the case, the expenditure of Rs.15,851 incurred by the assessee in replacement of motor engine is allowable as revenue expenditure in computing the assessee's income from business ? " We may notice the material facts, which lie in a short compass, as disclosed in the statement of case. The applicant-assessee is a firm carrying on business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion falls under the category of " repairs to the machinery " as per the provisions of s. 31 of the Act since the worn out engine of the motor vehicle was replaced by a new diesel engine in the year of account. In any event, according to him, it is not a capital expenditure as the assessee did not derive any enduring benefit or advantage by the replacement of the worn out diesel engine with the new diesel engine and is, therefore, deductible under s. 37(1) of the Act. This claim of the assessee is resisted by the learned standing counsel for the department, Sri P. Rama Rao, contending inter alia, that there was no whisper about the claim of the assessee under s. 31, which pertains to repairs to machinery, that, in any event, the expenditure does not fall under the category of either " repairs to the machinery " or " revenue expenditure " but falls under the category " capital expenditure " and, therefore, the assessee is not entitled to have this expenditure allowed either under s. 31 or under s. 37(1) of the Act. We shall first deal with the submission of Mr. P. Rama Rao, standing counsel for the I.T. Dept., that the assessee cannot be permitted to claim for the first time in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r bring its case within any of the provisions of ss. 30 to 36, which provide for deduction pertaining to specific items of expenditure. Section 37(1) being a residual provision, it cannot be taken aid of unless and until it is established that none of the provisions of ss. 30 to 36 are applicable to a given case. Before examining the question of applying s. 37(1), it is the duty of the assessing authority to see whether the claim of the assessees falls under any one of the items of deduction specified in ss. 30 to 36. Where the case specifically falls under any one of the specific provisions of ss. 30 to 36, although it was not specifically pleaded by the assessee, the assessing authority has a statutory duty and obligation to consider the claim of the assessee pertaining to a particular item as revenue expenditure. The question whether the expenditure in question is capital expenditure or revenue expenditure is not relevant to the application of the provisions of ss. 30 to 36. It is relevant only in the case of an expenditure falling under s. 37(1). The contention that s. 10(2)(v) of the 1922 Act permits only a deduction where the expenditure is a revenue expenditure and not a cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hile considering the question whether, in addition to normal depreciation, the assessee was entitled to extra depreciation allowance under the second paragraph of cl. (vi) and cl. (via) of s. 10(2) of the Indian I.T. Act, 1922, in respect of replacement of the petrol engines in two of the assessee's buses by diesel engines, incurring an expenditure of Rs. 18,544 in the accounting year ending with March 31, 1950. The learned judge, Sikri J. (as he then was) for himself and on behalf of Subba Rao J. (as he then was), ruled at pages 170, 171, 172 : ".. ...... the word ' machinery ' occurs in clauses (iv), (v), (vi) and (via) of section 10(2). Prima facie, the same meaning must be given to the word ' machinery ' in all these clauses. If a machine is machinery for purposes of giving an allowance in respect of insurance or for repairs or in respect of normal depreciation or for the purpose of paragraph one of clause (vi), it must also be machinery for the purpose of the second paragraph of clause (vi) and clause (via)......... It is true that the machinery must be new and it must be installed and the rate of allowance is prescribed in the Act itself. But the requirement that the machin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered is whether the replacement of an old engine of a motor vehicle with a new engine amounts to " repair " within the meaning of s. 31 of the Act. What is meant by " repair " ? As observed by Buckley L.J. (as he then was) in Lurcott v. Wakely Wheeler [1911] 1 KB 905, 923, 924 (CA) : " ' Repair ' and ' renew ' are not words expressive of a clear contrast ... 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 ... the question of repair is in every case one of degree, and the test is whether the act to be done is one which in substance is the renewal or replacement of defective parts, or the renewal or replacement of substantially the whole." The aforesaid test of Buckley L.J., which decides the question whether a thing is a repair or not is to see whether the expenditure incurred was for the purpose of replacement of defective parts or replacement of the entirety or of a substantial part of the subject-matter. This definition or meaning of the term " repair " ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing of the new boiler for replacing the old one was a business expenditure within the meaning of s. 10(2)(xv) of the Indian I.T. Act, 1922. If it was merely a replacement of the boiler by the use of which the process of manufacture was carried on, no additional advantage was thereby derived and it could not be said that the productive capacity of the sugar manufacturing unit was in any manner increased. In C. R. Corera v.CIT [1963] 49 ITR 188, a Division Bench of the Madras High Court held that the sum of Rs. 30,000 out of the total outlay of Rs. 31,818 on boat No. 95 incurred by the assessee, a registered firm which owned and plied cargo boats and carried out lighterage work within the Tuticorin harbour, in repairing their cargo boat involving caulking, replacement of underwater planking and copper sheathing, was held to be an allowable expenditure under s. 10(2)(v) of the Indian.I.T. Act,. 1922, on the ground that, as a result of the repairs, the boat was not structurally altered nor was there any improvement in its loading capacity,performance or other features, as the effect of the repairs was to restore the machinery to its original condition. If any amount had been spent wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the appeal in the present case was the right of the assessee to claim allowance for Rs. 93,215. Whether the allowance was admissible under one head or the other or sub-section (2) of section 10, the subject-matter for the appeal remained the same, and the Tribunal having held that the expenditure incurred fell within the terms of section 10(2)(v), though not under section 10(2)(vib), it had jurisdiction to admit that expenditure as a permissible allowance in the computation of the taxable income of the assessee. " In that case a huge sum of Rs. 93,2l5 was expended. On the facts of that case it was held that it was only a current repair but not the installation of a new machinery or plant. In Hanuman Motor Service v. CIT [1967] 66 ITR 88, the Mysore High Court had to consider whether the expenditure of Rs. 14,485 incurred by the assessee, a firm of bus operators, in replacing the worn-out petrol engine of some of their buses with diesel engines, was an allowable deduction either under s. 10(2)(v) or under s. 10(2)(xv) of the Indian I.T. Act, 1922. It was held that the machinery concerned therein were buses and not the petrol engines that were replaced and, therefore, the repl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure is not by itself decisive of the question whether it is revenue or capital expenditure. A sum of Rs.59,000 spent by an assessee-company for guniting work done and a sum of Rs. 3,680 being the architect's fee paid in connection thereof were held by the Bombay High Court in CIT v. Oxford University Press [1977] 108 ITR 166 as revenue expenditure and allowable deduction. The Gujarat High Court in Addl. CIT v. Desai Bros. [1977] 108 ITR 14 held that the expenditure incurred for replacing the petrol engine by a diesel engine in a truck engaged by the assessee in his business of manufacture of beedies was in the nature of a revenue expenditure and was for current repairs to machinery of the assessee and was deductible under s. 31 of the Income-tax Act, 1961. Each case has to be judged with regard to the determination,of the question whether the sum expended amounts to " current repairs " or renewal of a new asset from the commercial point of view. Whether a particular repair was really needed at a relevant period or not or what is the amount to be spent are matters to be decided by the assessee as it is his province to take appropriate measures at a proper time. Whether a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vib) of the Indian I.T. Act, 1922. It has no application to the case on hand although it was held therein that the new diesel engine substituted for the worn-out petrol engine in a motor vehicle was held to be " machinery ". The decision of this court in Guntur Merchants Cotton Press Co. Ltd. v. ITO [1977] 108 ITR 620 is not very material to the point at issue in this reference. That was a case where the amount spent for the repair of the roof of the assessee's building was held, on the facts and circumstances as a deductible expenditure and it was not of a capital nature. On a consideration of the entire facts and circumstances, we hold that the expenditure of Rs. 15,851 incurred by the assessee was on account of current repairs to the machinery within the meaning of s. 31 of the Act and the same is revenue expenditure and not capital expenditure. Judged from any angle, we are satisfied that the view taken by the Tribunal, relying upon the decision of this court in R. B. Shreeram Co. (P.) Ltd. v. CIT [1968] 67 ITR 428, is erroneous in law. For all the reasons stated, our answer to the question is in the affirmative and in favour of the assessee, holding that the expenditur ..... X X X X Extracts X X X X X X X X Extracts X X X X
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