M/S LIBERTY GROUP MARKETING DIVISION KARNAL vs. C.I.T. AAYAKAR BHAWAN, SECTOR-13, KARNAL

11 From the above details of expenses claimed under the head 'building repairs', it is noted that cement was purchased for Rs.32,928/-. The year under consideration is A.Y. 1996-97 i.e. Previous year 1995-96. The cement in that year was about Rs.100/- per bag and as such, more than 300 bags of cements would have been purchased by Kumar Naresh N 2013.09.26 11:50 integrity of this document High Court Chandigarh -8- the appellant. It is difficult to appreciate that so much cement would be used for repairs specifically in view of the nature of repair stated to be carried out by the assessee. Moreover looking into the other expenses claimed such as iron sheets, saria/ingots/jali, aluminium sections, teak/plywood, glass, sanitary fittings, elect. Fittings, pop, granite/tiles and paints etc., the only inference which can be drawn is that some construction were carried out and as such, the expenditure cannot be said to be incurred on current repairs. In view of the decision of the Apex Court mentioned above, in respect of the issue of current repairs, decision of the Madras High Court is not applicable and hence action of the AO is confirmed. The appeal is as such dismissed.” Aggrieved by this order, the assessee filed an appeal before the Income Tax Appellate Tribunal, Delhi Bench, New Delhi, which was dismissed by holding as follows:- “4. We have heard both the sides on the issue. After hearing both the sides, we are of the view that in case of current repairs, the basic test to decide the nature of the expenditure is that the expenditure must be incurred to preserve and maintain an already exiting asset then only the expenditure can be said as revenue in nature. Whenever an Kumar Naresh N 2013.09.26 11:50 integrity of this document High Court Chandigarh -9- expenditure brings a new asset into existence or the expenditure is made to obtain a new advantage, then the expenditure is definitely of capital in nature. This test has been decided by Hon'ble Supreme Court in the case of CIT vs. Saravana Spinning Mills P. Ltd., 293 ITR 201(SC) wherein the Hon'ble Supreme Court has held as under:- Held, reversing the decision of the High Court, (i) that the manufacturing process in the textile mill was not one continuous integrated process; (ii) that to decide the applicability of Section 31(i) the test was not whether the expenditure was revenue or capital in nature, but whether the expenditure was "current repairs". The basic test was to find out whether expenditure was incurred to "preserve and maintain" an already existing asset, and the expenditure must not be to bring a new asset into existence or to obtain a new advantage. (iii) each machine including the Ring Frame was an independent and separate Kumar Naresh N 2013.09.26 11:50 integrity of this document High Court Chandigarh -10- machine capable of independent and specific function and, therefore, the expenditure incurred for replacement thereof would not come within the meaning of the words "current repairs". The replacement of the ring from constituted substitution of an old asset by a new asset, and, therefore, the expenditure incurred by the assessee did not fall within the meaning of "current repairs" in Section 31(i). Under Section 31(i) the deduction admissible is only for current repairs. Therefore, the question as to whether the expenditure incurred by the assessee conceptually is revenue or capital in nature is not relevant for deciding the question whether such expenditure comes, within the etymological meaning of the expression “current repairs”. In other words, even if the expenditure is revenue in nature, it may not fall in the connotation of “current repairs”. Further the assessee's reliance on Madras High Court decision in the case of CIT v. Haridas Bhatath (P) Ltd., cited supra, is also of not of any help. Explanation I to Section 32 of Income Tax Act has not been considered in this case. The Kumar Naresh N 2013.09.26 11:50 integrity of this document High Court Chandigarh -11- erection of the sheds and other structures on leased premises were essentially in the nature of capital. The details of expenditure incurred shows that a major expenditure has been made on the teak/plywood, glass, electrical fittings, sanitary fittings, aluminium sections, handles/knobs, locks, chitkhani, cement, granite/tiles, pop, iron sheets, saria/ingot, jali, flooring and labour. All these facts shows that the structure which came into existence was having enduring benefits, hence such expenditure cannot be termed expenditure on current repairs. In view of the decision of Hon'ble Supreme Court in the case of CIT v. Saravana Spinning Mills P. Ltd., cited supra, the CIT(A) is justified in upholding the addition. Accordingly, the appeal of the assessee is dismissed.

In the result, the appeal of the assessee is dismissed.” A perusal of order passed by the Income Tax Appellate Tribunal, the CIT(Appeals) and the Assessing Officer reveals that a major part of the expenditure claimed as revenue expenditure has been held to be capital expenditure on the premise that expenditure has been incurred to create a new asset and to obtain a new advantage. The questions that require an answer and would lead to Kumar Naresh N 2013.09.26 11:50 integrity of this document High Court Chandigarh -12- answers to substantial questions of law framed by the appellant is the test to be applied while determining whether expenditure incurred on repairs is capital or revenue expenditure and as a consequence is allowable as a deduction under Section 30(a)(i) of the Act, which reads as follows:- Rent, rates, taxes, repairs and insurance for buildings. Section 30 . In respect of rent, rates, taxes, repairs and insurance for premises, used for the purposes of the business of 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 bear the cost of repairs to the premises, the amount paid on account of such repairs; (ii) otherwise than as a tenant, the amount paid by him on account of current repairs to the premises; (b) any sums paid on account of land revenue, local rates or municipal taxes; (c) the amount of any premium paid in respect of insurance against risk of damage or destruction of the premises. Kumar Naresh N 2013.09.26 11:50 integrity of this document High Court Chandigarh -13- [Explanation.-- For the removal of doubts, it is hereby declared that the amount paid on account of the cost of repairs referred to in sub-clause (i), and the amount paid on account of current repairs referred to in sub-clause (ii), of clause (a), shall not include any expenditure in the nature of capital expenditure.]” Section 30(a)(i) of the Act, read along with the explanation enables an assessee to claim deduction for repair of tenanted premises, used for the purpose of his business or profession provided the expense, so incurred, is not in the nature of capital expenditure. The word “repair” is not a word of art or any legal complexity and has to be understood in its ordinary meaning i.e., expenditure incurred to preserve and maintain an already existing asset. The word “repair” came up for consideration before the Bombay High Court in New Shorrock Spinning and Manufacturing Co. Ltd. v. CIT (1956) 30 ITR 338 (Bom). A simple test was prescribed for determining whether expenditure is revenue or capital in nature, in the following terms:- “The simple test that must be constantly borne in mind is that as a result of the expenditure which is claimed as an expenditure for repairs what is really being done is to preserve and maintain an already existing asset. The object of the expenditure is not to bring a new asset into existence, nor it its object the obtaining of a new or fresh advantage. This Kumar Naresh N 2013.09.26 11:50 integrity of this document High Court Chandigarh -14- can be the only definition of 'repairs' because it is only by reason of this definition of repairs that the expenditure is a revenue expenditure. If the amount spent was for the purpose of bringing into existence a new asset or obtaining a new advantage, then obviously such an expenditure would not be an expenditure of a revenue nature but it would be a capital expenditure, and it is clear that the deduction which the Legislature has permitted under section 10(2)(v) is a deduction where the expenditure is a revenue expenditure and not a capital expenditure.” Thus the test to determine whether expenditure is revenue or capital, is the nature of the expense, namely, where expenditure is incurred to preserve and maintain an already existing asset, it would be revenue expenditure but where expenditure is incurred to bring into existence a new asset or to obtain a new advantage, the expense would be capital in nature. The test set out in New Shorrock Spinning and Manufacturing Co. Ltd. v. CIT (supra) was approved by the Hon'ble Supreme Court in Ballimal Naval kishore & Another v. Commissioner of Income Tax (1997) 224 ITR 414(SC), by holding as follows:- “The simple test that must be constantly borne in mind is that as a result of the expenditure which is claimed as an expenditure on repairs what is really Kumar Naresh N 2013.09.26 11:50 integrity of this document High Court Chandigarh -15- being done is to preserve and maintain an already existing asset. The object of the expenditure is not to bring a new asset into existence, nor is its object the obtaining of a new or fresh advantage. This can be the only definition of 'repairs' because it is only by reason of this definition of repairs that the expenditure is a revenue expenditure. If the amount spent was for the purpose of bringing into existence a new asset or obtaining a new advantage, then obviously such an expenditure would not be an expenditure or a revenue nature but it would be a capital expenditure, and it is clear that the deduction which the legislature has permitted under S. 10(2) (v) is a deduction where the expenditure is a revenue expenditure and not a capital expenditure.” The judgments in New Shorrock Spinning and Manufacturing Co. Ltd. v. CIT (supra) and Ballimal Naval kishore & Another v. Commissioner of Income Tax (supra) were considered by the Hon'ble Supreme Court in CIT v. Sarvana Spining Mills P. Ltd. (supra) and, though, their Lordships were dealing with the meaning of “current repairs” placed reliance upon these judgments and held that ring frames installed by the assessee lead to substitution of an old asset by a new asset and, therefore, expenditure incurred does not fall within meaning of the words “current repairs”. We are conscious of the fact that the judgment in CIT v. Sarvana Spining Mills P. Ltd. (supra) deals with the Kumar Naresh N 2013.09.26 11:50 integrity of this document High Court Chandigarh -16- expression “current repairs” and relates to expenditure incurred on replacement of ring frames in machines used by the assessee, but cannot disregard this judgment or ignore the ratio laid down in New Shorrock Spinning and Manufacturing Co. Ltd. v. CIT (supra) as approved in Ballimal Naval kishore & Another v. Commissioner of Income Tax (supra) merely because the controversy relates to “current repairs” or replacement of part of a machine. A considered appraisal of the statutory provisions and perusal of the above judgments leaves no ambiguity as to the meaning and scope of the word “repair” used in Section 30(a)(i) which has to be read with the explanation appended thereto. The word “repair” denotes expenditure incurred to “preserve” and “maintain” an already existing asset, excluding expenditure incurred, to add to or subtract from the already existing asset in such a manner as to bring into existence a new asset or “obtain a new advantage”. Thus, where the expenditure incurred, brings into existence a new asset or a new advantage to the assessee, the expenditure would not fall within meaning of the word “repair”. At this stage, it would be appropriate to sound a note of caution. The nature of the expense incurred would depend upon the nature of the premises, the nature and extent of the preservation and maintenance required, the nature and extent of preservation and maintenance carried out, the nature of additions and alterations, the nature of the material used etc. and would obviously depend upon the facts of each case, for what may be revenue expenditure in a given case, may be capital expenditure in another and vice-versa. Kumar Naresh N 2013.09.26 11:50 integrity of this document High Court Chandigarh -17- Counsel for the appellant has relied upon a judgment of this Court, the Madras and Delhi High Courts in Allied Metal Products v. Commissioner of Income Tax, Patiala-II, 137 ITR 689 (P&H), Commissioner of Income Tax v. Sree Narsimha Textiles (O) Ltd. 238 ITR 351 (Mad.), and Commissioner of Income Tax v. Hi Line Pens (P) Ltd. (2008) 13 DTR 233 (Del) (2008) 306 ITR 182 (Del), to contend that mere creation of partitions for better use of tenanted premises cannot be said to be capital expenditure. A perusal of the judgment in Allied Metal Products v. Commissioner of Income Tax, Patiala-II,(supra) reveals that as the assessee repaired the roof of his tenanted premises, it was held that the expenditure is revenue in nature. The repair of a roof would necessarily fall within meaning of the word “repairs”. A perusal of the judgment in CIT v. Hi Lines Pens (P) Ltd.(supra) reveals that the test laid down in New Shorrock Spinning and Manufacturing Co. Ltd. v. CIT (1956) 30 ITR 338 (Bom) duly approved by the Hon'ble Supreme Court in Ballimal Naval kishore & Another v. Commissioner of Income Tax (supra) and C.I.T. v. Saravana Spinning Mills P Ltd., (supra) was not applied on the ground that these judgments relate to “current repairs” . With due deference to the opinion recorded by the Delhi High Court, the test laid down in New Shorrock Spinning and Manufacturing Co. Ltd.(supra) pertains to “repairs” and though the controversy pertained to “current repairs”, the test set out was approved in Ballimal Naval kishore & Another v. Commissioner of Income Tax (supra) and C.I.T. v. Kumar Naresh N 2013.09.26 11:50 integrity of this document High Court Chandigarh -18- Saravana Spinning Mills P Ltd., (supra). In our considered opinion, these judgments have to read as approving the test laid down in New Shorrock Spinning and Manufacturing Co. Ltd. (supra). The judgment in Commissioner of Income Tax v. Sree Narsimha Textiles (O) Ltd. (supra) is identical of the Delhi High Court in CIT v. Hi Lines Pens (P) Ltd.(supra). We have already held that the test laid down in New Shorrock Spinning and Manufacturing Co. Ltd. v. CIT (supra) approved by the Hon'ble Supreme Court in Ballimal Naval kishore & Another v. Commissioner of Income Tax (supra) and C.I.T. v. Saravana Spinning Mills P Ltd., (supra), shall determine whether expenditure claimed as “repairs” is a capital or revenue and, therefore, proceed to examine whether expenditure incurred by the assessee meets the test laid down in New Shorrock Spinning and Manufacturing Co. Ltd. v. CIT (1956) 30 ITR 338 (Bom) duly affirmed by the Hon'ble Supreme Court in Ballimal Naval kishore & Another v. Commissioner of Income Tax (supra) and C.I.T. v. Saravana Spinning Mills P Ltd., (supra) and whether the ITAT has rightly held that expenditure incurred by the assessee is capital in nature, i.e., The Income Tax Appellate Tribunal, the CIT(Appeals) and the Assessing Officer have recorded concurrent findings of fact that expenditure incurred by the appellant, other than the expenditure incurred on maintenance and repairs, is capital expenditure. We find no reason to differ with these findings. The appellant has expended money not merely to preserve and maintain an existing building but Kumar Naresh N 2013.09.26 11:50 integrity of this document High Court Chandigarh -19- to obtain a fresh advantage by creating cabins, rooms etc. by the use of cement, iron, saria etc. as opposed to mere maintenance and preservation of the premises. The Assessing Officer has allowed expenses on account of renovation of toilets, painting etc. as a revenue expenditure but where the expense involves capital expenditure, it has not been allowed under Section 30(a)(i) of the Act. We find no error in the course adopted by the revenue. In the absence of any error of law or of fact in the impugned orders, we find no reason to hold that the assessee is entitled to deduction under Section 30(a)(i) of the Act. The questions of law are, therefore, answered against the appellant. The appeal is consequently dismissed. (RAJIVE BHALLA) JUDGE 17th September, 2013 (DR. BHARAT BHUSHAN PARSOON) nt