Commissioner of Income Tax vs Escorts Finance Ltd.

Shiv Narayan Dhingra, J.—This appeal has been filed against the order of the Tribunal whereby the Tribunal allowed expenditure of Rs.

30,94,337 incurred by the assessed for providing wooden partition, painting, glass work and other petty repairs in the leased premises, as revenue

expenditure. The assessing officer had disallowed this amount as revenue expenditure and considered it as capital expenditure. Commissioner

(Appeals) and the Tribunal both had considered the expenditure as revenue expenditure.

In Gulamhussein Ebrahim Matcheswalla (By his Legal Heirs) Vs. Commissioner of Income Tax, Bombay City II, , it was observed that mere

quantum of amount spent for repairs by itself is not decisive of the question whether it is an expenditure of revenue nature or a capital nature. In this

case the assessed had replaced corrugated sheets on the roof with asbestos cement sheet and had constructed weather sheds and claimed the

same as revenue expenditure, court observed:

Mr. Kolah relied upon two unreported decisions of this Court in the case of Commissioner of income tax v. David Mills Ltd. (income tax

Reference No. 17 of 1950, decided by Chagla C.J. And Tendolkar J. on 10-10-1950) and Meyor Mills Ltd v. Commissioner of Income Tax

(Income Tax Reference No. 36 of 1950 decided by the same Bench on 30-3-1951). The judgments in these two cases are to be found at pages

46 and 81 of the volume entitled Unreported Income Tax Judgments of the Bombay High Court, published by the Western India Regional Council

of the Institute of Chartered Accountants of India, Bombay. In the first of these cases the assessed-company in the past repaired the flooring by

replacing the upper layer which was a wooden layer by wooden boards. In the year of account, a layer of oxychloride was laid between the two

layers. Though this process cost the company less than the original process, it made the floor more durable. The contention of the department was

that by this particular process a new asset had come into existence and, Therefore, the amount spent was not of a revenue nature. That contention

was rejected by this Court and this Court took the view that the assessed was only maintaining and preserving an asset, which he already

possessed, by the process which he adopted. The life of the asset was made longer and it was made to give better service than it was doing in the

past. This court took the view that the expenditure incurred was not of a capital nature. The principle in David Mills Ltds case was followed in

Meyor Mills Ltds case where the amount spent was for oil-painting rather than for white washing which was done every year.

In CIT v. J.K. Industries (P) Ltd (1950) 125 ITR 218 , the court has held as under:

Mr. Sukumar Bhattacheryya relied upon and cited the decision in the case of REGAL THEATRE Vs. COMMISSIONER OF Income Tax,

NEW DELHI., which was considered by the Tribunal. The facts in this case were that the assessed had taken on lease a cinema building with all

furnitures and fittings whereunder the lessee could not make any additions or alterations and the Lesser had to carry out whitewashing, colour

washing and repairs to the building. During the relevant assessment year, in order to cover up a damaged wall, the assessed spent a sum for

wooden panelling. The question arose whether the said amount spent as aforesaid would be allowable as a deduction u/s 10(2)(xv) of the Indian

Income Tax Act, 1922. On these facts, the Punjab High Court held that the assesseds lease was for a short duration and the life of the panels was

such that the panelling could not be treated as an asset of an enduring nature. The High Court compared the putting up of such wooden panelling

with plastering and painting of walls and held the expenses incurred were of a revenue nature.

In the instant case, the assesseds contention that the wooden panelling did not last long and as such were not an enduring asset has been accepted

by the Tribunal. This finding of fact has not been challenged. In view of the aforesaid finding and the decision in REGAL THEATRE Vs.

COMMISSIONER OF Income Tax, NEW DELHI., we hold that the expenses incurred by the assessed in putting up the wooden panelling did

not result in any enduring benefit to the assessed and, Therefore, was deductible as a revenue expenditure....

We consider that the amount spent on providing wooden partition, painting of leased premises, carrying out repairs so as to make the premises

workable, to replace glasses etc. has to be considered as revenue expenditure. It is for the businessman to see as to in what manner the leased

premises is to be maintained and what are the necessary repairs which are required to be done. We consider that all such expenditures which were

incurred on painting, polishing of the floor providing wooden panelling etc. is revenue expenditure and the nature of repairs is not of an enduring

character so as to characterise as capital expenditure.

The appeal is dismissed.