Civil Appeal No 2098 of 1972 From the Judgment and Order dated 5 8 1971 of the Calcutta High Court in Income Tax Reference No 10965
DV Patel J Ramamurthy and Miss A Subhashini for the Appellant
section R Banerjee Mrs Indu Goswamy and Arvind Minocha for the Respondent
The Judgment of the Court was delivered by PATHAK J
 This appeal by certificate granted by the High Court at Calcutta under section 66A2 of the Indian Income tax Act 1922 is directed against the judgment dated August 5 1971 of that High Court disposing of an income tax reference
The respondent assessee is a registered firm and owns several collieries in West Bengal and Bihar
One of the collieries is known as the South Samla Colliery
The South Samla colliery was under military occupation from 1942 and was released in 1955
During the period of military occupation the assessee incurred expenditure on account of minimum royalty payable in respect of the colliery the surface rent and salaries for the watch and ward employees
The expenditure was allowed in income tax proceedings as a business expenditure
After the colliery was released by the military the assessee incurred a further expenditure amounting to Rs 161742 on the colliery with a view to resuming mining operations
The expenditure was incurred during the previous year beginning October 24 1957 and ending November 11 1958 relevant to the assessment year 1959 60
In the assessment proceedings for that assessment year the assessee claimed a deduction of the amount of Rs 161742 under section 102 xv of the Indian Income Tax Act but the deduction was disallowed by the Income tax Officer on the ground that the expenditure was capital in nature
On appeal the Appellate Assistant Commissioner affirmed that the expenditure was in the nature of capital expenditure
The assessee proceeded in second appeal but the Income Tax Appellate Tribunal without giving any reasons of its own merely recorded its agreement with the income tax authorities
The assessee obtained 761 a reference to the High Court at Calcutta for its opinion on the following question Whether on the facts and circumstances of the case the Income tax appellate Tribunal was justified in holding that the expenditure clammed on the South Samla Colliery at Rs 161742 was capital in nature
 The High Court noted the following facts The assessee carried on business in coal as the owner of various collieries
The South Samla Colliery which was one of them was occupied by the military from 1942 until it was derequisitioned in 1955
During that period the assessee did not because he could not work the colliery
He continued however carrying on his business in coal and working other collieries during that period
While the South Samla Colliery remained under military occupation the assessee incurred expenditure on payment of surface rent and minimum royalty in respect of that colliery and also on account of salary for the watch and ward staff
The expenditure had been claimed and allowed as business expenditure of the assessee
After the colliery was handed over to the assessee upon derequisition the assessee incurred during the relevant period an expenditure of Rs 161742 in renovating the building reconditioning the machinery and clearing the land of debris accumulated over a number of years
The expenditure of Rs 161742 consisted of Rs 66937 spent on the staff and labour force by way of salaries wages and other benefits and an amount of Rs 94805 spent on the purchase of various stores machinery repairs dhowrah repairs etc
This expenditure had to be incurred by the assessee for the purpose of putting the machinery in working order and bringing the colliery to a state where the mining operations could be resumed
The colliery had not started working and mining operations had not been resumed during the relevant year
The High Court observed that the assessee was carrying on its business throughout and the circumstance that one of the collieries was not being worked did not affect the carrying on of that business
The business of the assessee the High Court said had to be considered as a whole and not on the basis of its different sources of supply or units of production
The High Court held that on the facts admitted and found it could not be said that any fresh asset had been acquired by the assessee by spending Rs 161742
The expenditure it observed was incurred by the assessee for the purpose of carrying on an existing concern and not for acquiring any concern not in existence
Ac 762 cordingly it held that the expenditure was in the nature of revenue expenditure and therefore answered the question in favour of the assessee
In this appeal the first contention raised by the Revenue is that the High Court had no jurisdiction to re appraise the facts and therefore its finding on the nature of the expenditure is vitiated
The contention is without substance
The facts on which the High Court has relied are admitted between the parties or are facts found by the income tax authorities
We have no hesitation in rejecting the first contention
The second contention is that the claim of the assessee must be considered with reference to section 102v and not section 102xv of the Act
It is urged that if s102 v is the relevant clause being the specific provision in respect of expenditure on current repairs to buildings and machinery there is no justification for relying on s102 xv
section 102 xv is a residuary clause and deals with expenditure not being an allowance of the nature described in any of the preceding clauses of s102
The submission is that where repairs are effected to buildings and machinery a deduction under s102 is permissible only in respect of current repairs and repairs which are not current repairs are not intended to be the subject of relief
The Act it is contended limits the repairs to current repairs
The repairs made by the assessee it is said cannot be described as current repairs Now this contention rests on the principle that if a special provision covers the case resort cannot be had to a general provision
It seems to us that if the renovation of the building the reconditioning of machinery and the removal of debris cannot be described as current repairs and we assume that to be so the case would be entitled to consideration under s102xv
Section 102v deals with current repairs only
The subject matter of s102 v is current repairs and it appears difficult to agree that repairs which are not current repairs should not be considered for deduction on general principles or under s102 xv
There must be very strong evidence that in the case of such repairs the Legislature intended a departure from the principle that an expenditure laid out or expended wholly and exclusively for the purposes of the business and which expenditure is not capital in nature should not be allowed in computing the income from business
There is nothing in the language of s102 v which declares or necessarily implies that repairs other than current repairs will not qualify for the benefit of that principle
We must remember that on accepted commercial practice and trading principles an item of business expenditure must be deducted in order 763 to arrive at the true figure of profits and gains for tax purposes
The rule was held by the Privy Council in CIT vs Chitnis1 to be applicable in the case of losses and it has been applied by the courts in India to business expenditure incurred by an assessee
Motipur Sugar Factory Ltd vs CIT Bihar and Orissa2 and Devi Films Ltd vs CIT Madras3
The principle found favour with this Court in Badridas Daga vs CIT4 and Calcutta Co Ltd vs CIT West Bengal5
the contents of that rule be true on general principle there is good reason why the scope of s102 xv should be construed liberally
In our opinion even if the expenditure made by the assessee in the present case cannot be described as current repairs he is entitled to invoke the benefit of section 102 xv
We may mention that in The Law Shipping Co Ltd vs Commissioners of Inland Revenue6 it has been held that accumulated arrears for repairs are none the less repairs necessary to earn profits although they have been allowed to accumulate
The question then is whether section 102 xv is attracted
There can be little doubt that the expenditure incurred is incidental to the business of the assessee
It was involved in renovating the buildings reconditioning the machinery and clearing the debris from the land
All the work done was for the purpose of resuming the operation of the colliery
The expenditure was laid out wholly and exclusively for the purposes of the business
We do not think there can be any dispute as to that
But the more serious question is whether the expenditure can be regarded as capital in nature for if that be so the benefit of section 102 xv on its plain terms must be denied
Now whether an expenditure can be described as capital or revenue falls to be decided by several tests each one of which approaches the question from one perspective or another conditioned by the particular facts of each case
We need not refer to all of them
On the facts of the present case it seems sufficient to mention the tests laid down by this Court in Assam Bengal Cement Co Ltd vs CIT West Bengal7
The business of the assessee in the present case was coal mining and it was carried on by the operation of a network of collieries
Hach colliery was a unit of production
While the several units of production continued to be 764 employed and the business continued to be carried on one alone of the units the South Samla Colliery was compelled to suspend production
The suspension was expected to be of temporary duration because the property was merely requisitioned for military use it was not acquired
As soon as the property was de requisitioned the assessee took measures to resume production of coal
It was necessary to remove the impediments which had come in the way by reason of the temporary suspension of work
The buildings were removated the machinery reconditioned and the accumulated debris removed from the land
The colliery was in a word reinstated to the condition necessary for ensuring production
No new asset was brought into existence no advantage for the enduring benefit of the business was acquired
An activity which was continuously in operation but had been temporarily suspended was to be resumed
It is immaterial that during the year under consideration there was no mining activity
That the colliery was regarded as an asset of a continuing business all along even during the period of military occupation is evidenced by the fact that expenditure incurred by the assessee during that period in respect of the colliery was allowed as a permissible deduction in its income tax assessments
The expenditure of Rs 161742 under consideration in the present case was also expenditure laid out as part of the process of profit earning
The nature of the expenditure is clearly revenue in character
The High Court is right in holding that the expenditure is not of a capital nature
The appeal is dismissed with costs
NVK Appeal dismissed


Summary:
The respondent assessee carried on business in coal as the owner of various collieries
One of the collieries was occupied by the military from 1942 until it was derequisitioned in 1955
During that period the assessee did not work the said colliery although the business in coal and working of the other collieries were carried on
While the colliery remained under military occupation the assessee incurred expenditure in respect of the colliery on account of payment of surface rent minimum royalty and salary for the watch and ward staff which expenditure was claimed and allowed as business expenditure of the assessee
After the colliery was handed over to the assessee upon derequisition the assessee incurred an expenditure of about Rs 16 lakhs in renovating the building reconditioning the machinery and clearing the land of all debris accumulated over a number of years
In the assessment proceedings for the assessment year 1959 60 the assessee claimed deduction of the aforesaid amount under section 102xv of the Indian Income Tax Act
The deduction was disallowed by the Income Tax officer on the ground that the expenditure was capital in nature
The appeals by the assessee to the Appellate Assistant Commissioner and the Income Tax Appellate Tribunal were dismissed
In the reference to the High Court at the instance of the assessee the High Court observed that the business of the assessee had to be considered as a whole and not on the basis of its different sources of supply or units of production and held that on the facts admitted and found it could not be said that any fresh asset had been acquired by the assessee by spending Rs 16 lakhs and that the expenditure was incurred by the assessee for the purpose of carrying on an existing concern
The expenditure was therefore in the nature of a revenue expenditure
In the appeal by the Revenue to this Court it was contended a where repairs are effected to buildings and machinery a deduction under section 102 is permissible only in respect of current repairs and repairs which are not current repairs are not intended to be the subject of relief b the repairs made by the assessee cannot be described as current repairs and c if section 102 v is the relevant clause being the specific provision in respect of expendi 759 ture on current repairs to buildings and machinery there is no justification for relying on section 102xv a residuary clause
Dismissing the appeal  HELD 1
The High Court was right in holding that the expenditure was not of a capital nature
764 E 2
The expenditure of Rs 16 lakhs was expenditure laid out as part of the process of profit earning
The nature of the expenditure was clearly revenue in character
764 D 3
There can be little doubt that the expenditure incurred was incidental to the business of the assessee
It was involved in renovating the buildings reconditioning the machinery and clearing the debris from the land for the purpose of resuming the operation of the colliery
The expenditure was laid out wholly for the purpose of the business
763 D 4
There must be strong evidence that in the case of repairs which are not current repairs the Legislature intended a departure from the principle that an expenditure laid out or expended wholly and exclusively for the purposes of the business and which expenditure is not capital in nature should not be allowed in computing the income from business
There is nothing in the language of section 102 v which declares or necessarily implies that repairs other than current repairs will not qualify for the benefit of that principle
On accepted commercial practice and trading principles an item of business expenditure must be deducted in order to arrive at the true figure of profits and gains for tax purposes
762 G 763 A CIT vs Chitnis 50 IA 292 Motipur Sugar Factory Ltd vs CIT Bihar and Orissa  Devi Films Ltd vs CIT Madras  Badridas Daga vs CIT  15 Calcutta Co Ltd vs CIT West Bengal  9 the Law Shipping Co Ltd vs Commissioners of Inland Revenue 12 Tax Cases 621625 referred to
The scope of Section 102xv should be construed liberally
763 B In the instant case even if the expenditure made by the assessee cannot be described as current repairs he is entitled to invoke the benefit of section 102xv
763 C 5
Whether an expenditure can be described as capital or revenue falls to be decided by serial tests each one of which approaches the question from one perspective or another conditioned by the particular facts of each case
763 F Assam Bengal Cement Co Ltd vs CIT West Bengal referred to
In the instant case the business of the assessee was coal mining and it was carried on by the operation of a network of collieries
Each colliery was a unit of production
While the several units of production continued to be employed and the business continued to be carried on one alone of all the units was compelled to suspend production
The suspension was due to the property being requisitioned for military use
As soon as it was derequisitioned the assessee 760 took measures to resume production of coal
The buildings were renovated the machinery reconditioned and the accumulated debris removed from the land No new asset was brought into existence no advantage for the enduring benefit of the business was acquired
The activity which was continuously in operation but had been temporary suspended was resumed
763 G 764 C