Case: Commissioner of Income Tax, West Bengal-II, Calcutta Vs. Kalyanji Mavji and Company

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 s.10(2) (xv). S. 10(2) (xv) is a residuary clause, and deals with expenditure not being an allowance of the nature described in any of the preceding clauses of s.10(2). The submission is that where repairs are effected to buildings and machinery a deduction under s.10(2) 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 s.10(2)(xv). Section 10(2)(v) deals with current repairs only. The subject matter of s.10(2) (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 s.10(2) (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 s.10(2) (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 to arrive at the true figure of profits and gains for tax purposes. The rule was held by the Privy Council in C.I.T. v. Chitnis(1) 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. v. C.I.T., Bihar and Orissa(2) and Devi Films Ltd. v. C.I.T. Madras(3). The principle found favour with this Court in Badridas Daga v. C.I.T.(4) and Calcutta Co. Ltd. v. C.I.T . West Bengal(5). the contents of that rule be true on general principle, there is good reason why the scope of s.10(2) (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 s. 10(2) (xv). We may mention that in The Law Shipping Co. Ltd. v. Commissioners of Inland Revenue(6) it has been held that accumulated arrears for repairs are non e the less repairs necessary to earn profits, although they have been allowed to accumulate.The question then is whether s. 10(2) (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. 6. But the more serious question is whether the expenditure can be regarded as capital in nature, for if that be so the benefit of s. 10(2) (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, condition ed 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. v. C.I.T. West Bengal(7). The business o f 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 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 ad vantage 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. 1, 61, 742 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.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]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 considerationunder s.. Section 10(2)(v) deals with current repairs only. The subject matter of s.10(2) (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 orunders.10(2) (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 s.10(2) (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 to arrive at the true figure of profits and gains for tax purposes. The rule was held by the Privy Council in C.I.T. v. Chitnis(1) 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. v. C.I.T., Bihar and Orissa(2) and Devi Films Ltd. v. C.I.T. Madras(3). The principle found favour with this Court in Badridas Daga v. C.I.T.(4) and Calcutta Co. Ltd. v. C.I.T . West Bengal(5). the contents of that rule be true on general principle, there is good reason why the scope of s.10(2) (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 s. 10(2) (xv). We may mention that in The Law Shipping Co. Ltd. v. Commissioners of Inland Revenue(6) it has been held that accumulated arrears for repairs are non e the less repairs necessary to earn profits, although they have been allowed to accumulate.The question then is whether s. 10(2) (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 thatOn the facts of the present case, it seems sufficient to mention the tests laid down by this Court in Assam Bengal Cement Co. Ltd. v. C.I.T. West Bengal(7). The business o f 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 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 ad vantage 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 yearunderconsideration 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.1,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 characterThe contention is without substance. The facts on which the High Court has relied are admitted between the parties or are facts found by thex authorities. We have no hesitation in rejecting the first contention.