COMMISSIONER OF INCOME TAX Vs. OXFORD UNIVERSITY PRESS

JUDGEMENT

(1.) TWO questions, one at the instance of the CIT, Bombay City, and the other at the instance of the assessee, have been referred to us by the Tribunal for determination under S. 256(1) of the IT Act, 1961, and the two questions respectively are :

(2.) AS far as the first question is concerned, the relevant facts are these: The assessee is a company carrying on business of publishers and book sellers, importing and selling books published by the Oxford University. The assessment year is 1963 64. During the accounting period relevant to the assessment year the assessee incurred an expenditure of Rs. 59,000 in the form of payment made to M/s John Fleming & Co. for guniting work carried on in its building known as "Oxford House" and also a sum of Rs. 3,680 as fees paid to the architects in connection with guniting work undertaken on the advice of the architects. The assessee claimed both the items as expenditure incurred for repairs to their building. The ITO observed that the repairs in question could not be called "current repairs" but that the assessee had undertaken major structural repairs which had the effect of prolonging the life of the building for at least 15 years and as the repairs resulted in extension of the period of the serviceableness of the asset and in the creation of an enduring benefit, the expenditure was a capital expenditure. In the appeal preferred to the AAC the assessee explained the real nature of guniting work that had been undertaken and as to why it was found necessary and claimed that the expenses were for current repairs and that even if the expenses could be regarded as having been incurred for accumulated repairs, still deduction should be allowed under S. 37 of the IT Act, 1961. The AAC took the view that the expenses incurred for guniting could not be considered to be for the current repairs but could only be considered under s. 37 but having regard to the fact that the life of the building has increased by about 15 years and that the structural strength of the building has increased considerably, the expenses should be treated as a capital expenditure incurred by the appellant. He also took the view that the fees paid to the architects should also be considered along with this expenditure as capital expenditure.

(3.) FROM the correspondence that was exchanged between the assessee and the architect, which was produced on record, it appears very clear as to why and in what circumstances the guniting work was undertaken by the assessee company in relation to the building "Oxford House". In their letter dated June 22, 1964, the architects of the assessee stated that during the inspection of the building, which was undertaken in January, 1961, it was observed that the reinforcement of the slabs had decayed and cracks were visible underside of the slab and on the floors and some of the steel reinforcement in the slab had little or no cover. Further, that the assessee had been spending good amounts on the repairs of such cracks and plasterings of the slabs on which the reinforcements had disappeared but the amount spent for plaster patch work that was undertaken was a waste and that, therefore, since the plastering by means of an ordinary method was of no use, plastering by the process of guniting was advised. The nature of the guniting process was explained by the assessee by its letter dated August 3, 1966, addressed to the AAC, Bombay, thus :