COMMISSIONER OF INCOME TAX Vs. BALLIMAL NAWALKISHORE

JUDGEMENT

(1.) THE assessee, in this case, carries on the business of exhibiting films in a theatre called Naval Talkies, Panipat. The assessee had originally purchased a ginning factory in the year 1937. The factory itself was constructed in 1901. The assessee ran the factory till 1940 and after the ginning factory was stopped the factory premises were converted into a cinema theatre in 1945. Originally, the amount invested in the building was Rs. 17,871. The building was, however, extensively repaired and renovated during the period from October 29,1960, to March 4, 1961, during which time it was not used for exhibiting films. Large amount of expenditure was incurred by the assessee on renovation and extensive repairs. Machinery worth Rs. 16,002 was purchased and new furniture of Rs. 27,889 was fitted. Sanitary fittings of the value of Rs. 5,225 were also newly put in. This expenditure was capitalised with regard to which there is no dispute. The assessee, however, claimed expenditure incurred on the following items as revenue expenditure :

(2.) THE ITO declined to allow this expenditure as revenue expenditure. He treated this as capital expenditure and allowed depreciation on the sum of Rs. 62,977. In appeal by the assessee, the AAC confirmed the said allowance and he observed that what the assessee had done was renovation of the building and a new hall was made out of the old one. The AAC referred to the remarks of the auditors that what was carried out was not ordinary repairs, but as a matter of fact the entire cinema hall was renovated so as to give a new life to it. The AAC also took into account the disparity between the original cost of the building and the amount spent on repairs which was claimed as revenue expenditure. The assessee then appealed before the Tribunal. The Tribunal took the view that the expenditure incurred by the assessee was allowable either as current repairs or revenue expenditure incurred for the purpose of business. The Tribunal found that no new asset was brought in by incurring the expenditure, and "it only served the purpose to enable the assessee to run the theatre very efficiently" The Tribunal found that there were no structural alterations made by the assessee and all that he had done was that some sheets from the roof were replaced by iron sheets, some portions of the floor were newly cemented and the walls remained the same, except that they received a coat of paint and the electrical wiring also had to be replaced as it was old. Thus, the Tribunal held that the expenditure was of a revenue nature and the entire sum of Rs. 62,977 should have been allowed. Arising out of this order of the Tribunal, the following question has been referred to the High Court under S. 66(1) of the Indian IT Act, 1922, at the instance of the Revenue :

(3.) AT the outset it is necessary to mention that it was stated before us that the claim made by the assessee was under S. 10(2)(xv) of the Indian IT Act, 1922, and according to the learned counsel, if the expenditure was not of a capital nature he was entitled to the deduction thereof because it was laid out or expended wholly and exclusively for the purpose of the business of the assessee. Under S. 10(2)(xv) any expenditure not being an allowance of the nature described in any of the cls. (i) to (xiv), and not being in the nature of capital expenditure or personal expenses of the assessee, laid out or expended wholly and exclusively for the purpose of such business, profession or vocation is made allowable for the purposes of computation of profits or gains of the business. Since it is not claimed that the expenditure in question was allowable under S. 10(2)(v) and since it cannot be seriously disputed that the moneys were expended wholly and exclusively for the purpose of the business of the assessee, unless it is found that the expenditure was of a capital nature the assessee would be entitled to the allowance of the expenditure as revenue expenditure. What is, therefore, to be ascertained is whether the expenditure in question is in the nature of capital expenditure. But before we go to that question, it is necessary to ascertain the exact nature of the work which was carried out by the assessee and the purpose for which the expenditure in question was incurred.