COMMISSIONER OF INCOME-TAX Vs. GOYAL OIL MILLS

JUDGEMENT

(1.) THIS income-tax reference is before us at the instance of the Commissioner of Income-tax, Punjab, Jammu and Kashmir and Himachal Pradesh. The brief facts are that the factory, which consists of a building as well as the oil plant and machinery, was purchased by four individuals, namely, (1) Sadhu Ram, (2) Madhav Lal, (3) Ram Dayal and (4) Nathu Ram in equal shares. Sadhu Ram and Madhav Lal, two out of four owners of the factory, took on lease half share in the factory from Ram Dayal and Nathu Ram, the other two co-owners, on an annual rent of Rs. 3,000. This was done by these two partners with a view to lease out the whole of the factory to the assessee-firm which in fact they did. The assessee-firm came into existence on the 9th November, 1957, and consists of four partners, namely, (1) Sadhu Ram, (2) Madhav Lal, (3) Sohan Lal son of Nathu Ram, and (4) Mangal Sain, brother of Sadhu Ram. Thus it would be seen that Ram Dayal and Nathu Ram are not the partners of the assessee-firm, although Sohan Lal, son of Nathu Ram, is the partner of the said firm. The terms and conditions on which the factory was leased out to the assessee-firm are incorporated in the partnership deed of the assessee-firm executed on November 9, 1957. Clauses 17, 18 and 19 of the partnership deed are as follows: "17. The partnership firm shall pay a sum of Rs. 6,000 per annum as lease money for the said machinery and building to its owners, i. e. , Rs. 3,000 as annual lease money to L. Nathu Ram, s/o. Bijai Lal, and L. Ram Dayal, s/o. L. Ganesh Narain, in equal half, and the balance Rs. 3,000 to its owners the parties of the first and the second parts in equal shares, i. e. , overall lease money of Rs. 6,000 shall be payable by the firm to its owners, as mentioned above. 18. That all expenses of all kinds, i. e. , in respect of repairs to the machinery, breakages of its parts, accessories and machinery of all kinds and electricity charges and rent shall be borne by the partnership business. 19. That on dissolution of the partnership the possession of the buildings, machinery and the complete factory shall be restored in working order to the parties of the first and second parts. " Fire broke out in the factory on May 11, 1960, causing damage to the two rooms of the factory and the machinery installed therein. The assessee-firm spent Rs. 16,954 in putting the building in the original position and Rs. 5,995 in repairing the damage to machinery. Besides this, it had inccurred some expense for repairing the building as well as machinery prior to May 11, 1960.

(2.) THE assessee-firm claimed the entire expenses incurred after the repairs of the factory as a permissible deduction. The Income-tax Officer rejected the assessee's claim for repairs to the building on the ground that the expense was not incurred actually for repairs but was incurred for the construction of the building and was as such of a capital nature. He also rejected the assessee's claim regarding the expenses incurred on machinery, on the same ground. The appeal of the assessee-firm before the Appellate Assistant Commissioner was dismissed holding that both the expenses were of a capital nature. The assessee-firm's contention before the Tribunal that both the expenses were permissible deductions under sections. 10 (2) (ii) and 10 (2) (xv) of the Income-tax Act were upheld. It is in this situation that the following two questions have been referred to us for our opinion : "1. Whether, on the facts and circumstances of the case, the expenditure of Rs. 16,954 incurred by the assessee in repairing the building was a permissible deduction? 2. Whether, on the facts and in the circumstances of the case, the expenditure of Rs. 5,995 incurred by the assessee after the repairs to the plant and machinery was a permissible deduction?" The learned counsel for the appellant, Mr. Awasthy, contended that the provisions of Section 10 (2) (ii) of the Income-tax Act would not cover the item of a sum of Rs. 16,954 spent on repairing the building of the factory by the assessee-firm. His contention is that expenses on the repair of the building and that on the machinery are both in the nature of capital expenditure and cannot fall under Sections 10 (2) (ii) and 10 (2) (xv) of the Act. He further contended that the words "premises" used in Section 10 (2) (ii) would also include the machinery and there being the specific section applicable, the provisions of the general Section 10 (2) (xv) would not be applicable.

(3.) AFTER examining the contentions of the learned counsel and after going through the provisions of Section 10 of the Income-tax Act, we are clearly of the opinion that the contentions of the learned counsel for the department are not tenable. There is no manner of doubt that Section 10 (2) (ii) of the Act covers the exigency in hand. It clearly covers the case of the assessee, who is a tenant of the premises. In the present case the assessee. firm is a tenant of the premises who had undertaken to incur all expenses of all kinds, that is, expenses of repairs to the machinery, breakages of its parts, accessories and machinery of all kinds and electricity charges and rent. Further, the assessee-firm had undertaken to deliver possession of the building, machinery and complete factory in the working order to the original owners. From the language of Section 10 (2) (v), it is clear that where in the case of an owner of premises, he can claim exemption only in respect of current repairs, but in the case of a lessee, whose case is covered by Section 10 (2) (ii) of the Act, he can claim exemption for all types of repairs which he had undertaken to effect in the premises on lease. We have no reason to differ from the reasons given by the Tribunal in coming to the finding that the charge on the repairs of the building of the factory is clearly covered by the provisions of Section 10 (2) (ii) of the Act.