Gulati, J. - (1.) THIS is a reference under Section 256(1) of the Income-tax Act, 1961. It is a consolidated reference relating to assessment years 1964-65, 1965-66 and 1966-67. The question arising in all the three assessment years is common.
(2.) THE assessee is a partnership firm carrying on business in crockery, glassware, etc., in a rented shop. THE shop was rented in 1939 on Rs. 40 per month. On 6th June, 1963, the assessee and the landlord entered into an agreement. THE assessee wanted to make some alterations and improvements in the shop. THE landlord permitted him to do so and increased the rent to Rs. 150 per month with effect from 1st August, 1963. THE assessee obtained the necessary permission from the Municipal Board and carried out the additions and alterations during the accounting years relevant for the assessment years under consideration. THE expenditure incurred in this behalf was as under : JUDGEMENT_339_ITR105_1976Html1.htm The assessee claimed these amounts as deduction from its income as being expenditure incurred on current repairs. The claim was disallowed by the Income-tax Officer. His appeal to the Appellate Assistant Commissioner of Income-tax also failed. Before the Tribunal, a ground was raised that the expenditure should have been allowed under Section 37 of the Act as being expenditure wholly and exclusively laid out for purposes of business. The Tribunal admitted this ground and remanded the case. The Appellate Assistant Commissioner of Income-tax on remand upheld the claim of the assessee holding that the expenditure was incurred wholly and exclusively for purposes of business and it was not an expenditure of capital nature. The department went up in appeal before the Tribunal. The Tribunal has reversed the finding of the Appellate Assistant Commissioner of Income-tax holding that the expenditure was allowable neither as an expenditure on current repairs under Section 30(a)(i) of the Act nor under Section 37, as it was an expenditure of capital nature. At the instance of the assessee the Tribunal has now made this reference on the following question of law : "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the sums of Rs. 10,859, Rs. 9,865 and Rs. 1,000 were not allowable as admissible expenditure either under Section 30(a)(i) or under Section 37 of the Income-tax Act, 1961, for the assessment years 1964-65, 1965-66 and 1966-67 respectively ?" Section 30 relates to allowances of certain expenditures relating to rent, taxes, repairs, etc., for premises used for the purpose of the business. Under clause (a)(i) where the premises are occupied by the assessee as a tenant, the rent paid for such premises and further if he has undertaken to bear the cost of repairs to the premises, the amount paid on account of such repairs, may be allowed. Clause (ii) then provides that where the premises are occupied by the assessee otherwise than as a tenant, the amount paid by him on account of current repairs for the premises may be allowed. It would be immediately noticed that under Clause (ii) only current repairs are to be allowed, if the premises are not occupied by the assessee as a tenant. But, in case the premises are occupied by him as a tenant, then he has to be allowed the repairs of the premises, if he has undertaken to bear the cost of repairs. There is a difference between "repairs" and "current repairs". "Current repairs" means only such repairs as are necessitated by the day to day wear and tear during the relevant previous year only, while "repairs" may mean accumulated repairs of several years.
(3.) THE exact nature of work done in the shop in question is not known in the instant case. THE assessee contended that he had spent the amount on renovating and furnishing the shop, whereas the Tribunal has taken the view that the assessee must have made some structural changes, otherwise it would not have been necessary for him to obtain permission from the municipality. Repairs of building in ordinary parlance means making good the wear and tear and may involve replacement of minor nature. However, any expenditure incurred on reconstruction or remodelling of a building or on renovating or furnishing it shall be outside the purview of "repairs". Accepting the finding of the Tribunal that a part of the expenditure at least must have been incurred on making structural changes in the shop, we must proceed to examine whether the view taken by the Tribunal that the expenditure was of a capital nature is correct.;