Mukerjee, J. - (1.) THIS is a case stated under Section 66(1) of the Income-tax Act, 1922, hereinafter referred to as the Act.
(2.) THE applicant is a private limited company carrying on business in the manufacture of tents, daris and other like materials. For the purpose of its business it requires to maintain godowns, ware-houses, dye-houses, etc. THE applicant entered into an agreement of lease effective from the 1st of January, 1958, for a period of ten years taking certain premises on lease for the purpose of its business. Under the terms of the lease the lessors were not bound to carry out any repairs of the leased premises. THE deed of lease, dated February 28, 1958, provided that if any structural or other repairs of a substanial character were required, the lessees would have the right to vacate the leased premises in which case they would not be liable to rent thereafter. THE relevant clause in the deed of lease is Clause (4) which runs as follows : " That the lessee company will at all times maintain the demised premises in a good tenantable condition (accidents by tempest or earthquake or an act of God or act beyond the control of the lessee exempted) and shall carry out annual repairs and white-washing thereof at the cost of he lessee company without any claim or claim or demand thereof at any time from the lessor-landlords. THE lessor-landlords will not be bound to carry out any repairs. If the premises require any structural repairs or other repairs of a substantial character which the lessor landlords are not prepared to carry out, the lessee company will have the right to vacate the leased premises and will give peaceful prossession to the lessor-landlords and in that case the lessee company will not be liable to pay rent for the unexpired lease period from the date of vacating and giving possession." During the previous year relevant to the assessment year 1958-59, the assessee effected certain repairs to its godowns at a cost of Rs. 15,774 and during the previous year for the assessment of 1960-61 the assessee again effected certain repairs to its dye-houses at a cost of Rs. 10,446. The Income-tax Officer disallowed these expenses on the ground that they were capital in nature, but he allowed depreciation on these amounts at the prescribed rates. It may be noted [that the assessee, being only a tenant of the premises and not the owner thereof, was not entitled to depreciation allowance which it never claimed. Clearly, the allowance of depreciation wrongly made by the Income-tax Officer would not be determinative of the nature of the expenditure. An appeal to the Appellate Assistant Commissioner having proved unsuccessful, the assessee appealed before the Tribunal. It was submitted before the Tribunal that in both the relevant years the roofs of the godowns and the dye-houses had to be entirely replaced as the buildings had become very old. It was further submitted that, in the process of re-roofing, only inferior types of materials were used and no extra expenditure was incurred for improvement of the quality of the structures. The assessee further contended that it was bound to carry out these repairs in terms of the lease and that, as the business could not be carried on without such repairs, it was compelled to incur these expenses. The Tribunal found that the go-downs and the dye-houses were very old building and the roofs had caved in. The Tribunal also considered the submission of the assessee that the lease was only for a short period and that the assessee did not acquire any enduring benefit by incurring these expenses. The total cost of each of the buildings was found to be about Rs. 1,00,000 and, in the opinion of the Tribunal, the proportion of the expenditure on re-roofing was moderate. The Tribunal, it appears, was inclined to allow the expenditure incurred by the assessee in both the relevant years as revenue expenditure, but it felt bound by two decisions of the Allahabad High Court in Ramkishan Sunderlal v. Commissioner of Income-tax, [1951] 19 I.T.R 324 and L. H. Sugar Factories and Oil Milts Ltd., In re., [1952] 21 I.T.R. 325 Following these decisions the Tribunal held that the expenditure incurred by the assessee was of a capital nature and it refused to allow the same as a deduction from the total income of the assessee for the respective years.
(3.) AT the instance of the assessee the Tribunal has referred the following question for the opinion of this court : " Whether, on the facts and in the circumstances of the case, the sums of Rs. 15,774 (1958-59) and Rs. 10,466 (1960-61) represented revenue expenditure deductible in computing the income of the assessee under Section 10?" The question which has been referred to this court is wide enough to include Clauses (ii), (v) and (xv) of Sub-section (2) of Section 10 in its ambit. Sub-section (1) and Clauses (ii), (v) and (xv) of sub Section (2) of Section 10 are reproduced below ; "10. (1) The tax shall be payable by an assessee under the head 'profits and gains of business, profession or vocation' in respect of the profits or gains of any business, profession or vocation carried on by him. (2) Such profits or gains shall be computed after making the following allowances, namely :-- (ii) in respect of repairs, where the assessee is the tenant only of the premises, and as undertaken to bear the cost of such repairs, the amount paid bn account thereof, provided that, if any substantial part of the premises is used by the assessee as a dwelling-house, a proportional part only of such amount shall be allowed ;.... (v) in respect of current repairs to such buildings, machinery, plant or furniture, the amount paid on account thereof ;.... (xv) any expenditure (not being an allowance of the nature described in any of the Clauses (i) to (xiv) inclusive, and not being in the nature of capital expenditure or personal expenses of the assessse) laid out or expended wholly and exclusively for the purpose of such business, profession or vocation." ;