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Greaves Cotton and Cromption Parkinson Ltd. Vs. Commissionero of Income-tax Bombay - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 55 of 1962
Judge
Reported in[1968]70ITR181(Bom)
ActsIncome Tax Act, 1922 - Sections 10(2) and 10(4); Madras City Municipal Act, 1919 - Sections 110
AppellantGreaves Cotton and Cromption Parkinson Ltd.
RespondentCommissionero of Income-tax Bombay
Appellant AdvocateR.J. Kolah, Adv.
Respondent AdvocateG.N. Joshi, Adv.
Excerpt:
direct taxation - deduction - sections 10 (2) and 10 (4) of income tax act, 1922 and section 110 of madras city municipal act, 1919 - tax paid to municipality - levy not depend upon company making profit - payment made to get permission to carry out business - assessee entitled for deduction of amount so paid to municipality while computing tax. - - the assessee made an application under section 66(1) of the act for a reference to this court both with regard to the first claim as well as the rejected part of the second claim. the assessee took a notice of motion in this court asking for a question of law to be raised with regard to the second claim as well. the main basis of the tax is the extent of the paid-up capital of the company, and, in the case of companies falling within the.....v.s. desai, j.1. this reference arises out of the assessment of the assessee for the assessment year 1958-59 for which the corresponding previous year was the calendar year ended 31st december, 1957. the assessee, which is an incorporated company, is a manufacturer and importer of electrical equipment. it has its head officer at bombay and branches at calcutta, madras and delhi. in the relevant account year the assessee paid a sum of rs. 1,100 as tax in respect of its branch at madras under section 110 of the madras city municipal act. in the said account year the assessee spent an amount of rs. 40,788.75np. for carrying out certain maintenance and repairs work to its calcutta office premises. in its assessment it claimed a deduction in respect of these two items. the first claim was.....
Judgment:

V.S. Desai, J.

1. This reference arises out of the assessment of the assessee for the assessment year 1958-59 for which the corresponding previous year was the calendar year ended 31st December, 1957. The assessee, which is an incorporated company, is a manufacturer and importer of electrical equipment. It has its head officer at Bombay and branches at Calcutta, Madras and Delhi. In the relevant account year the assessee paid a sum of Rs. 1,100 as tax in respect of its branch at Madras under section 110 of the Madras City Municipal Act. In the said account year the assessee spent an amount of Rs. 40,788.75nP. for carrying out certain maintenance and repairs work to its Calcutta office premises. In its assessment it claimed a deduction in respect of these two items. The first claim was disallowed by the income-tax Officer on the ground that the tax paid did not fall under section 10(2) (ix) and could not be allowed also in view of the specific provision of section 10(4). As to the second item, he held that what could be allowed out of the sum claimed was what was spent for petty repairs under section 10(2) (v). According to him, a sum of Rs. 8,000 could be estimated as spent for petty repairs and that amount alone could be allowed as a deduction. He, accordingly, allowed a sum of Rs. 8,000 and disallowed the rest. The decision of the Income-tax Officer was confirmed in appeal by the Appellate Assistant Commissioner on both the points. In a further appeal to the Income-tax Appellate Tribunal, it agreed with the view taken by the departmental authorities as far as the first claim was concerned. As to the second claim it held that the assessee would be entitled to a further amount of Rs. 12,000 and, accordingly, allowed that amount in addition to what was allowed by the departmental authorities. The assessee made an application under section 66(1) of the Act for a reference to this court both with regard to the first claim as well as the rejected part of the second claim. The Tribunal made a reference with regard to the first claim. It, however, refused to make a reference with regard to the second claim. Having taken the view that no question of law arose with regard to the same. The assessee took a notice of motion in this court asking for a question of law to be raised with regard to the second claim as well. That notice of motion was allowed by us and we called upon the Income-tax Appellate Tribunal to draw up a supplementary statement of case and refer the said question also to this court. It has accordingly drawn up the supplementary statement of the case and referred a question with regard to the second claim. The two questions, therefore, which arise for consideration on this reference are as follows :

'(1) Whether, on the facts and in the circumstances of the case, the payment of Rs. 1,100 to the Corporation of Madras is an allowable deduction

(2) Whether, on the facts and in the circumstances of the case, the disallowance of Rs. 20,788.75nP. out of the sum of Rs. 40,788.75nP. was justified in law ?'

2. Now, the sum of Rs. 1,100, which has been paid by the assessee to the Municipal Corporation of Madras, is in respect of a tax on companies levied by the Municipality under section 110 of the Madras City Municipal Act, 1919. That section, so far as is material for our purpose, reads as follow :

'110. If the Council by a resolution determines that a tax on companies shall be levied, every company which, after the date specified in the notice published under sub-section (2) of section 98-A, transacts business within the city in any half year for not less than sixty days in the aggregate shall pay, in addition to any licence fee that may be leviable under this Act, a half-yearly tax assessed in accordance with the rules in Schedule IV, but in no case exceeding Rupees one thousand : ....'

3. The relevant portion of the Schedule IV is in section 7 of the Schedule, which states as follows :

'7. Companies shall be assessed by the Commissioner on the following scale : ----------------------------------------------------------------------Paid up capital (in lakhs of Rupees) Half-year tax----------------------------------------------------------------------Rs.A. Less than one 30B. One and more than one, but less than two 50C. Two and more than two, but less than three 100D. Three and more than three, but less than five 150E. Five and more than five, but less than ten 250F. Ten and more than ten, but less than twenty 500G. Twenty and more than twenty 1,000----------------------------------------------------------------------

4. Provided that any company the head or a principal office of which is not in the city and which shows that its gross income received in or from the city in the year immediately preceding the year of taxation -

(a) has not exceeded Rs. 5,000 ... shall pay only 25 rupees perhalf-year;(b) has exceeded Rs. 5,000 but has notexceeded Rs. 10,000 ... shall pay only 50 rupees perhalf-year;(c) has exceeded Rs. 10,000 but has notexceeded Rs. 20,000 ... shall pay only 100 rupees perhalf-year; and(d) has exceeded Rs. 20,000 ... Shall pay per half-year 100rupees together with a sumcalculated at the rate of 25rupees per half-year for every5,000 rupees or part thereof,of gross income in excess ofRs. 20,000 subject to amaximum half-yearly tax of1,000 rupees :

5. Provided further that when a company, the head or a principal office of which is not in the city becomes liable to tax for the first time, it shall pay in the first year a tax of 25 rupees; but if the gross income of the company during such year is subsequently found to have exceeded 5,000 rupees, it shall pay the tax calculated in accordance with the above mentioned scale less the initial payment of 25 rupees.'

6. The assessee-company, not having had its principal office in the City of Madras, was governed by the rates specified in the proviso and was accordingly required to pay a tax of Rs. 1,100 in the year of account. The view taken by the departmental authorities and the Tribunal was that the amount of tax paid to the municipality did not fall under section 10(2) (ix), under which sums paid on account of land revenue, local rates or municipal taxes in respect of such part of the premises as is used for the purposes of the business, profession of vocation, are alone allowed. According to them, although the tax paid was a municipal tax, it was not in respect of the premises used for the purposes of the business and, therefore, did not qualify to fall under section 10(2) (ix) of the Indian Income-tax Act.

7. The next item to be considered was section 10(2) (xv), which permitted 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 assessee laid out or expended wholly and exclusively for the purpose of such business, profession or vocation. According to them, in view of section 10(4), the sum paid be way of tax in the present case could not be allowed under section 10(2) (xv).

8. Section 10(4) reads as under :

'Nothing in clause (ix) or clause (xv) of sub-section (2) shall be deemed to authorise the allowance of any sum paid on account of any case, rate or tax levied on the profits or gains of any business, profession or vocation or assessed at a proportion of or otherwise on the basis of any such profits or gains;...'

9. According to the departmental authorities and the Tribunal, the tax in the present case was assessed at a proportion or on the basis of the profits and gains of business and, therefore, could not be permissible as a deduction either under section 10(2) (ix) or under section 10(2) (xv).

10. There is no difficulty in holding that it will not be permissible to allow it as a deduction under section 10(2) (ix), because it is not a sum paid on account of the land revenue, local rate, or municipal tax in respect of the premises used for the purpose of the company's business. As to whether it will be permissible under section 10(2) (xv) will depend upon whether it could be regarded as an expenditure, which is not of a capital nature and laid out or expended wholly and exclusively for the purpose of the business. It appears from the orders of the departmental authorities and the Tribunal that the sum paid could be regarded as a revenue expenditure incurred wholly and exclusively for the assessee's business was not disputed. The reason why it was not allowed as an expenditure under section 10(2) (xv) was that it was expressly excluded by the provisions contained in section 10(4). According to the departmental authorities and the Tribunal, the tax was levied at a proportion of or otherwise on the basis of the profits or gains made by the assessee-company, and, therefore, fell within the ambit of section 10(4) and could not, therefore, be allowed as item of expenditure permissible under section 10(2) (xv). It is the correctness of this view taken by the departmental authorities and the Tribunal that is required to be considered under the first question.

11. The argument of Mr. Kolah, the learned counsel, who appears for the assessee, is that the tax paid in the present case is not assessed on the basis of any profits or gains. The main basis of the tax is the extent of the paid-up capital of the company, and, in the case of companies falling within the ambit of the proviso, the basis is the gross income, which at best is an estimate of the profits and not the profits and gains as specified in section 10(4) of the Act. Mr. Kolah argues that, having regard to the provisions of the Municipal Act levying this tax and the manner in which it is levied, it is more in the nature of licence fee than a tax on income and is in the nature of a payment required to be made by the companies who want to carry on business within the limits of the Municipal Corporation of the City of Madras. According to Mr. Kolah, therefore, the payment required to be made by the companies is for enabling them to carry on business within the limits of the Municipal Corporation and earn profits and, therefore, is an expense incurred solely and exclusively for the purpose of its business. Mr. Kolah further argues that what is not permissible to be allowed under section 10(4) is sum paid on account of any cess, rate or tax levied on the profits or gains of any business, profession or vocation or assessed at a proportion of or otherwise on the basis of any such profits or gains. The expression 'profits or gains' in this provision is the profits and gains as understood in the Income-tax Act, which are the taxable profits and gains as computed under the said head and not the gross income. Mr. Kolah points out that the gross income may have no relation to the profits and gains, because it is possible that even though the gross income may be a positive sum, the profits and gains of the business when ascertained may be a resulting loss. In support of this submission Mr. Kolah has invited our attention to some decided cases also.

12. In our opinion Mr. Kolah is right in the submission which he has made. In Commissioner of Income-tax v. Nedungadi Bank Ltd. which was a case of a tax on companies levied under the provisions of section 92 of the Madras District Municipalities Act (V of 1920), corresponding to section 110 of the Madras City Municipal Corporation Act, 1919, under which the tax in the case before us has been levied, the Madras High Court had to consider whether the payment of the said tax could be allowed under the provisions of section 10(2) (ix) of the Act as it then stood. It may be pointed out that the provisions of section 10(2) (ix) at that time were the same as the provisions of section 10(2) (xv) at present. Although a copy of the Madras District Municipalities Act of 1920 as it then stood is not before us, it appears from the judgment that, according to section 92 of the District Municipalities Act, under notification of the chairman, every company transacting business within the municipality for profit was required to pay a half-yearly tax known as 'tax on companies' on the scale shown in Schedule IV, provided it had transacted business for more than 60 days in the half year. Section 16 of Schedule IV laid down the method of assessment, from which it was clear that the assessment of the tax was made on the paid-up capital of the company, although in certain cases, if the head office or branch or principal office of the company was not in the municipality, and it was able to show certain figures of gross income, the tax on the paid-up capital was to some extent reduced. It would, therefore, be seen that the provisions of the District Municipalities Act were analogous to the provisions of the of Madras City Municipal Corporation Act and the basis of the tax was on the paid-up capital principally but, in certain cases where the head office or the principal office was outside the limits of the municipality, a different method of assessing the tax was provided. The madras High Court pointed out that the tax was not on profits but was in the nature of a compulsory toll on trading companies without which they were not permitted to carry on their trade for more than 60 days in any half year. It was observed :

'It is not strictly a licence fee, but it is nearer in analogy to that than it is to an income-tax.'

13. Having held that it was not in the nature of a tax on income, the court considered whether it would be permissible under section 10(2) (ix) of the then Act and held that it was not a tax on profits or income but a payment required to be made as a necessary condition precedent to any earning of profits, and was, therefore, an expenditure laid out wholly and exclusively for the purpose of the trade of the assessee. This case, in our opinion, would support the submission of Mr. Kolah that the sum could be regarded as an expenditure laid out wholly and exclusively for the purpose of carrying on of the trade.

14. Mr. Joshi, the learned counsel Appearing for the revenue, has pointed out that at the time when this case was decided, the prohibition contained in section 10(4) was not on the statute book and if the item could be regarded as an expenditure laid out wholly and exclusively for the purpose of the trade, it could be allowed. He has, however, argued that after the introduction of section 10(4), even though the expenditure is capable of being regarded as coming under section 10(2) (xv), if it is of the kinds specified in section 10(4), that is, if the expenditure is in the nature of a specified in section 10(4), that is, if the expenditure is in the nature of a tax levied on the profits or gains of business or assessed at a proportion of or on the basis of the profits or gains, it would not be permissible.

15. We find, however, that the second part of Mr. Kolah's submission that the tax paid in the present case is not levied on the profits and gains of the business or assessed at a proportion of or otherwise on the basis of the profits or gains is also well-founded and supported by authorities. In commissioner of Income-tax v. Garupada Dutta the Privy Council had to consider whether the amount paid in respect of a rate imposed under the provisions of the Bengal Village Self-Government Act, 1919, on a person occupying a building within the Union and using the same for the purpose of business, was an allowable deduction in the computation of the profits of the business under section 10 of the Indian Income-tax Act. Under section 37 of the Bengal Village Self-Government Act, 1919, the Union Board was empowered to impose yearly rate on persons who were owners or occupiers of buildings. Under section 38, the rate to be imposed by the Union Board under section 37 was to be an assessment according to the circumstances within the Union and property within the Union, if any, of the persons liable to pay the same; provided that the amount assessed upon any person in any one year was not more than eighty-four rupees. Under the rules made under the rule-making power for carrying out the purpose of the Act, rule 3 provided that the Board shall, after considering his debts and liabilities, if any, determine the total assessable income of the person concerned, i.e., the income which he derived from business conducted, or from buildings or other property held, within the Union. Their Lordships of the Privy Council pointed out that the basis on which the rate was imposed was a rough guess as to the annual income from business which could in no way be comparable with the ascertainment of the profits and gains under the Indian Income-tax Act. They pointed out that the inclusion of the element of business income as part of the circumstances of the assessee with a view to the imposition of the Union rate did not fall within section 10(4) of the Indian Income-tax Act. They pointed out that the rate or tax levied on the profits or gains of any business or profession mentioned in the first part of sub-section (4) of section 10 clearly implied an ascertainment of such profits and gains. In other words, rate or tax levied on the profits or gains of any business, profession or vocation mentioned in the first part of section 10(4) meant the ascertained or computed profits under the head of 'profits and gains' and the expression 'profits or gains' in the later part of sub-section (4) of section 10 must also have the same meaning. Their Lordships pointed out that the Union rate did not require the ascertainment of the profits and gains of the business but only required a rough guess of the income to be made and consequently the rate fixed on such basis did not fall under section 10(4). In the case before us, the tax is not levied on the basis of the profits and gains by which expression, as pointed out by their Lordships, is meant ascertained or computed profits and gains, but on the basis of the gross income, which is only at best an estimated income. Mr. Kolah's submission, therefore, that the tax levied in the present case would not be disallowed under the provision of section 10(4) appears to be well-founded.

16. Two more cases have been cited by Mr. Kolah. The first one is in Simbholi Sugar Mills Ltd. v. Commissioner of Income-tax. In that case an amount of Rs. 2,000 paid as District Board tax was claimed by the assessee as a deduction permissible under section 10(2) (xv). It was contended that the payment was not an expenditure coming within the provisions of section 10(2) (xv), and, even if it was, it was excluded by the provisions of section 10(4). It was held that the business of running the sugar factory was trade and consequently. in order to carry on that trade, the assessee had to pay the taxes which became payable under the District Boards Act. This was, therefore, an amount which was expended for the purpose of enabling the assessee to carry on the business of the sugar factory within the jurisdiction of the district Board of Meerut and such an expenditure was an expenditure laid out or expended wholly and exclusively for the purpose of the business. On the second question raised it was held that the income arrived at by pure guesswork without applying any principles for determining that estimated income. Such income cannot be said to be at all in the nature of profits and gains of the business mentioned in sub-section (4) of section 10 of the Income-tax Act.

17. The other case referred to is Commissioner of Income-tax v. Banarsi Dass and Sons. The payment in that case was of a tax under section 114 of the U. P. District Boards Act. The basis of the levy of the tax was 'circumstances and property' of persons carrying on business within the jurisdiction of the District Board and the circumstances involved the consideration of the total taxable income for the purpose of determining the tax. It was held that the tax paid could be claimed as an expenditure under section 10(2) (xv) and was not hit by the provisions of section 10(4) of the Indian Income-tax Act.

18. In our opinion, therefore, the amount of Rs. 1,100 which was paid by the assessee as a companies tax to the Madras City Municipal Corporation was allowable as a deduction under section 10(2) (xv) of the Act.

19. Mr. Joshi has argued that what is permissible under section 10(2) (xv) is an expenditure laid out wholly and exclusively for the purpose of the trade, i.e., an expenditure which is incurred for the purpose of earning profits in trade. The tax paid in the present case is not for the purpose of earning profits but is paid only in the event of profits having been made, because even if the company were to carry on business in the city of Madras and were to earn no income whatsoever, it would not be required to pay the the tax. It seems to us, however, that the argument cannot be sustained, both in view of the provisions of the Municipal Corporation Act and the Schedule levying the tax as also the cases, which we have already referred to. The basis of the taxation is the carrying on of business within the municipal limits. No doubt, the tax is measured on the basis of the gross income earned, but the essence of the levy of the tax is measured on the basis of the gross income earned, but the essence of the levy of the tax is to permit the carrying on the business by the companies within the limits of the Municipal Corporation and the failure to pay the tax will involve the company in penal consequences, as pointed out in Commissioner of Income-tax v. Nedungadi Bank Ltd. Therefore, it is in the nature of a payment required to be made for enabling the companies to carry on their trade within the limits of the City Municipal Corporation. It is not that any income is necessary to be earned in order that the tax may be levied. As soon as the business is started within the limits of the Municipal Corporation, even if Re. 1 is earned by the company, it will still be liable to pay the minimum tax, which is Rs. 25, because the provision is that for all incomes which do not exceed Rs. 5,000, a certain minimum payment has to be made. The imposition of the tax, therefore, is on the basis of the company being allowed to carry on business and not on profits having been earned by the company, although the quantum of the tax will be determined on the basis of the income earned. In our opinion, therefore, the assessees claim for deduction of the sum of Rs. 1,100 which it has paid to the Madras City Municipal Corporation as the company's tax must be upheld.

20. Coming now to the second question, the assessee's case was that in the year of account, it has paid a sum of Rs. 40,788.75 nP. for repairs to the rented house in which its Calcutta office was located. It had supplied a list giving the particulars of the expenditure and the said particulars show that the amount was paid on repairs, renovations and replacements. The Income-tax Officer considered the claim of the assessee for deduction solely under section 10(2) (ii), which permitted deduction of the amount spent on repairs, where the assessee was the tenant of the premises and had under taken to bear the cost if such repairs. The Income-tax Officer, therefore, proceeded to consider the terms of the lease executed by the assessee in respect of the rented premises and found that under clause (4) of the said agreement of lease, then lease had undertaken to execute at its own cost and expense all petty repairs to the interior of the demised premises that may from time to time be required or necessary. According to him, the expenses incurred by the assessee did not pertain to petty repairs only but covered other items in respect of which he had undertaken no liability under the lease. The Income-tax Officer was, therefore, of the opinion that the entire claim of Rs. 40,788.75 nP. was not capable of being allowed under section 10(2) (ii). Without going to the details of the items, which would qualify as petty repairs, he held on an estimate basis that an amount of Rs. 8,000 could be properly regarded as the claim to that extent. In the appeal to the Appellate Assistant Commissioner, the assessee had made a grievance with regard to the rest of the claim which was disallowed. He had contended that the said part of the claim was allowable either under section 10(2) (ii) or under section 10(2) (xv). The Appellate Assistant Commissioner did not accept the contention raised by the assessee. He agreed with the Income-tax Officer that the amount which had been spent for petty repairs alone could be allowed and held that the conclusion of the Income-tax Officer with regard to the said amount was not in any way incorrect or unreasonable. As to the claim made by the assessee under section 10(2) (xv), his view was that since there was a specific item, viz., section 10(2) (ii) under which the deduction fell, it was not capable of being considered under section 10(2) (xv), which was a residuary clause. In the further appeal before the Income-tax Appellate Tribunal, the same contentions, which were raised by the assessee before the Appellate Assistant Commissioner, were repeated. The Tribunal held that under clause (4) of the lease, the lessee had undertaken to execute at its own cost and expense not only all petty repairs to the interior of the demised premises, but had also undertaken to keep the interior of the demised premises in a good and tenantable condition including the red patent stone flooring on portions of the top flat of the said eastern block. According to the Tribunal, therefore, the assessee was entitled to be allowed the expenses which it had incurred not only for the petty repairs but also for keeping the interior of the demised premises in good and tenantable condition. Having perused the details supplied by the assessee, it held that a further amount of Rs. 12,000, would be permissible to the assessee by way of deduction. It may be pointed out that just as the Income-tax Officer had fixed the amount of Rs. 8,000 for petty repairs without actually determining which items from the list supplied by the assessee qualified as petty repairs, the Tribunal also did not specify which of the other items it considered as falling under the obligations undertaken by the assessee to keep the interior of the demised premises in good and tenantable condition. The alternative claim of the assessee that the rest of the expense, if they did not fall within the category of repairs, would be permissible as expenses wholly and exclusively laid out for the purpose of the business or trade of the assessee, does not appear to have been considered by the Tribunal.

21. Mr. Kolah's grievances are : firstly, that in the absence of any specification either by the Income-tax Officer or by the Tribunal as to which items qualified as petty repairs or items for keeping the interior of the demised premises in good and tenantable condition, their conclusion that Rs. 8,000 could be allowed as for petty repairs and the Tribunal further conclusion that Rs. 12,000 could be further allowed in view of the obligation under taken by the assessee to keep the interior of the demised premises in a good and tenantable condition are merely guesswork. He complains that it is difficult to find from their decisions as to which of the several items they had considered as allowable and which of the items as not allowable and the reasons for the same. His complaint, therefore, is that the items permitted by the Income-tax Officer and the Tribunal are arbitrary and without a proper application of their mind. His next grievance is that even if we find that some of the items would not properly fall within section 10(2) (ii), they could still be allowable to the assessee as properly coming under section 10(2) (xv). Items of repairs may be considered under section 10(2) (ii) but the other items, which may not come under section 10(2) (ii) would still have to be considered under section 10(2) (xv). At any rate, he says the claim was made by the assessee and the Tribunal should have considered that claim and decided whether it was justified or not.

22. In our opinion the submission urged by Mr. Kolah are not without substance. There is nothing in the order of the Tribunal, which would show which of the several items claimed by the assessee are included within the total amount of Rs. 20,000, which has been allowed to the assessee by way of deduction. It is also clear from the order of the Tribunal that the claim of the assessee on the basis of section 10(2) (xv) has not been considered by it. It may be pointed out that it is nobody's case that may any part of the expenses incurred by the assessee could be regarded as capital expenditure and, therefore, not allowable. Neither the departmental authorities nor the Tribunal have disallowed any part of the claim on that basis. It may also be pointed out that the necessity or the bona fides of the expenditure also has not been questioned at any time. There is, therefore, no doubt that the expense incurred by the assessee were in the nature of revenue expenditure expended in the course of its business. The only question was whether the expenditure was allowable under section 10(2) (xv) or 10(2) (ii). The claim of the assessee, therefore, under section 10(2) (xv) had to be considered but neither the departmental authorities nor the Tribunal have considered the same. There is no doubt whatsoever that a part of the assessee's claim is allowable under section 10(2) (ii) and under the Tribunal order the said claim has been allowed to the extent of Rs. 20,000. If the Tribunal's order could have supplied the information as to the particular items in respect of which the said claim has been allowed, it would have been easier to consider as to whether any other items except those which have been allowed by the Tribunal were capable of falling under section 10(2) (ii). Unfortunately, however, the Tribunal's order does not supply the said information. Counsel on either side have, however, agreed that all the items given in the statement excepting the item of Rs. 15,209 pertaining to the alleged repairs to the second floor and the item relating to the repairs to the club-room could go under section 10(2) (ii) and could be regarded as having been allowed under the order of the Tribunal. The total amount of these items comes to about Rs. 21,000, which is in excess of the amount allowed by the Tribunal by less than Rs. 1,000. It is not possible to single out an item of expenditure of Rs. 1,000, from out of these items to treat it is as being disallowed by the Tribunal on the ground that it does not pertain to repairs. We will, therefore, take it that these items totaling about Rs. 21,000 are allowable to the assessee under section 10(2) (ii). As to the other two items, which we have mentioned, viz., the items of Rs. 15,209 and Rs. 3,813, Mr. Kolah contends that these items also are items of repairs and if they could not be treated as items of repairs, they would be still allowable as deductible expenses under section 10(2) (xv). Mr. Joshi, on the other hand, contends that these are not items of repairs though they are so styled but are items of replacements in renovations and could not, therefore, come within section 10(2) (ii). His further contention is that they could not qualify for deduction under section 10(2) (xv) since they cannot be regarded as laid out wholly and exclusively for the business of the assessee.

23. It is not possible for us, on the material supplied by the order of the Tribunal, to decide this dispute between the parties. The particulars of the first item given in the statement are as follows :

'Removing the existing plaster of walls and ceiling and applying new plaster, painting of walls and ceiling (including verandah), washing and painting of doors, windows, washing and polishing red floor, repairs of enclosures with Tenesta Board & C. P. Teakwood.'

24. The particulars of the second item of Rs. 3,813 are as follows :

'Replacing window screen, painting, khas khas, linoleum flooring, etc., of the club room.'

25. It is difficult, on the description of these items, to decide whether they relate to repairs or replacements or renovations. Taking the first item, the first part of it is 'removing the existing plaster of walls and ceiling and applying new plaster.' Whether it will amount to repairs, replacements or renovation will depend upon what was the state of the existing plaster, which was removed and what was the new plaster added. Thus, for instance, if the existing plaster was quite good and sound but the assessee thought of taking it out and replacing it by another plaster of a different kind, it may not be a matter of repairs but an item of renovation or replacement. On the other hand, if the existing plaster had come off and was crumbling and had to be taken off and replaced by new plaster, it would be an item of repairs. Similarly, the painting of walls and ceiling including the verandah, which is the next part in this item, would again be a matter of ordinary repairs or of renovation. Washing and painting of doors, windows may appear to be a matter of ordinary repairs and washing and polishing of the red floor may constitute an item falling under section 10(2) (ii) because, under clause (4) of the lease, the assessee had undertaken to keep in good and tenantable condition the red patent stone flooring on portions of the top flat of the eastern block. If the polishing is made of this red floor, that would be an item undertaken to be executed by the assessee under its lease and would qualify for deduction under section 10(2) (ii). As to the repairs of enclosures with Tenesta Board and C. P. Teakwood, that prima facie appears to be an item of renovation. It will thus be seen that the description given of this item is not by itself sufficient to come to the conclusion as to whether the item will be wholly or partly allowable either under section 10(2) (ii) or under section 10(2) (xv). The second item again is replacement of window screen, painting, khas khas, linoleum flooring, etc., of the club-room. Whether this item would fall under repairs, replacement, or renovation will again be a matter to be determined on further particulars and information obtained in respect of the same. All that we can say at the present stage is that it could not be straightaway said from the particulars supplied that the items were not at all allowable to the assessee under section 10(2) (ii) or under section 10(2) (xv). Even in these two items there would be some matters of repairs, some of renovation and some of replacements. The repairs may come under section 10(2) (ii) and the claim as to renovations and replacements will have to be considered under section 10(2) (xv). Since that has not been done by the Tribunal and no reasons have also been given by it as to why these items are not allowed to the assessee, we must hold that the order of the Tribunal disallowing this claim was not justified. We will, therefore, have to answer the second question accordingly. We may, however, point out that our answer to the second question would not mean that the claim disallowed by the Tribunal must necessarily be allowed to the assessee. Whether the whole or any part of it will be allowed to the assessee or not will depend upon a further examination of the said claim.

26. Our answer, therefore, to the first question is in the affirmative and to the second question in the negative. The assessee will get its costs from the Commissioner.


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