1. This order is in continuation of the order made by this court in I. T. R. C. No. 1 of 1961. There was no need to number this proceeding separately.
2. In I. T. R. C. No. 1 of 1961 a Bench of this court, to which one of us (Hegde J.) was a member, made the following order on June 21, 1962 :
'The question of law referred to this court under section 66(1) of the Indian Income-tax Act hereinafter, reads thus : 'Whether the amount of Rs. 14,485 being the cost of installation of diesel engines in place of petrol engines of the existing buses was an allowable deduction as revenue expenditure ?'
3. Concisely stated, the facts are as follows : The assessee is a firm of bus operators. Previously their buses were run with petrol engines. In the accounting year relevant to the assessment year (1957-58), the assessee replaced the petrol engines of some of their buses with diesel engines. The cost of installation of the diesel engines amounted to Rs. 14,485. This amount was claimed as a permissible deduction either under section 10(2)(v) or under section 10(2)(xv) of the Act. The tribunals below rejected the claim made by the assessee. Dealing with the claim in question, the Tribunal, in paragraph 2 of its order, observed thus :
'The first contention is that the expenditure of Rs. 14,485 incurred on installation of diesel engines in place of petrol engines on the buses used for running the assessee's transport business should be allowed as a revenue expenditure and must not be disallowed as capital expenditure. We have repeatedly held that such expenditure is neither an expenditure on 'current repairs' within the meaning of section 10(2)(v) nor even on 'repairs' falling within the omnibus clause (xv) of section 10(2). It is purely and simply capital expenditure. Hence, substantially for the reasons given by the Appellate Assistant Commissioner, we reject the contention that the said sum is a permissible deduction.'
4 . We are not satisfied that the Tribunal had addressed itself to the question that really arose on the contention advanced on behalf of the assessee. As mentioned above, the assessee claimed deduction on two alternative grounds. He, firstly, contended that the expenditure incurred was in respect of 'current repairs' of machinery and, therefore, he was entitled to deduction under section 10(2)(v). Alternatively, he claimed that if the expenditure does not fall within any one of the clauses (i) to (xiv) of section 10(2), the same being not in the nature of capital expenditure, he is entitled to deduction under section 10(2)(xv). At present, we have not considered the assessee's case under section 10(2)(xv), as, in our opinion, the Tribunal has not properly considered the assessee's case under section 10(2)(v). The claim under section 10(2)(xv) will arise for consideration only if we reject the assessee's claim under section 10(2)(v). Therefore, the first question to be decided is whether the assessee has justified his claim under section 10(2)(v).
5. In considering a claim for deduction under section 10(2)(v), we do not think that the question whether the expenditure is a capital expenditure or revenue expenditure is relevant. Section 10(2)(v) nowhere says that expenditure of a capital nature cannot be brought within the scope of that provision. On the other hand, a reading of clause (xv) of section 10(2) makes it abundantly clear that the deductions claimed under clauses (i) to (xiv) of section 10(2) may be either a revenue expenditure or capital expenditure. Otherwise, there was no purpose in the legislature saying in clause (xv) that :
'Any expenditure (not being an allowance of the nature described in any of clauses (i) to (xiv) inclusive, and not being in the nature of capital expenditure or....'
6. If capital expenditure was excluded from the scope of clauses (i) to (xiv) of section 10(2), there was no need to refer to capital expenditure in clause (xv). The question whether capital expenditure can fall within the scope of section 10(2)(v) was considered by a Bench of the Madras High Court in Commissioner of Income-tax and Excess Profits Tax v. Sri Rama Sugar Mills Ltd. At page 196, Satyanarayana Rao J. observed thus :
'Bearing these principles in mind, it would be convenient now to consider the decisions cited at the bar to elucidate the distinction between capital and revenue expenditure. Though in the question formulated and in the arguments before the Income-tax Officer and the other authorities which dealt with this question, the point was considered only from the point of view of clause (xv) to sub-section (2) of section 10, in the arguments before us, reference was made to sub-clause (v) of that sub-section relating to repairs and also to clause (xv). If the substitution of the new boiler for the old by the assessee can aptly be described as a 'repair' of the machinery, the claim for allowance must be upheld under clause (v) of section 10(2) and no further question whether it is in the nature of capital expenditure or expenditure which is to come out of revenue arises for consideration. It has been held by this court very early in Ratan Singh v. Commissioner of Income-tax that these clauses are disjunctive and even if an assessee fails to establish his claim under clause (v), he would still be entitled to rely upon clause (xv) in support of the deductions claimed by the assessee-company.'
7. In our opinion, the Tribunal erred in addressing itself to the question whether expenditure was revenue expenditure or capital expenditure. It is true, in a large measure, the assessee was responsible for this state of affairs. From the records it appears that at all stages the assessee went on contending that the expenditure for which he has claimed exemption was a revenue expenditure. But that does not absolve the Tribunal of its responsibility of viewing the facts in the correct perspective.
8. In the instant case, we are unable to get from the order of the Tribunal the reasons for replacing the petrol engines by diesel engines. It is not known whether the petrol engines which were the component parts of the trucks in question had become disused and whether there was any need for substituting them by diesel engines for the purpose of Preserving or maintaining the existing buses or whether the same was done with the object of bringing a new asset into existence or for obtaining a new or fresh advantage. In finding out whether a given case falls within the scope of clause (v) of section 10(2), the true test as laid down by the Bombay High Court in New Shorrock Spinning and . v. Commissioner of Income-tax is whether, as a result of the expenditure which is claimed as expenditure for repairs, what is really being done is to preserve and maintain an already existing asset or whether the object of such expenditure was to bring a new asset into existence or to obtain a new or fresh advantage. If it is the former, then it is a 'repair'. If it is the latter, it should be considered as a replacement of renewal. This is the crux of the matter. But this aspect was completely lost sight of by the Tribunal and it is not possible for us to pronounce on the same without a further statement of facts in this regard.
9. For the reasons mentioned above, we direct the Tribunal under section 66(4) of the Act, to submit a further statement of facts on the points is raised above. If the material on record is not sufficient to submit a statement of facts in this regard, the Tribunal may further enquire into the matter or direct the Income-tax Officer or the Appellate Assistant Commissioner to enquire into that aspect and submit the relevant data to the Tribunal. The further statement of facts will be submitted to this court within six months from this date.'
10. In pursuance of the above direction, the Tribunal submitted a further statement of case, which reads as follows :
'The assessee purchased two diesel engines and fitted them to two old buses. These buses were previously run on petrol. These two petrol engines were not in serviceable condition. It would have been possible to have replaced these petrol engines by new petrol engines. The object in fitting diesel engines was to decrease the running expenses. The diesel engines give more mileage per gallon and the cost of diesel oil is less than the cost of petrol. Some of the parts of the old patrol engines had been utilised in repairing the patrol engines of other buses and the other parts had been sold as scrap. The exact amount of sale is not ascertainable.'
11. From the facts stated in the further statement, it is clear that the petrol engines which were replaced were not in serviceable condition. Therefore, the choice before the assessee was either to replace them by new petrol engines or by diesel engines. On the material before us, we are unable to find out as to whether there is any great difference between the price of petrol engines and that of diesel engines. But one thing is clear that the old petrol engines were replaced, because they were not in working condition. Section 10(2)(v) of the Act concerns itself with the current repairs of buses and not the petrol engines that were replaced. The replacement of worn out parts of a machinery does not by itself bring a new asset into existence. The fact that and old part of a machinery is replaced by a new part does not mean that a new asset has been brought into existence. In the application of section 10(2)(v) the focus is on the current repairs to building, plants or machineries used for the purpose of business and not to any part of them. While effecting current repairs to any machinery old parts may have to be replaced by new parts, sometimes by more efficient parts. If we look at the engines by themselves, there is no doubt that new assets had been brought into existence. But in relation to the bus concerned, the replacement of its engine is only a current repair of that bus. We see no justification for understanding the expression 'current repairs' as being equivalent to petty repairs. Section 10(2)(v) contemplates the repair of a machinery and not of any part thereof. It may be that the replacement of a part of machinery may add to its efficiency or many reduce working expenditure. But that does not in any manner take it out of the scope of section 10(2)(v), if in fact only a current repair has been effected and not a renewal or reconstruction as such. It is not shown that the cost of the engine, when looked at with reference to the cost of the bus is such as to consider the replacement a reconstruction.
12. For the reasons mentioned above, our answer to the question referred to us is that the amount of Rs. 14,485 being the cost of installation of diesel engines in the place of petrol engines of the existing buses was allowable deduction under section 10(2)(v) of the Act.
13. The assessee is entitled to his costs in these proceedings. Advocate's fee, Rs. 250.