1. By this reference under Section 256 of the I.T. Act, 1961 (hereinafter referred to as 'the Act'), the Income-tax Appellate Tribunal, Indore, has referred the following questions of law to this court for its opinion :
'(1) Whether, on the facts' and in the circumstances of the case, salary paid to Shri Kantilal Chopra in his individual capacity is to be disallowed under Section 40(b) of the Income-tax Act, 1961 ?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the expenditure on repairs and renovations to the factory building and godowns to the tune of Rs. 34,245 was capital in nature ?'
2. The material facts giving rise to this reference briefly are as follows:
3. The assessee is a registered firm deriving its income from the manufacture of bone-powder and glue. The assessment year in question is 1975-76. While scrutinizing the accounts of the assessee for the relevant account year, the ITO found that payment of Rs. 10,400 by way of salary was made by the assessee to Shri Kantilal Chopra, one of the partners of the assessee-firm. The ITO held that in view of the provisions of Section 40(b) of the Act, payment of the aforesaid amount was not deductible and hence he added back this sum to the income of the assessee. The ITO further found that during the year in question, the assessee had purchased a factory building and three godowns for a sum of Rs. 20,000 but it claimed to have incurred expenditure of Rs. 40,245 for repairs. The ITO held that the repairs were carried out not with a view to restoring the building to its condition at the time of the purchase, but with a view to making substantial improvement in the building, The ITO, therefore, held the aforesaid expenditure to be, capital in nature and added back the same to the income of the assessee. Both the above additions were upheld by the Commissioner (Appeals). On further appeal, the Tribunal held that the ITO was justified in disallowing the salary paid to one of the partners of the assessee-firm. The Tribunal also held that from out of the sum of Rs. 40,245 claimed by the assessee to have been spent in connection with repairs of the building, a sum of Rs. 6,000 be held to be the amount of expenditure incurred on repairs and the balance may be treated as capital expenture. Aggrieved by the order passed by the Tribunal, the assessee sought a reference and it is at the instance of the assessee that the aforesaid questions of law have been referred to this court for its opinion.
4. So far as question No. 1 is concerned, the learned counsel for the assessee conceded that the matter was concluded by the decisions of this court in Jalam Chand Mangilal v. CIT (No. 1) : 138ITR343(MP) and Jalam Chawd Mangilal v. CIT (No. 2) : 138ITR347(MP) . We see no reason to take a view different from that taken in the aforesaid decisions. Our answer to question No. 1, therefore, is in the affirmative and against the assessee.
5. As regards question No. 2, the Tribunal has found that as a result of the expenditure on renovation of the factory building to the extent of Rs. 34,245, there was substantial improvement of the property. This finding is based on the material on record. In view of this finding, the Tribunalwas justified in holding that the said expenditure was capital in nature. Therefore, our answer to question No. 2 is in the affirmative and against the assessee.
6. The reference is answered accordingly. In the circumstances of the case, parties shall bear their own costs of this reference.