Bhopinder Singh Dhillon, J.
1. This income-tax reference is before us at the instance of the Commissioner of Income-tax, Punjab, Jammu and Kashmir and Himachal Pradesh. The brief facts are that the factory, whichconsists of a building as well as the oil plant and machinery, was purchased by four individuals, namely, (1) Sadhu Ram, (2) Madhav Lal, (3) Ram Dayal and (4) Nathu Ram in equal shares. Sadhu Ram and Madhav Lal, two outof four owners of the factory, took on lease half share in the factory fromRam Dayal and Nathu Ram, the other two co-owners, on an annual rent ofRs. 3,000. This was done by these two partners with a view to lease outthe whole of the factory to the assessee-firm which in fact they did. Theassessee-firm came into existence on the 9th November, 1957, and consists of four partners, namely, (1) Sadhu Ram, (2) Madhav Lal, (3) Sohan Lal son of Nathu Ram, and (4) Mangal Sain, brother of Sadhu Ram. Thus it would be seen that Ram Dayal and Nathu Ram are not the partners of the assessee-firm, although Sohan Lal, son of Nathu Ram, is the partner of the said firm. The terms and conditions on which the factory was leased out to the assessee-firm are incorporated in the partnership deed of the assessee-firm executed on November 9, 1957. Clauses 17, 18 and 19 of the partnership deed are as follows:
'17. The partnership firm shall pay a sum of Rs. 6,000 per annum as lease money for the said machinery and building to its owners, i.e., Rs. 3,000 as annual lease money to L. Nathu Ram, s/o. Bijai Lal, and L. Ram Dayal, s/o. L. Ganesh Narain, in equal half, and the balance Rs. 3,000 to its owners the parties of the first and the second parts in equal shares, i.e., overall lease money of Rs. 6,000 shall be payable by the firm to its owners, as mentioned above.
18. That all expenses of all kinds, i.e., in respect of repairs to the machinery, breakages of its parts, accessories and machinery of all kinds and electricity charges and rent shall be borne by the partnership business.
19. That on dissolution of the partnership the possession of the buildings, machinery and the complete factory shall be restored in working order to the parties of the first and second parts.'
Fire broke out in the factory on May 11, 1960, causing damage to the two rooms of the factory and the machinery installed therein. The assessee-firm spent Rs. 16,954 in putting the building in the original position and Rs. 5,995 in repairing the damage to machinery. Besides this, it had inccurred some expense for repairing the building as well as machinery prior to May 11, 1960.
2. The assessee-firm claimed the entire expenses incurred after the repairs of the factory as a permissible deduction. The Income-tax Officer rejected the assessee's claim for repairs to the building on the ground that the expense was not incurred actually for repairs but was incurred for the construction of the building and was as such of a capital nature. He also rejected the assessee's claim regarding the expenses incurred on machinery, on the same ground. The appeal of the assessee-firm before the Appellate Assistant Commissioner was dismissed holding that both the expenses were of a capital nature. The assessee-firm's contention before the Tribunal that both the expenses were permissible deductions under sections. 10(2)(ii) and 10(2)(xv) of the Income-tax Act were upheld. It is in this situation that the following two questions have been referred to us for our opinion :
'1. Whether, on the facts and circumstances of the case, theexpenditure of Rs. 16,954 incurred by the assessee in repairing the building was a permissible deduction?
2. Whether, on the facts and in the circumstances of the case, the expenditure of Rs. 5,995 incurred by the assessee after the repairs to the plant and machinery was a permissible deduction?'
The learned counsel for the appellant, Mr. Awasthy, contended that the provisions of Section 10(2)(ii) of the Income-tax Act would not cover the item of a sum of Rs. 16,954 spent on repairing the building of the factory by the assessee-firm. His contention is that expenses on the repairof the building and that on the machinery are both in the nature of capitalexpenditure and cannot fall under Sections 10(2)(ii) and 10(2)(xv) of the Act. He further contended that the words 'premises' used in Section 10(2)(ii) would also include the machinery and there being the specific section applicable, the provisions of the general Section 10(2)(xv) would not beapplicable.
3. After examining the contentions of the learned counsel and after going through the provisions of Section 10 of the Income-tax Act, we are clearly of the opinion that the contentions of the learned counsel for the department are not tenable. There is no manner of doubt that Section 10(2)(ii) of the Act covers the exigency in hand. It clearly covers the case of the assessee, who is a tenant of the premises. In the present case the assessee. firm is a tenant of the premises who had undertaken to incur all expensesof all kinds, that is, expenses of repairs to the machinery, breakages of its parts, accessories and machinery of all kinds and electricity charges and rent. Further, the assessee-firm had undertaken to deliver possession of the building, machinery and complete factory in the working order to the originalowners. From the language of Section 10(2)(v), it is clear that where in the case of an owner of premises, he can claim exemption only in respect of current repairs, but in the case of a lessee, whose case is covered by Section 10(2) (ii) of the Act, he can claim exemption for all types of repairs which he had undertaken to effect in the premises on lease. We have no reason to differ from the reasons given by the Tribunal in coming to the finding that the charge on the repairs of the building of the factory is clearly covered by the provisions of Section 10(2)(ii) of the Act.
4. The second contention of the learned counsel for the department that the premises mentioned in Section 10(2) (ii) would include the machinery also, and, therefore, the general provisions made in Section 10(2)xv) of the Act, would not be applicable, is again without any force. The words'premises' would only mean the building or its adjunctures. Machinery, which is a movable property, cannot be said to be an adjuncture to the building. In no sense the provisions of Section 10(2)(ii) of the Act can beconstrued so as to mean the building as well as the machinery of the factory. Thus, in our opinion, the repairs to the machinery of the factory would not be covered by the provisions of Section 10(2)(ii) and there beingno other direct section on the point, the provisions of Section 10(2)(xv) of the Act will be applicable. The only question to be seen is whether the amounts spent, for which exemption is being claimed for the repairs to the machinery, are not in the nature of capital expenditure or personal expenditure of the assessee. The contention of the learned counsel for the department that the amount spent for the repair of machinery is a capital expenditure is untenable for the simple reason that the assessee-firm, whenit dissolves or when the lease expires, has to give the possession of the factory including the building, machinery and other accessories, to the real owners of the factory. The machinery or any part of the factory cannot be retained by them as their own capital. Thus the expenditure on the repair of the machinery , which machinery ultimately belongs to the owners and not to the assessee, cannot be said to be in the nature of capital expenditure, nor can the same be said to be personal expenditure of the assessee under the terms of the lease. The assessee-firm was bound to get the machinery repaired before it could deliver the possession of the same to the real owners. Thus, we are clearly of the opinion that, as far as the question of repairs to the machinery is concerned, it is covered by the provisions of Section 10(2)(xv) of the Act.
5. The next contention of the learned counsel for the department that two of the partners of the assessee-firm, namely, Sadhu Ram and Madhav Lal, are also the owners of the factory in question to the extent of one-half and, therefore, the expenses incurred to the tune of one-half are in the nature of capital expenditure, is again without any force. The assessee-firm is an independent entity, whereas Sadhu Ram and Madhav Lal are its partners. The department is only concerned with the assessee-firm as a whole and not with the individual partners of the firm. The assessee-firm is bound under the agreement of lease to pay to the real owners a sum of Rs. 6,000 annually as rent of the factory. Under the Income-tax Act, a person can be assessed as an individual person, as a partner of a firm, or as a trustee, in a case where the income of the trust is subject to income-tax. The mere fact that two of the partners of the assessee-firm are owners would not lead to the conclusion that half of the expenditure made for repairing the building and machinery is in the nature of capital expenditure. The assessment of the tax has to be made on the firm and not on individual shareholders. Thus, this contention of the learned counsel for the department is again without any force. Therefore, we have no reason to differ with the findings given by the Income-tax Appellate Tribunal.
6. For the reasons recorded above, question No. 1, whether the expenditure of Rs. 16,954 incurred by the petitioner-firm in repairing the building was a permissible deduction, is answered in the affirmative and in favour of the assessee. Question No. 2 is also answered in the affirmative and in. favour of the assessee. However, keeping in view the circumstances of the case, there will be no order as to costs.
D.K. Mahajan, J.
7. I agree that both the questions have to be. answered in favour of the assessee.