H.R. Khanna, C.J.
(1) The following question hasbeen referred to this Court under section 256(1) of theIncome tax Act, 1961.
'WHETHERon the facts and in the circumstances of the case, the expenditure of Rs. 9,418.00is a permissible deduction?'
(2) The statement of the case relates to the assessmentyear 1962-63. The relevant previous year ended on 31/12/1961. Jagat Cinema (Bareilly), the assessed,is a partnership firm. The assessed took Cinema Hall,known as Jagat Cinema, with shops and out housessituated in Bareilly on lease under a lease deed dated 20/12/1957. The period of the lease began from 1/01/1957 and terminated on 31/12/1961. Clauses (6), (10) and (11) of the lease deed readas under:-
'(6)That on the termination of the lease, thelessee will be entitled to remove his TalkieEquipment with its wiring and all fittings andfurnitures and deliver possession to the Lesserwithout any damage to the building whatsoever.
(10)That the Lessee will keep the fixture,decoration etc., in good condition and in order andwill allow the Lesser or his nominee to inspecthis property any time except at the time ofactual show. The lessee will replace all shortages, breakages etc., with due expeditions.
(11)That the repairs of the building will bemade by the lessee and the annual whitewashingand painting etc., will be made by the lesseeat his own cost according to their taste, but theLesser will contribute Rs. 120.00 (one hundredtwenty) annually towards white washing andpainting to the lessee.'
(3) During the relevant previous year the lintel nearthe stage of the cinema hall collapsed as a result ofwhich damage was caused to the screen and the stage.The lintel was reconstructed by the assessed in pursuance of the aforesaid terms of the lease deed. Whilereconstructing the stage and the screen, the assessed increased the dimensions. Rs. 11,418.00 were spent by theassessed on the above construction and be claimed thatamount as a permissible deduction. In answer to thequery of the Income-tax Officer regarding the increasein the expenditure under the head 'repairs and renewals'the assessed wrote as under:
'THEexpenditure under this head last yearwas Rs 1,716.00, while this year it is Rs. 11,418.00.Similar normal expenditure this year is aboutRs. 2,000. The rest of the expenditure relates tothe alteration and replacement of the stage intoa large size than what it was before and replacement thereof. The stage had fallen off. Thecinema was closed for 7 day for alteration andrepair from 13-3 to 17-3. Thus no new assetwas created by these expenses. The stage wasalready there. Mere alteration thereof does notcreate any new asset. The expenses have takenthe character of revenue nature only '.
(4) The Income-tax Officer allowed Rs. 2,000.00 out ofthe total expenditure and disallowed the balance ofRs. 9,418.00 on the following ground:-
'THEassessed has filed a written Explanationnin which it has been stated that the normal expenditure in this year is about 2,000 and thatthe rest of the expenditure relates to the alteration and replacement of the stage into a largersize. It has further been contended that thestage has fallen off, and that the cinema had tobe closed for 7 days for new alteration. It wascontended by Shri Aiyer that no new asset hascome into existence and that this should beallowed as ordinary repairs and renewals. Theassessed himself has stated that in place of oldstage, a new and bigger stage was made. Thisclearly goes to show that a new asset has comeinto existence and, thereforee, the amount ofRs. 9,511 is treated as capital expenditure anddisallowed.'
(5) On appeal the Appellate Assistant Commissioner upheld the finding of the Income tax Officer that the expenditure in question was of a capital nature as a newasset or improvement had come into being in the shape ofa new stage, new screen and a new flooring. The assessedthen took the matter in appeal to the Income-tax Appellate Tribunal. The Tribunal referred to the provisions of section 10(2)(ii) and 10(2)(v) of the Income-tax Act of 1922 and observed:
'INour opinion, section 10(2)(ii) applies tothe case of premises held by an assessed as atenant while section 10(2)(v) applies to the caseof a building held by an assessed as an owner.The reason for using different expressions viz.,'repairs' in section 10(2)(ii) and 'Current repairs'in section 10(2)(v) is not far to seek in the caseof a building owned by an assessed, the expenseincurred for anything beyond current repairswould be of a capital nature, while in the caseof premises held by an assessed as a tenant, repairexpenses incurred in pursuance of a term of thelease deed cannot, speaking broadly, be said tobe of a capital nature inasmuch as the assesseddoes not normally thereby acquire any interestor benefit of an enduring nature. Such a repairwould appear to form a part and parcel of theconsideration of rent agreed to be paid for theuse and occupation of the property.'
(6) It was further observed.
'5.The only point that remains to beconsidered is whether the repair expense, evento a limited extent, can be said to be of a capitalnature. It has been pointed out that the stagehas been widened and the screen has beenenlarged. Unless the construction brings a benefitof an enduring nature to. the assessed, or unlessit changes the identity of the property, it cannotbe categorised as a capital construction. So faras the question of the change of the identityof the property is concerned, one has to lookto the building as a whole and not to the partwhich is reconstructed. It is possible to sayin the present case that the cinema theatre haslost its identity and that new asset has comeinto existence simply because the stage and thescreen have been enlarged. We have hence toconsider whether the enlargement of the stageand the screen can be said to bring a benefit ofan enduring nature to the assessed. We are ata loss to understand how the enlargement of thestage is of any significant value to the assessedwho exhibits pictures in the building. Perhapsthe position may have been slightly differentif the assessed were a dramatic company. Wealso fail to appreciate how the enlargement ofthe screen has formed a benefit of an enduringnature to the assessed.'
(7) The Tribunal arrived at the conclusion that no portionof the expenditure incurred by the assessed could beheld to be of a capital nature. The assessed's claimfor allowing the deduction of the balance amount ofRs. 9,418 was accordingly allowed. The question reproduced above was thereafter referred to this Court atthe instance of the Revenue.
(8) At the time of the hearing of the case, the learnedcounsel for the parties are agreed that as the matterrelates to the assessment year 1962-63, it would be theprovisions of the Income-tax Act of 1961 which wouldapply. All the same it is conceded that there is nomaterial difference in this respect in the provisions ofthe Act of 1922 and those of the Act of 1961. Accordingto section 30 of the Income-tax Act of 1961 the deduction on account of repairs of premises occupied by anassessed as a tenant and used for the purpose of business or profession is permissible 'if he (the assessedtenant) has undertaken to bear the cost of repairs tothe premises. The extent of the deduction is 'theamount paid on account of such repairs'. The question with which we are concerned is whether the entireamount of Rs. 11,418.00 spent by the assessed can beheld to be the amount paid on account of repairs. Inthis respect we find that the amount of Rs. 11,418.00 wasspent not merely on the reconstruction of the linteland the restoration of the stage and screen which hadbeen damaged as a result of the collapse of the lintelbut also on the widening of the screen and the stage.The amount to the extent it was spent on the reconstruction of the lintel and the restoration of thescreen and stage to the state in which the lintel, screenand stage were before the wearing out and collapse ofthe lintel, can legitimately be held to have been incurredon the repairs. Any amount, which was spent overand above that for the purpose of the widening of thescreen and the stage, cannot be held to have been expended on repairs. The dictionary meaning of The word 'repair' as given in Shorter Oxford English Dictionary, is 'the act of restoring to a sound or unimpaired condition; the process by which this is accomplished. Restoration of some material thing or structureby the renewal of decayed or worn out parts, byrefixing what has become loose or detached'. Inthe case of Highland Railway v. Special Commissionersof Income Tax, 2 Tax Cases 485 the railway hadrelaid a portion of the main line and in doing so hadsubstituted steel rails of greater weight for the previousiron rails. No question was raised as to the cost ofrelaying the rails except as regards the additionalweight and cost of the improved rails as compared withthe original rails. The railway company claimed todeduct the additional cost as a proper charge againstrevenue on the ground that no permanent improvementof their property had been effected by the substitutionof the heavier and costlier steel rails, and that theyderived no additional revenue from the outlay. TheLord President, in rejecting the company's contention, said 'It must be kept in view that this is not a mererelaying of line after the old fashion. It is not takingaway rails that are worn out or partially worn outand renewing them in whole or in part along the wholeline'. The above case was relied upon by their Lordships of the Judicial Committee in the case of RhodesiaRailways, Ltd., v. Income-tax Collector, BechuanaLard Protectorate, (1933) 1 Itr 227 and it was observed:
'THEcontrast between the cost of relayingthe line so as to restore it to its original condition and the cost of relaying the line so as toimprove it is well brought out in the passagejust quoted, and while the former is recognisedas a legitimate charge against income the extracost incurred in the latter case in the improvement of the line is equally recognised as a propercharge against capital'.
(9) In view of the above, we are of the opinion that somuch of the amount as was spent for the widening ofthe screen and the stage, can be considered to have been incurred for the purpose of effecting improvements. Itcannot, however, be said to have been spent for repairs.
(10) The above finding would not, however, settle thematter. According to sub-section (1) of section 37 of theIncome-tax Act of 1961, any expenditure (not beingexpenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditureor personal expenses of the assessed), laid out or expended wholly and exclusively for the purposes of thebusiness or profession shall be allowed in computingthe income chargeable under the head 'Profits andgains of business or profession'. It is not disputed byMr. Kirpal, on behalf of the Revenue, that the entireamount of Rs. 11,418.00 was expanded wholly and exclusively for the purposes of the business of the assessedand that other conditions contemplated by the aboveprovision except in one respect, to which referencewould be made hereafter, are fulfillled. The contentionof Mr. Kirpal, however, is that the amount to the extentit was spent for the purpose of widening the screenand stage was in the nature of a capital expenditureand as such the assessed cannot claim deduction tothat extent under sub-section (1) of section 37 of theAct. In this connection we are of the view that if theassessed had been the owner of the cinema building,the above amount would have been characterised ascapital expenditure. The same would have been theposition if the assessed, though not an owner of thecinema building, was to retain its possession as a lesseefor some years after the year in which the amount wasspent. Where, however, as in the present case the expenditure was incurred for the widening of the screenand stage in the last year of the lease, the expenditurecannot be held to be one in the nature of capital expenditure. There is nothing to show that the lesseewas entitled to remain in possession of the cinemabuilding on the expiry of the period of lease or thathe in fact continued in possession of that building afterthe expiry of the above period. It has also. not beenshown to us that the lessee was entitled to any compensation from the Lesser for the improvement effected bythe assessed in the widening of the stage and screen.As the expenditure made for the widening of the screenand stage did not bring into existence an asset or advantage for the enduring benefit of the business of theassessed it cannot be deemed to be a capital expenditure. The border line between revenue and capital expenditure, though very thin and sometimes blurred and baffling, is not very elusive. It yields to close examinationand admits of being discerned and delineated. Indeciding the question as to whether a particular expenditure is in the nature of a capital expenditure ornot for the purpose of section 37, we have to lookto the nature of expenditure, the purpose and objectof incurring it and more especially whether the businessor profession of the assessed would have a benefit ofenduring nature as a result of that expenditure. If the business or profession of the assessed does notderive a benefit of enduring nature from the incurringof the expenditure, it would not be excluded from thepermissible deduction referred to in section 37 of theAct. The above rule only enunciates the broad approach; ultimately each case would have to be decidedon its facts within the frame work of that approachand in the light of the basic principle. As observedby Viscount Radcliffe in Commissioner of Taxes vs.Nchanga Consolidated Copper Mines Ltd., (1965) 58 I.T.R. 241 'all these phrases, as, for instance, 'enduring benefit' or 'capital structure' are essentially descriptiverather than definitive, and, as each new case arises foradjudication and it is sought to reason by analogyfrom its facts to those of one previously decided, aCourt's primary duty is to inquire how far a description that was both relevant and significant in one setof circumstances is either significant or relevant inthose which are presently before it.'
(11) In the case of Assam Bengal Cement Co. Ltd. vs Commissioner of Income-tax West Bengal : 27ITR34(SC) their Lordships of the Supreme Court, while dealing with the question of revenue expenditure and capital expenditure, observed:
'If the expenditure is made for acquiring orbringing into existence an asset or advantagefor the enduring benefit of the business it isproperly attributable to capital and is of thenature of capital expenditure. If on the otherhand it is made not for the purpose of bringinginto existence any such asset or advantage butfor running the business or working it with aview to produce the profits it is a revenue expenditure. If any such asset or advantage forthe enduring benefit of the business is thus acquired or brought into existence it would be immaterial whether the source of the payment wasthe capital or the income of the concern orwhether the payment was made once and for allor was made periodically. The aim and objectof the expenditure would determine the characterof the expenditure whether it is a capital expenditure or a revenue expenditure. The source ofthe manner of the payment would then be of noconsequence.'
(12) In the light of the above observations and the factsof the present case we are of the opinion that the expenditure in question cannot be held to be a capitalexpenditure as the object of the incurring of that expenditure was not to bring into existence an asset oradvantage for the enduring benefit of the business ofthe assessed. The assessed as such would be entitledto claim the amount of expenditure for widening thescreen and stage as permissible deduction under subsection (1) of section 37 of the Income Tax Act of 1961.
(13) We would, thereforee, answer the question, referredto this Court, in the affirmative, i.e., in favor of theassessed. Looking to all the facts, we leave the partiesto bear their own costs.