1. The Income-tax Appellate Tribunal, Cochin Bench, has referred the following two questions of law for our opinion, namely :
' (1) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is right in law in holding that expenses towards supply of coffee, tea, cigarettes, etc., do not form part of entertainment expenditure within the meaning of Section 37(2B) of the Income-tax Act, 1961 ?
(2) Whether the amount of Rs. 11,392 being the cost of installation of diesel engine in place of petrol engine in a lorry was an allowable deduction as a revenue expenditure ?'
2. As far as the first of these questions is concerned, in view of the Full Bench decision of this court in Commissioner of Income-tax v. Veeriah Reddiar : 106ITR610(Ker) , the question has to be answered in the negative, that is, in favour of the revenue and against the assessee. We do so.
3. Regarding the second question, the facts are that during the year of account the assessee had fitted a new diesel engine, to his lorry KLK 5597 in replacement of its petrol engine. He claimed deduction of the cost of the diesel engine. The Tribunal allowed the claim of the assessee relying on the decisions of the Mysore High Court in Hanuman Motor Service v. Commissioner of Income-tax : 66ITR88(KAR) , of the Gujarat High Court in Additional Commissioner of Income-tax v. Desai Brothers : 108ITR14(Guj) and on the decision of the Punjab and Haryana High Court in Commissioner of Income-tax v. Khalsa Nirbhai Transport Co. (P.) Ltd. . There was also a decision of the Andhra Pradesh High Court in R. B. Shreeram & Co. (P.) Ltd. v. Commissioner of Income-tax : 67ITR428(AP) , which was in favour of the revenue. The Tribunal took the view that as the majority of the High Courts had taken a view in favour of the assessee it will be justified in allowing the claim as a deduction and it sustained the order of the Appellate Assistant Commissioner.
4. We have examined the decisions referred to by the Tribunal. Even the decisions cited by the Tribunal in favour of the assessee, especially the Mysore and the Gujarat decisions, lay emphasis on one crucial fact,namely, that it had to be considered whether the replacement of the engine was by way of repair on account of its unserviceability, or only marked an attempt on the part of the assessee to bring into existence a new asset. For instance, the Mysore High Court in Hanuman Motor Service v. Commissioner of Income-lax : 66ITR88(KAR) stated at page 92 as follows :
'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 : 30ITR338(Bom) 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 or 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.
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 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.'
5. The same principle, we find, was also stated by the Gujarat High Court in Addl. Commissioner of Income-tax v. Desai Bros. : 108ITR14(Guj) , when it dealt with the question whether the replacement of the petrol engine by the diesel engine was on account of the unserviceability of the vehicle. On this crucial aspect of the case, we find no material and no consideration in the order of the Tribunal. In the circumstances, we decline to answer the question of law, but would direct the Tribunal to deal with the matter afresh in accordance with law and in the light of the observations contained in this judgment, and pass appropriate orders. There will be no order as to costs.
6. A copy of this judgment under the seal of the High Court and the signature of the Registrar will be communicated to the Income-tax Appellate Tribunal, Cochin Bench.