Satyanarayana Rao, J.
1. At the Instance of the Commissioner of Income-tax and Excess Profits Tax, Madras, the Appellate Tribunal referred', to us the following question for our decision. 'Whether, on the facts and in the circumstances of the case the expenditure of Rs. 86, 496 incurred in the purchase, erection and fitting of the-new boiler for replacing the old one was capital expenditure within the meaning of Section 10(2) (xv) of the Indian Income-tax Act, 1922'. The assessee is Sri Rama Sugar Mills Ltd., Bobbili. The company manufactures sugar at two factories owned by it, one at Bobbili and another at Sithanagaram. The machinery for manufacturing sugar included among other things, boilers. The factory at Bobbili owned three boilers which? were used for the manufacture of sugar. During the crushing season which extends nearly for six; months in the year, the factory undoubtedly has to work for 24 hours and during such period two boilers have to be constantly in use. The third boiler is necessary and has to be used when anyone of the other boilers have to be cleaned up at intervals and have to be given rest. One of these three boilers deteriorated in its efficiency during the relevant accounting period and the assessee was obliged to purchase another boiler at a cost of Rs. 86,496 and the old boiler was sold for a sum of about Rs. 15000.
2. The assessee company claimed this sum as a deduction from and out of its profits as expenditure chargeable to revenue. The deduction was not allowed by the Income-tax Officer and the Excess Profits Tax Officer and his decision was confirmed by the Appellate Assistant Commissioner. They held that it was a capital expenditure and not an expenditure chargeable to revenue. On a further appeal, the Appellate Tribunal reversed this decision and upheld the claim of the assessee company. Hence this reference.
3. The question whether the expenditure incurred for the purpose oi' trade is properly debitable to the incomings of the trade or is capital expenditure is not always easy to decide. The scheme under the Indian Act adopted in section 10 in computing the profits of a business is the allowances enumerated in Sub-section (2) which are treated as permissible deductions and therefore chargeable to the receipts from the business. Of these allowances, Sub-clause (v) relates to current repairs to buildings, machinery, plant or furniture and Sub-clause (vi) relates to depreciation of such buildings, machinery, plant and furniture and Clause (xv) is in the nature of a residuary clause which permits a deduction in respect of expenditure laid out or expended wholly and exclusively for the purpose of such business, profession or vocation but is subject to the qualification that such expenditure should not be in the nature of capital expenditure or personal expenses of the assessee. While Section 10 enumerates the permissible allowances there is no indication either in that section or elsewhere regarding the mode and the manner in which the profits of a business have to be computed for the purpose of assessing such profits to income-tax. It is, however, understood that apart from the allowances indicated in the section, the profits have to be determined by the ordinary principles of commercial accounting. It is here that what one might call a residuary clause. Clause (xv) affords useful guidance in determining whether a particular item of expenditure could be legitimately charged to the revenue or not. If it is a revenue expenditure, it is permissible to deduct it, but if it is not, it cannot be excluded.
4. To understand the decisions in England under the corresponding provisions in Sch. D and the rules applicable to cases I and II of that schedule, particularly rule 3, it may not be out of place to remember the scheme adopted by those rules. Under the English Act, two things are clear. An item of expenditure is deductible only if it is not expressly prohibited by statute or if it is not considered proper on the ground that it is not an expenditure authorised by the ordinary principles of commercial accountancy. The English Act adopts the method of enumerating the deductions which are prohibited in computing the amount of the profits or gains to be charged to income-tax unlike the Indian Act which specifies the permissible deductions. Even if there is no prohibition regarding the expenditure claimed as a deduction, under the English Act, it does not prevent the revenue authorities from establishing that even according to the general principles of commercial accountancy the deduction must be treated as in the nature of a capital expenditure, while it is equally open to the assessee to show that it is chargeable to the incomings of the business.
5. 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 Subsection (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 allowances 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. Commr. Op Income-tax, Madras', 2 ITC 294 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.
6. In order to understand and appreciate the full implication of what constitutes in law 'repair', one cannot do better than refer to the opinion of Bucklcy L. J. in 'Laurcott v. Wakely', (1911) 1 KB 905. The question that actually arose for decision in that case however related to the extent of a tenant's liability under a covenant to repair and was not a decision under the Income-tax Act. But the Privy Council referred to this decision with approval in 'Rhodesia Rly. Ltd. v. Income-Tax Collector, Beg Huan Aland', (1933) AC 333, a case under the Income Tax laws. By 'repair' of a thing is meant that it is brought to its original condition. Says Buckley L. J, in the above decision:
' 'Repair' and 'renew' are not words expressive of a clear contrast. Repair always involves renewal; renewal of a part, of a subordinate part. A skylight leaks; repair is effected by hacking out the putties, putting in new ones, and renewing the paint. A roof falls out of repair; the necessary work is to replace the decayed timbers by sound wood; to substitute sound tiles or states for those which are cracked, broken, or missing; to make good the flashings and the like. Part of a garden wall tumbles down; repair is effected by building it up again with new mortar, and, so far as necessary new bricks or stone. 'Repair is restoration by renewal, or replacement of subsidiary parts of a whole.' (The underlining (here in inverted commas) is mine). Renewal, as distinguished from repair, is reconstruction of the entirety meaning by the entirety not necessarily the whole but substantially the whole subject-matter under discussion. I agree that if repair of the whole subject-matter has become impossible a covenant to repair does not carry an obligation to renew or replace. That has been affirmed by 'Lister v. Lane', (1895) 2 QB 212 and 'Wright v. Lawson', (1903) 19 TLR 203, But if that which I have said is accurate, it follows that the question of repair is in every case one of degree, and the test is whether the act to be done is one which in substance is the renewal or replacement of defective parts, or the renewal or replacement of substantially the whole.'
On a careful analysis of this passage of Buckley L. J., it would be seen, a renewal may be a repair or a reconstruction. Renewal is a repair if it is only restoration by renewal or replacement, of subsidiary parts of a whole. If, on the other hand, it amounts to a reconstruction of the entirety or of substantially the whole of the subject-matter it is not a repair but a reconstruction. The test, therefore, which decides the question whether a thing is a 'repair' or not is to see whether the act actually done is one which in substance is a replacement of defective parts or a replacement of the entirety or a substantial part of the subject-matter. A reconstruction of a wall, it was held in that case, was ft repair and was covered by the obligation of the tenant who was under a covenant to repair the leasehold property. The reason given for this conclusion appears at page 927. It was held to be a 'repair' because it merely restored the stability and safety of a subordinate part of the whole like replacing a new floor of a house.
7. The Judicial Committee had occasion to consider a similar question under the Bechuanaland Income-tax Proclamation -- see 'Rhodesia Bailways Ltd. v. Income-Tax Collector, Bechuanaland', (1933) AC 368 That case related to a claim by a railway company to take out of its profits a large amount spent by them in the year of assessment in renewing 74 miles of its railway track out of 394 miles of the total length of the track owned by them. The rails and the sleepers were replaced as they were worn out. The Proclamation provided that sums expended for the repairs of property occupied for the purpose of trade or in respect of which income is receivable and sums expended for the repair of machinery, implements, utensils, and articles employed by the tax-payer for the purpose of his trade were permissible deductions. There Is also a provision in that Proclamation, corresponding to clause (xv) of section 10(2) of the Indian Act. The contention of the assessee was upheld by the Judicial Committee which applied the test laid down by Buckley L. J. in 'Laurcott v. Wakely', (1911) 1 KB 905 to determine whether the replacement of the rails and sleepers constituted a 'repair' or not and at p. 374 Lord Macmillan gives the reasons for upholding the contention of the assessee in these terms: 'The periodical renewal by sections of the rails and sleepers of a railway line as they wear out by use is in no sense a reconstruction of the whole railway and is an ordinary incident of railway administration. The fact that the wear although continuous is not and cannot be made good annually does not render the work of renewal when it comes to be effected necessarily a capital charge. The expenditure here in question was incurred in consequence of the rails having been worn out in earning the income of previous years on which tax had been paid without deduction in respect of such wear, and represented the cost of restoring them to a state in which they could continue to earn income. It did not result in the creation of any new asset; it was incurred to maintain the appellants' existing line in a state to earn revenue. The analogy of a wasting asset which appears to have affected the minds of the Special Court has really no application to such a case as the present.'
The decision in 'highland rly. Co. V. Balderston', (1889) 2 TC 485 in which a distinction between when an act done amounts to a repair or an Improvement of corpus was pointed out was referred to in the course of the judgment. At page 376 Lord Macmillan adds: 'The contrast between the cost of relaying the line so as to restore it to its original condition and the cost of relaying the line so as to improve it is well brought out in the passage just quoted, and while the former is recognized as a legitimate charge against income the extra cost incurred in the latter case in the improvement of the line is equally recognised as a proper charge against the capital.'
The distinction drawn in 'HIGHLAND RLY CO. v. BALDERSTON', (1889) 2 TC 485 was that if what was done was a substitute of one kind of rail for another, steel rails for iron rails, that would have been a material alteration and an improvement in the corpus of the heritable estate of the company and in such a case, the cost of such an improvement, would be a charge against capital. If, however, the old rails were replaced by substantially the same kind of rails and no improvement in the corpus was effected, it would follow that there was no creation of any new asset, to use the language of Lord Macmillan, but the expenditure would merely be one incurred to maintain the existing line in a state to earn revenue. It was therefore held that it was both a repair within the meaning of Section 15, Sub-section l(b) of the Proclamation and also a revenue expenditure within the meaning of sub-section (a) of Section 15. It would be noticed that the amount spent by the railway company in that case was a large amount and replacement of the rails extended to 74 miles. The alteration effected by the acts of replacement was confined only to a subsidiary part of the whole railway line and it did not bring about any improvement in the sense of substituting one kind of part by a totally different kind of part. That is exactly the test laid down by Buckley L. J in 'LAURCOTT v. WAKELY', (1911) 1 KB 905.
8. In the light of these principles it would be noticed that the decision in 'Margrett v. Lowestoft Water. and Gas Co.', (1935) 19 TC 481, on which strong reliance was placed by Mr. Ramarao Sahib for the Commissioner can easily be explained. The reservoir was replaced in that case at a different place after abandoning the old reservoir and the capacity of the new reservoir was twice the capacity of the old one and was undoubtedly an improvement on the old reservoir. The whole of the expenditure, therefore, was if I may say so with respect, rightly treated as capital expenditure not deductible from the profits. The decision of Rowlatt J. in 'Bullcroft Main Collieries Ltd. v. O'Grady', (1933) 17 TC 93, which related to the construction of a chimney, does not help us in evolving a new principle and must be treated as an authority confined to the facts of that case.
9. It was contended by Mr. Ramarao Sahib, learned counsel for the Commissioner of Income Tax, that the boiler in question should be treated as a separate unit in the sugar manufacturing plant. He would divide each part of the machinery intended to produce a particular result in the various stages of the manufacture of sugar as individual units and the replacement of any unit would more or less be capital expenditure analogous to the construction of the reservoir in 'Margrett v. The Lowestopt Water & Gas Co.', 19 Tax Cas 481. He, however, was not able to cite any authority to justify the process of such a dissection of manufacturing plant. On the contrary, the Income Tax manual issued under the authority of the Central Government at page 308 treats 'sugar works' as one unit for the purpose of fixing the percentage of depreciation allowable as a deduction under the Act. If such a process of splitting the machinery of a composite unit is permitted, there is no reason why one should stop at a particular point and not proceed with the division further. A fly wheel may be treated as one unit because it performs one function in the larger unit. If such a fly wheel is replaced, the expenditure incurred in that behalf if the argument is correct may as well be treated as capital expenditure as it amounts to replacement of a unit. But Mr. Ramarao Saheb is not prepared to go so far and is driven to accept the position that in such a case the expenditure will be a revenue expenditure as it is a repair and not a capital expenditure.
10. The test laid down by Viscount Cave in 'British Insulated and Halsby Cables Ltd. v. Atherton', (1926) AC 205 to distinguish an expenditure which is in the nature of a capital expenditure from an expenditure properly debitable against incomings of a trade in computing profits has been adopted and applied in later decisions and that test holds the field even today. Lord Dunedin in 'vallambrosa rubber co. V. Farmer', (1910) 5 TC 529 laid down a rough test that capital expenditure was a thing that was going to be spent once for all while revenue expenditure was a thing that was going to recur every year. But as pointed out by Viscount Cave it is not always a decisive test and instances where that test was not applied, were adverted to at page 213. After a consideration of the authorities on the point, the learned Lord Chancellor summarises the test at page 213 as follows: 'But when an expenditure is made, not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade, I think that there is very good reason (in the absence of special circumstances leading to an opposite conclusion) for treating such an expenditure as properly attributable not to revenue but to capital.' This is practically the test adopted by the Judicial Committee in 'Rhodesia Rly. Ltd. v. Income-Tax Collector, Bechuanaland', 1933 AC 368, i.e. the expenditure should have been incurred with a view to bring into existence an asset or an advantage for the enduring benefit of a trade. If there is no such advantage or improvement or an additional or better asset, the expenditure cannot be treated as capital expenditure. If therefore the test laid down by the Judicial Committee in 'Rhodesia Rly. Ltd. v. Income-Tax Collector, Bechuanaland', (1933) AC 368 and by Viscount Cave in 'British Insulated And Halsby Cables, Limited v. Atherton', 1926 AC 205 and by Buckley L. J. in 'Laurcott v. Wakely and Wheeler', (1911) 1 KB 905 are borne in mind, there would not be any difficulty, in my opinion, in answering the question which we are called upon to decide in this case. The boiler which was substituted was exactly similar to the old one and by this expenditure, the assessee company did not bring any additional advantage to the trade or business which they were carrying on and there is no improvement. As stated by the Appellate Tribunal in the statement of the case: 'In order to establish that the expenditure is of a capital nature one must be satisfied that the new boiler is an Improvement on the old one producing bigger outturn of sugar or that it is not a part of the machinery used for the purpose of such production.'
If it is merely a replacement or a repair or putting into the original state, the machinery by the use of which the process of manufacture was carried on, no additional advantage is thereby derived. It cannot be suggested that by using a new boiler for an old one, the productive capacity of the sugar manufacturing unit was in any manner increased. It therefore follows that the Appellate Tribunal applied the correct test and came to a right conclusion on the facts in holding that the amount claimed was a revenue expenditure deductible under Section 10(2)(xv) of the Indian Income-tax Act and not a capital expenditure.
11. Our attention was drawn to a decision of the Allahabad High Court in 'Ramkishen Sunderlal v. Commissioner of Income-tax, U. P. : 19ITR324(All) (All) where it was held that the expression 'current repair' occurring in Section 10(2) (v) of the Indian Income-tax Act is confined only to 'petty' repairs usually carried out periodically and will not include repair or renewal costing a large sum of money which was spent after the machine has been run for a number of years. The dictionary meaning of the word 'current' is not petty, but it means 'belonging to the present time, prevailing' and with great respect to the learned Judges, it is difficult to accept such a restricted construction of the expression 'current repair' in the clause.
12. The answer to the question referred to us must, therefore, be in the negative and against the Commissioner of Income-tax. As the Commissioner of Income tax has failed in this reference, he must pay the respondent his costs which we fix at Rs. 250.
Raghava Rao, J.
13. The facts of this case are singularly simple. They have been stated by my learned brother in his judgment and need not be repeated. The question which arises for determination is whether the replacement of the old boiler of the sugar factory by a new boiler in this case is in the nature of an expenditure not of a capital nature within the meaning of Section 10(2)(xv) of the Indian Income-tax Act. The Income-tax Officer and the appellate Assistant Commissioner on appeal in concurrence with him, held the expenditure in question to be capital in nature while the Income-tax Appellate Tribunal has reversed them and held in favour of the assessee.
14. The findings of fact relevant to the determination of the reference are as found in the statement of the case by the Tribunal as follows:
'(1) that the replacement of the old boiler is by a new one 'having the same pressure which the old one possessed when it was new' and 'doing the same work which the old one was doing previous to its deterioration'.
(2) that the boilers were part of a unit of the machinery required for the manufacture of sugar and so could not be treated as a separate unit by themselves'.
15. The law in the light of which the effect of these findings on our decision in this case has to be judged has given rise to considerable debate before us. I must confess, however, that all the cases cited do not reveal any single or uniform test capable of straight and easy application to any and every case. The difficulty has only stood enhanced by the further research into case law made by me after reserving judgment. All that emerges Is that it is not possible to lay down any hard and fast rule or to enunciate a rigid and scientific principle which can be applied as the criterion for determining whether a particular expenditure is capital expenditure or not. The question essentially seems to be one of fact depending for its determination upon the circumstances of each given case. The point of view very strongly pressed upon us by the learned counsel for the department is that the replacement of the old boiler by the new is in the nature of a lasting advantage for the enduring benefit of the trade in relation to what must be considered as itself a separate and important unit of the machinery required for the trade.
16. Before dealing with the more important of the cases bearing on the matter it is as well to draw attention to the material provisions of the Indian Income-tax Act. After providing in Section 10(1) that:
'The tax shall be payable by an assessee under the head 'profits and gains of business'..... .in respect of the profit or gains of any business.... carried on by him.'
The statute proceeds in Sub-section (2) to provide for specified allowances to' be taken into account in computing the profits or gains. Of the allowances so provided for the one with which we are directly concerned is that contained in Clause (xv) of Subsection (2) which runs as follows: 'any expenditure (not toeing in the nature of capital expenditure... ...of the assessee) said out or expended wholly and exclusively for the purpose of such business......'
This is the provision with reference to which the matter has been considered so far in all the stages of the case. There is another provision which has also entered into the argument before us and that is the one in clause (v) which runs thus: 'in respect of current repairs to such...... machinery, plant..... the amount paid on account thereof.'
It is common ground that if the expenditure incurred in the purchase of the new boiler is in connection with current repairs to the plant installed in the sugar factory it is beyond doubt a permissible deduction. It is also common ground that if it is an expenditure not being in the nature of capital expenditure laid out or expended wholly and exclusively for the purpose of the business it is equally a permissible deduction. It is open to the assessee to claim the deduction either under the one head or under the other. Only if the case is to be dealt with as under the latter head the question of capital expenditure or no necessarily arises for consideration. I am inclined to think that although the matter was presented for determination in the earlier stages only with reference to Clause (xv) we are called upon on the arguments advanced before us to deal with Clause (v) as well as Clause (xv). Clause (xv) apparently contemplates two kinds of expenditure laid out or expended wholly and exclusively for the purpose of the business: (1) such expenditure not being in the nature of a capital expenditure; (2) such expenditure being of such nature. The latter stands excluded from the sphere of deductions while the former is statedly included therein. It is also clear that where the repairs on account of which the amount paid is sought to be claimed as a deduction under Clause (v) are not current repairs, whatever the meaning of the word 'current' in the contest may be, which I shall consider presently, the repair's may well come under Clause (xv) provided that the expenditure over such repairs is not to be regarded as in the nature of capital expenditure within the meaning of that clause.
17. To view the matter first from the standpoint of Clause (v), it is the amount paid on account of current repairs as such as I have just said that comes in for deduction. The repairs are to the buildings, machinery, plant or furniture as mentioned in the sub-clause. We are here concerned not with repairs to buildings or furniture but with repairs to machinery or plant. Can or cannot money spent over the replacement of the old boiler by the new be regarded as money spent over 'repairs' to the machinery or plant & if it can be, can or cannot it be regarded as money spent over 'current' repairs. In order to answer these questions, properly, it is necessary to canvass the meaning of the word 'repairs' as well as the meaning of the word 'current'. The concise Oxford Dictionary treats 'repair' and 'renovate' as interchangeable terms and annotates one as equivalent to the other. Etymologically 'repair' is derived from (OP 'reparer1 which in its turn is derived from (L. 're parare') i.e., again to make ready;) while 'renovate' is derived from L. 'renovare' i.e., make new again). The two terms are therefore not terms of mutual contrast or antethesis but of inter changeable ness and equivalence. 'Repair' is a comprehensive word which means 'to make good defects' and which therefore must Include renewal where that is necessary. 'INGLIS v. BUTTERY', (1878)3 AC 552. A covenant to 'repair' may well stand satisfied by 'patching where patching is reasonably practicable, but where it is not, you must put in a new piece' (Per Lord Blackburn, Ibid, 579-vide Stroud's judicial Dictionary, page 1719).
18. In relation to a building as such what a covenant to repair exactly means has had to be considered by the Court of Appeal in England in Larcott v. Wakely'. (1911) 1 K. B. 905. That was a case of covenant between landlord and tenant which required the latter to substantially repair and keep in thorough repair and good condition the demised premises'. Shortly before the expiration of the term the London County Council served a notice on the owner and 'occupiers requiring them to take down the front external wail of the house to the level of the ground floor as being a dangerous structure, and the plaintiff, the owner, called upon the defendants, the assignees of the leasehold interest, to comply with this notice which they failed to do. After the expiration of the term, the plaintiff in compliance with a demolition order of a police magistrate, took down the wall to the level of the ground floor, and then in compliance with a further notice of the London County Council, took down the remainder of the wall and rebuilt it in accordance with modern requirements. The house was very old and the condition of the wall was caused by old age, and the wall could not have been repaired without rebuilding it. It was held on those facts that the defendants were liable under the covenant to recoup the plaintiff the cost of taking down and rebuilding the wall. Buckley L. J. in a passage in his Judgment in that case which has been regarded in later cases as the leading exposition on the subject of the difference between 'repair' and 'renew' observed at pages 923 and 924 of the report thus:
' 'Repair' and 'renew' are not words expressive of a clear contrast. Repair always involves renewal; renewal of a part; of a subordinate part. A skylight leaks; repair is effected by hacking out the patties, putting in new ones; and renewing the paint. A roof falls out of repair; the necessary work is to replace the decayed timbers by sound wood; to substitute sound tiles or states for those which are cracked, broken, or are missing; to make good the flashings, and the like. Part of a garden wall tumbles down; repair is effected by building it up again with new mortar, and, so far as necessary new bricks or stone. Repair is restoration by renewal or replacement of subsidiary parts of a whole. Renewal as distinguished from repair, is reconstruction of the entirety, meaning by the entirety not necessarily the whole but substantially the whole subject-matter under discussion. I agree that if repair of the whole subject matter has become impossible, a covenant to repair does not carry an obligation to renew or replace'.
19. If the replacement of the old boiler by the new in the present case is regarded as in the nature of a restoration of the machinery or plant of which the boiler is a part by a renewal of it, that obviously is tantamount to repair within the meaning of Buckley L. J's exposition, as well as within the dictionary meaning of the word 'repair' as an equivalent of 'renovate' to which I have already adverted. It is true that Buckley L. J, was not dealing with a case under the Income-tax Act but I see no reason after the careful consideration I have bestowed upon the matter since reservation of judgment why our interpretation of the word 'repairs' occurring in the relevant provision of the Indian Income-tax Act now under consideration should not be guided by Buckley L. J's interpretation of the expression which undoubtedly has been accepted by the Privy Council as a clue to the proper interpretation of the expression in the Bechuanaland Protectorate Income tax Proclamation in Rhodesia Railways v. Income-Tax Collector Bechuanaland', (1933) A. C. 368. Lord Macmillan in delivering the Judgment of the Judicial Committee in that case observed as follows, after quoting the passage from Buckley L. J's judgment in 'Lorcott v. Wakely', (1911) 1 K. B. 905 Just reproduced by me: 'The periodical renewal by sections of the rails and sleepers of a railway line as they wear out by use is In no sense a reconstruction of the whole railway and is an ordinary incident of railway administration.'
The replacement of a worn out boiler in a whole machinery relating to sugar works cannot be regarded as on principle distinguishable from the periodical renewal of sections of the railways and sleepers of the railway line as they wear out by use, dealt with by the Privy Council in 'Bhodebia Railways v. Income-Tax Collector, Bechuanaland', (1933) AC 368 .
20. Holding therefore the replacement of the old boiler by the new to be a case of 'repairs' as that word is used in Clause (v) of Section 10(2) of the Act. I have still to consider whether it is in the nature of 'current repairs' within the meaning of the clause. As I have already stated, if it is of the nature of 'current repairs' it falls within clause (v); but if it is not, one will have to consider the question whether expenditure in connection with it is or Is not 'in the nature of capital expenditure' as that expression is used in Clause (xv). If it is not in the nature of capital expenditure, it falls within Clause (xv) whereas if it is in the nature of capital expenditure it falls outside the clause.
21. Our attention has been drawn to a case of the Allahabad High Court in 'Ramkishan Sunderlal v. Commissioner of Income-Tax : 19ITR324(All) where the expression 'current repairs' has been interpreted as meaning 'petty recurring expenditure'. I am not sure that a discrimination as between petty and not petty is really helpful. On such a test the line is difficult to draw. Petty or not, what is it that attached to repairs the quality of 'current'? 'Current' according to the Concise Oxford Dictionary literally means 'running'. It is derived from OF. 'corant', present participle of 'courier', from L 'currere', run. All repairs effected in relation to plant or machinery while the plant or machinery is in a running condition must in my judgment be regarded as current repairs, whereas if the repairs effected are after the machinery or plant comes to a stand-still and ceases to run, they must be regarded as not current repairs. Whether the repairs involve a nigh or low degree of expenditure does not matter, so long as the machinery or plant is actually running and the consideration of pettiness or contra of which the Allahabad case makes a point is really immaterial. Whatever the bigness or smallness of the repairs, so long as they are 'current' repairs they fall within Clause (v), while if they are not that, they fall outside It. If the worn-out boiler became at the time of its replacement something with which it was impossible to run the plant or machinery of which it was a part, it seems to me that the replacement cannot reasonably be regarded as in the nature of current repairs. On the other hand, any repairs to any part of the machinery or plant such as may He in a patching up during the running of the machinery or plant for the business, must, in my opinion, be regarded as in the nature of 'current' repairs.
22. This meaning of the expression 'current repairs' gains point in my opinion from what Rowlatt, J. has said in 'O'GRADY v. BULLCROFT MAIN COLLIERY LTD.', (1933) 17 Tax Cas 93:
'As regards the chimney, I think it is really very clear. Of course, every repair is a replacement You repair a roof by putting on new states instead of the old ones, which you throw away. There is no doubt about that. But the critical matter is -- as was pointed out in the passage read from Buckley L. J.'s judgment, in the case which has been referred to 'LURCOTT v. WAKELY', (1911) 1 KB 905 -- what is the entirety? The state is not the entirety in the roof. You are repairing the roof by putting in new states. What is the entirety? If you replace in entirety, it is having a new one and it is not repairing an old one. I think it is very largely a question of degree, but it' seems to me the Commissioners have taken the only possible view here. What was this? This was a factory-chimney to which the gases and fumes, and so on, were led by flues and then went up the chimney. 'It was unsafe and would not do any more.' What they did was simply this - They built a new chimney at a little distance away in another place; they put flues to that chimney and then, when it was finished they switched the gases from the old flues into the new flues and so up the new chimney. I do not think it is possible to regard that as repairing a subsidiary part of the factory, I think it is simply having a new one. And they had them both. Perhaps they pulled down the old one; perhaps they kept it, because they thought it was an artistic thing to look at. There is no accounting for tastes in manufacturing circles. Anyhow, they simply built a new chimney and started to use that one instead of the old one. I think the chimney is the entirety here and they simply renewed it. I think they are right on this point.'
It will be seen from what the learned Judge has said, particularly in the sentence underlined by me, (here in single quoted) that when the old chimney became unsafe and would not do any more, the replacement of it by a new chimney was in the nature not of ordinary repair or to use the language of the Indian statute 'current repair' but something more than that -- namely, a complete renewal of the old chimney.
23. The question next is whether in terms of Clause (xv) of the Act the expenditure incurred in the purchase of the new boiler is or is not in the nature of capital expenditure. In support of his contention that it is, the case most strongly relied upon by Mr. Rama Rao Saheb is the one reported in 'MARGRETT v. LOWERTOFT WATER & GAS CO.', (1935) 19 Tax Cas 481, where the question arose with reference to the cost of replacement of a reservoir which was part of the apparatus for water supply by the respondent company to Lowestoft and district. It was held by Finlay J. that there was no evidence upon which the commissioners could arrive at their conclusion that any part of the cost of the reservoir was other than capital expenditure. At page 487 of the report, the learned Judge first observes thus as the reasoning of his conclusion:
'What strikes one who is familiar with the long line of cases on this sort of subject is that this looks like the plainest case of capital expenditure. 'If a reservoir is antiquated or worn out and the people responsible, instead of repairing it and letting it go on for a bit longer, discard it or scrap it and build a new, a better and different, reservoir elsewhere, one would have thought that that was, as I say, the plainest possible case of capital expenditure'.'
Then he refers to the case before Rowlatt J., in O'GRADY v. BULLCROFT MAIN COLLIERIES LTD.', (1933) 17 Tax Cas 93, as a case very close to the one before him. He proceeds next to refer to 'Bhodesia Railways Ltd. v. Collector of Income-Tax, Bechuanaland', (1933) AC 368 and 'Lurcott v. Wakely', (1911) 1 KB 905. Of the former, he says that it does not seem to him to throw any real light on the case before the Court. From the decision in the latter, he quotes the passage of Buckley L. J., which I have already quoted in this judgment and observes thus:
'Now here the subject-matter under discussion seems to me to be the reservoir, and I cannot think that it is material, though it is undoubtedly the fact, that the reservoir is part only of the Respondents' whole physical undertaking. It is a part perfectly clearly divisible from the rest, and it is the part with which we are dealing here. If authority were needed for that I should find it in the decision of Mr. Justice Rowlatt, to which I referred a moment ago, of 'O'grady v. Bullcroft Main Collieries Ltd.', (1933) 17 Tax Cas 93 because the reservoir here is more clearly a separate and distinct thing than was the chimney in 'O'grady v. Bullcroft Main Collieries Ltd.', (1933) 17 Tax Cas 93.' Then the learned Judge winds up the discussion thus:
'I think that the expenditure on the new reservoir was a perfectly simple example of capital expenditure and was not in any sense an expenditure upon repairs. If they had repaired the old reservoir they would have incurred a certain amount of expense, but it seems to me that that does not make it possible to dissect the capital sum which they spent upon the new reservoir & to say that that amount which would have been spent in repairing the old reservoir can notionally be treated as being a sum expended for repairs. The answer is that that is not what happened. 'They have chosen not to repair the old but to build a new reservoir, and that is just capital expenditure'.'
This case is, to my mind, directly in point and must mean that the department should succeed, if it stood by itself. The two sentences underlined (here single quoted) by me in the passages from the decision quoted go to show that if when the boiler becomes worn out or antiquated it is replaced and 'let go on for a bit longer' the expenditure over such a step which is in the nature of current repair is revenue expenditure, while if it is replaced by a new boiler the expenditure incurred is capital expenditure. As I read the decision, if the replacing boiler is a new one, that is enough to make the expenditure capital expenditure. Of course, if it is a better or different one -- which was an accident of fact in that case -- that is 'a fortiori' a case of capital expenditure. But then there is the case of the Privy Council in 'Rhodesia Railways v. Income-Tax Collector, Bechuanaland', 1933 AC 368 which I must consider in this connection.' It is true that Finlay, J. said of this case that it did not seem to him to throw any real light upon tho case before him. There is no reason given by the learned Judge for saying so of the Privy Council decision. Whether right or wrong Lord Macmillan in the Privy Council case does give reasons for his view that the expenditure there in question was not of a capital nature. Apparently, Finlay J. who could not but be alive to those reasons would not accept them, though he does not say so in so many terms. In order to understand the reasoning of the Privy Council, it is necessary to state the facts of the case before their Lordships. The appellants there were assessed to income-tax under the Bechuanaland Protectorate Income Tax Proclamation, 1922, in respect of profits from 394 miles of their railway line in the Protectorate. It was claimed by them that they were entitled to debit 252,174 pounds which they had expended in the year of assessment in renewing 74 miles of the railway track. The work which was part of a general scheme of renewal, included the supply of new rails, sleepers, and fastenings, where necessary; steel sleepers were used in place of wooden sleepers for about half the line renewed. The renewal brought back the worn track to normal condition; as renewed it was not capable of giving more service than the original line, it was held on those facts that the appellants were entitled to the deductions claimed because (1) the sum expended was an outgoing 'not of a capital nature' within Section 15, Sub-section (1)(a), of the Proclamation, and (2) it was 'expended for repairs of property occupied for the purpose of trade or in respect of which income is receivable' within Section 15(1)(b). With the latter ground of the decision, I have already dealt. With the former which matters for the present aspect of the discussion I have to deal. Looking at the judgment at page 374 of the report this is what we find:
'The fact that the wear although continuous is not and cannot be made good annually does not render the work of renewal when it comes to be effected necessarily a capital charge. The expenditure here in question was incurred in consequence of the rails having been worn out in earning the income of the previous years on which tax had been paid without deduction in respect of such wear, and represented the cost of restoring them to a state in which they could continue to earn income. It did not result in the creation of any new asset; it was incurred to maintain the appellants' existing line in a state to earn revenue. The analogy of a wasting asset which appears to have affected the minds of the Special Court has really no application to such a case as the present.'
Then again at pages 375 and 376 of the report this is what we find:
'Their Lordships find an excellent illustration of the accepted practice in such matters in the United Kingdom, to which the appellants' chief accountant spoke, in the case of the 'Highland by Co. v. Special Commissioners of Income Tax (1889) 16 B 950: 2 Tax Cas 485. There the Highland Railway Company had re-laid a portion of their main line and in doing so had substituted steel rails of greater weight for the previous iron rails. No question was raised as to the cost of relaying the rails except as regards the additional weight and cost of the improved rails as compared with the original rails, The railway company claimed to deduct the additional cost as a proper charge against revenue on the ground that no permanent improvement of their property had been effected by the substitution of the heavier and costlier steel rails and that they derived no additional revenue from the outlay. The Lord President (Inglis) in rejecting the company's contention said: ('High by. Co. v. Special Commissioners of Income-tax', (1889) 16 R 950: 2 Tax Cas 485 'It must be kept in view that this is not a mere relaying of line after the old fashion. It is not taking away rails that are worn out or partially worn out and renewing them in whole or in part along the whole line. That would not alter the character of the line; it would not affect the nature of the heritable property possessed by the company. But what has been done is to substitute one kind of rail for another--steel rails for iron rails. Now, that is a material alteration, and a very great improvement in the corpus of the heritable estate belonging to the company, and so stated, surely is a charge against capital. All that is done, it will be observed from the details given with reference to this matter, is to charge the price of the rails and chairs -- that is to say, the weight in addition to what was the original weight of the rails and chairs. That is the whole charge, and that is a charge made entirely for the improvement of the property -- the permanent improvement of the property. Now, how that can be anything but a charge against capital, I am unable to see.''
Lord Macmillan then winds up the discussion with these remarks:
'The contrast between the cost of relaying the line so as to restore it to its original condition and the cost of relaying the line so as to improve it is well brought out in the passage just quoted, and while the former is recognised as a legitimate charge against income the extra cost incurred in the latter case in the improvement of the line is equally recognised as a proper charge against capital. In the present instance, the renewals effected constituted no improvement; they merely made good the line so as to restore it to its original state. As such, in their Lordships' opinion, they were 'repairs' within the meaning of Section 15, Sub-section 1(b) of the Proclamation and the cost of them did not constitute an outgoing of a capital nature within the meaning of Section 15, Sub-section 1(a). It follows that the sum of 252,174 pounds expended on this work by the appellants is deductible from their income for the purpose of ascertaining their taxable income.'
24. Carefully scanning the passages quoted from the judgment, it is clear to my mind that the whole reasoning is of a composite character; that is to say, that the renewals effected were repairs within the meaning of Section 15(1)(o) and did' not, therefore, constitute an outgoing of a capital nature within the meaning of Section 15(1)(a) of the proclamation there in question. After finding that they were repairs because
'The periodical renewal by sections of the rails & sleepers of a Rly. line as they were out by use is in no sense a reconstruction of the whole railway and is an ordinary incident of railway administration.' (vide page 374 of the report) Lord Macmillan held as a corollary that the cost of them did not constitute an outgoing of a capital nature especially in view of the circumstance that tax had been paid in previous years without deduction for wear and tear. On the scheme of the proclamation there in question the Privy Council seems to have thought that what had to be regarded as repairs within one provision of it could not be regarded as an outgoing of a capital nature within another part of it with the result that the analogy of a wasting asset relied upon by the court below could not be accepted by the Privy Council as germane to the case before them. At the same time, it is also clear to my mind that as to what capital expenditure means, the test suggested is whether or not it has resulted in the creation of a new asset as distinct from the mere maintenance of an existing asset, in other words, whether or not the expenditure has merely restored the situation to its original condition or improved it by extra quality.
25. Applying to the case on hand this test of the Privy Council ruling, with which I shall have to deal further, later in the course of this judgment, it may seem as clear that the department should fail, as that it should succeed, as already observed by me on the application of 'Margrett v. Lowestoft Water & Gas Co.', (1935) 19 Tax Cas 481. The question is, between which of these two decisions if indeed irreconcilable have I to choose? That leads me on to a consideration of the basic ideas which underlie 'Capital expenditure'. As pointed out in the Concise Oxford Dictionary 'capital funds' or 'capital stock' means 'the original principal fund or stock with which a company or person enters into business'. No business clearly can be started without an initial outlay of expenditure which is generally known as capital. The income actually produced by the utilisation of capital in any particular business is usually known as profits of the business. The capital employed may be circulating capital which in the language of Mill 'fulfils the whole of its office in the production in which it is engaged by a single use' or fixed capital which in the language of the same author 'exists in a durable shape and the return to which is spread over a period of corresponding duration'. (Vide, Alfred Marshall's Principles of Economics. 8th Edition, page 75).
As remarked in Principles of Economics by P. W. Taussig, Volume 1, 3rd Edition, the set of things to which we apply the term 'capital' or 'producer's capital' are things such as iron' ore, and steel bars, timber and wool and cotton factories and railways and shops, stocks of all sorts in warehouses, and commodities ready for sale in the retailers' shops, while the set of things which are called consumers' goods or wealth that is not capital are things such as houses, furniture, clothing and food in the hands of those using them for the satisfaction of wants. The first set we may speak of as unfinished goods; the second set as finished and enjoyable goods. For some purposes of economic analysis, they are similar; for other purposes dissimilar. The difference between them is essentially one of degree, yet is so great as to justify a distinction. (Page 69 Ibid) Capital then, that is, producer's capital, is not in enjoyable form; it is not now a source of satisfaction; it exists for the purpose of increasing consumer's wealth. Its relation to enjoyable goods is two fold: On the one hand, it may be said gradually to 'ripen' into such goods; on the other hand, it is a means of increasing their supply. It is easy to see that raw materials, as they are commonly called, 'ripen' into finished commodities. Wool is converted by successive steps into clothing, grain into bread, stone and timber into a house, but a process, the same in essentials, takes place with tools and machinery. Suppose a printing machine lasts for one year only being worn out and worthless at the close of the year. The books printed with its aid are the product not only of the labour applied to make the paper and other materials and of that applied by the compositors and other workmen in the printing office, taut also of that applied in the construction of the printing machine itself, which in fact in due course may disappear by wear and tear, so of all machinery and all plant. It wears out sooner or later and may be said sooner or later to ripen into goods that satisfy our wants. (Page 70, ibid).
All forms of material wealth wear out in course of time. Some sorts of capital are indeed very durable, such as irrigation dams and granite docks; some last a considerable time as buildings and machinery; others are used up very quickly as the coal which is burnt under the boiler. All need to be replaced as time goes on, some slowly in proportion as they last long, some quickly in proportion as they are rapidly used up. (Page 77 ibid). Commonly capital is maintained intact, not in the sense that the same machinery or materials are maintained indefinitely, but in the sense that as they wear out other machinery and materials are regularly produced to take their place. The surpluses which are put aside to balance depreciation are again invested in the same enterprise and the same instruments or in some other. (Page 78 ibid). The repair of capital as well as its complete replacement when worn out calls for the recurrent exercise of saving. Some kinds of apparatus must be touched up a little from day to day in order to be put in good working order. Such is the case with the road - bed of a railway which needs almost hourly attention and would become quite unusable if neglected for a few weeks. The locomotive of a railway again is subjected to constant heavy strain and needs to be sent to the machine shop at frequent intervals until finally after perhaps a generation of alternate using and patching it goes to the scrap heap and has to be replaced with a new one (page Ibid).
Viewing the matter from this standpoint of distinction between producer's capital or fixed capital used for producing finished goods and consumer's capital in the nature of the finished goods themselves and distinction again between repair and replacement of the producer's capital or fixed capital it seems but reasonable to hold that when the original capital stock gets exhausted by use and needs to be replaced the expenditure incurred in the process is in its turn further capital outlay in connection with the business and therefore in the nature of capital expenditure within the meaning of Clause 15 of Section 10, Sub-section (2) of the Indian Income-tax Act. It is in my opinion quite legitimate to bear in mind and give effect to these considerations well recognised in the field of Political Economy, in the interpretation of the relevant provision of the Income Tax Act, unless there is anything to be found therein which is repugnant to such a process of interpretation. The case of the road-bed of a railway needing almost hourly attention which is referred to by Taussig, it may be noticed, helps us to understand the distinction between repair and replacement of a railway line, the former being revenue expenditure normally and the latter being capital expenditure normally, so as to help us to understand aright the reasoning behind the Privy Council decision in 'Rhodesia Railways v. Income-Tax Collector Bechujanaland', (1933) AC 368 . In the light of what is said by Taussig, it is easy to understand why Lord Macmillari in delivering the judgment of the Privy Council in 'Rhodesia Railways v. Income-Tax Collector, Bechuanaland', (1933) AC 368 emphasises the consideration that the expenditure of which deduction was sought by the assessee in that case really represented the cost of repairs from year to year for which no deduction had been claimed in the matter of the tax paid in previous years. It is also easy to understand in that light why His Lordship rejects the analogy of a wasting asset relied upon by the Special Tribunal in that case which would really be applicable only to a case where a particular asset got completely exhausted by wear and tear in the process of use, not merely antiquated or worn out just to be repaired and 'let go on a bit longer', to use the language of Finlay, J. in 'Margrett v. Lowestopt Water & Gas Co.', (1935) 19 Tax Cas 481.
26. In a case reported in 'Coltness Iron Co. v. Black', (1881) 6 AC 315 the question arose whether a tenant of minerals, though he might be under a constant vanishing expense in sinking new pits as the old ones became exhausted, was entitled in computing the profits for assessment of income-tax, to deduct from the gross profits a sum estimated as representing the amount of capital expended in making bores and sinking pits, which had become exhausted by the year's working. It was held that he was not, and that was because as pointed out in the speech of Lord Penzance the Act then in question contemplated the case of a mine as within schedule A to the Act which was the schedule applicable to 'property'. The only question therefore was how exactly the annual value of that species of property had to be ascertained. The case is not strictly material to the one before us, and counsel relied upon it only for the general proposition that quite apart from any specific heads of deductions enumerated in the Income-tax Act no legitimate head of deduction could be ignored which would have to be taken into account for the ascertainment of profits in the true sense of the term and according to the basic conception of profits as the assessable factor. But there is a passage at page 328 of the Report which occurs in Lord Blackburn's speech & to which it is worthwhile to refer at this juncture. Says His Lordship:
'The sum of 9027 claimed as a deduction from the assessment by the Appellants does not represent the cost of pit-sinking during the year, but is a sum arrived at by calculating 2s. a ton on iron made, and l1/2d. a ton on coal sold during the year; it being estimated that this will properly represent the amount of capital expended on making bores and sinking pits which has been exhausted by the year's working. The cost of making bores and sinking pits is charged in the books of the company to an account called 'sunk capital account', and is written off annually by a sum computed at the respective rates above specified, on the quantities of iron made and coal sold in the year, as representing the capital expended on pit-sinking exhausted by the year's working. The working charges deducted and allowed in ascertaining the profits for assessment include the whole cost of getting and raising the minerals, after the pits are sunk, and of manufacturing the metal and selling the iron and coal, and the general expenses of the concern.
The phrase 'capital exhausted' does not occur anywhere in the Income-Tax Acts. It is taken from a passage in Mr. McCulloch on Political Economy, where he says: 'Profits must not be confounded with the produce of industry primarily received by the capitalist. They really consist of the produce on its value remaining to those who employ their capital in an industrial undertaking after all their necessary payments have been deducted, and alter the capital wasted and used in the undertaking has been replaced. If the produce derived from an undertaking after defraying the necessary outlay, be insufficient to replace the capital exhausted, a loss has been incurred; if the capital is merely sufficient to replace the capital exhausted, there is no surplus, there is no loss, but there is no annual profit, and the greater the surplus is, the greater the profit'. I do not feel at all inclined to dispute the sufficiency of this definition.'
It is clear from this passage in the speech of Lord Blackburn that while according to the author of the Work on Political Economy referred to by His Lordship if the produce derived from an undertaking after defraying the necessary outlay is insufficient to replace the capital exhausted it must be considered that a loss has been incurred, the learned Lord is at the same time making a distinction for the purpose of the Income-tax Acts between what may be called the capital charges involved in expenditure over pit sinking which may be exhausted by the year's working and the working charges deducted and allowed in ascertaining the profits for assessment which include the whole cost of getting and raising the minerals, after the pits are sunk, and of manufacturing the metal and selling the iron and coal, and the general expenses of the concern. On principle and of its own nature it does not seem to me that capital exhausted stands on any different footing from fresh capital invested in regard to its character as capital expenditure, as distinguished from working expenses. The latter kind of capital is really a counter-part of the former although the former is liable to deduction under Section 10(2)(vi) of the Indian Act, whereas the latter is not, on the principle recognised by Lord Blackburn in the passage from his speech just quoted. The latter kind of capital is really in the nature of capital employed to replace the capital already wasted and used in the undertaking. That being the true position of the replacement of any old worn-out machinery by a new one, it is clear that money spent over the latter must be held to be so far related to the original capital stock with which the business started that it must in itself be regarded as in the nature of further capital outlay. That is why, as I understand it, Lord Sands in his speech in the Court of Session, Scotland (First Division) in 'commissioners of Inland Revenue v. Granite City Steamship Co. Ltd.', (1929) 13 Tax Cas 1 observes:
'Broadly speaking, outlay is deemed to be capital when It is made for the initiation of a business, for extension of a business, or for a substantial replacement of equipment';
'a substantial replacement of equipment' in this connection seems to my mind, to include 'a substantial replacement of the machinery and plant which constituted part of the fixed capital with which the business started'.
27. The leading case in England on the subject of what is capital expenditure and what is not is 'British Insulated and Helsby Cables v. Athebton', (1926) A C 205. In that case the question arose thus:
'A company, which carried on the business of manufacturers of insulated cables, established, under the powers of its memorandum of association, a pension fund for its clerical and technical salaried staff. The fund was constituted by a trust deed which provided that members should contribute a percentage of their salaries to the fund and that the company should contribute an amount equal to half the contributions of the members; and further that the company should contribute, a sum of 31,7841 to form the nucleus of the fund and to provide the amount necessary in order that past years of service of the then existing staff should rank for pension. This sum was arrived at by an acturial calculation on the basis that the sum would ultimately be exhausted when the object for which it was paid was attained. On the winding up of the fund the whole amount was to be distributed among the members. The company, having paid the sum of 31,784 1 out of current profits, claimed that it was an admissible deduction in computing its profits for the purpose of assessment to income-tax for the financial year, 1917-18'. On those facts it was held (by Viscount Cave, L .C. Lord Atkinson and Lord Buckmaster; Lord Carson and Lord Bianesburgh dissenting) that the payment was in the nature of capital expenditure and was therefore not an admissible deduction. It will be seen that the kind of expenditure in question in the present case was not what the House of Lords had to deal with in that case. The amount of 31,784 1 which had been taken out of the current profits was contributed to a pension fund so as to form its nucleus. The expenditure was made not only once and for all which was the test of capital expenditure propounded by Lord Dunedin as Lord President of the Court of Session in 'Vallambrosa Rubber Co. v. Farmer', 1910 S C 519 : 5 Tax Cas 529, but with a view to bringing into existence an asset or an advantage for the enduring benefit of the trade. The majority of the Law Lords held that without the contribution the fund could not have come into existence at all, and that the object and effect of the payment of this large sum was to enable the company to establish the pension fund and to offer to all its existing and future employees a sure provision for their old age and so to obtain for the company the substantial and lasting advantage of being in a position throughout its business life to secure and retain the services of a contented and efficient staff. So it was held that the expenditure in question was in the nature of capital expenditure, and that the deduction of the amount from profits although not expressly prohibited by the English Act had been rightly held by the Court of Appeal not to be admissible.
28. As distinguished from the case of buying an asset or purchasing an enduring advanage as in British Insulated & Helsby Cables v. Athebton', (1926) A C 205, there is the case of the removal of the possibility of a recurring disadvantage illustrated by 'B. W. Noble Limited v. Mitchell',; 'Mitchell v. B. W. Noble Limited', (1926) 11 Tax Cas 372. This latter was a case in which the question arose whether a certain payment made to a retiring Director who had been dismissed by the Company in order to avoid publicity injurious to the Company's reputation was or was not expenditure of a capital nature. Rowlatt, J. in the first instance and the Court of Appeal presided over by Lord Hanworth, M.R. in confirmation of Rowlatt, J. held that the amount was not in the nature of capital expenditure.
29. A similar result was reached in the case in 'Anglo-persian Oil Co. Ltd. v. Dale (H. M. Inspector of Taxes)', (1932) 16 Tax Cas 253 where the facts were as follows: 'By agreements made in 1910 and 1914 the Appellant Company appointed another limited company as its agents in Persia and the East for a period of years, upon the terms (inter alia) that the agents should be remunerated by commission at specified rates.
With the passage of time the amounts payable to the agents by way of commission increased far beyond the amounts originally contemplated by the Company, and after negotiation between the parties, the agreements were cancelled in 1922, the agent company agreeing to go into voluntary liquidation and the Company agreeing to pay to the agents 300,000 in cash. This sum was in fact paid and the Company contended before the Special Commissioners that it was an admissible deduction in computing the Company's profits for purposes of Income Tax and Corporation Profits Tax.
The Special Commissioners rejected this contention and the Company appealed'. Rowiatt, J. in the first instance and the Court of Appeal presided over by Lord Hanworth, M. R., in confirmation of Rowlatt, J.'s decision held that the payment to the agents was not in the nature of capital expenditure but was an admissible deduction for purposes of Income Tax and Corporation Profits Tax. The case in 'British Insulated & Helsby Cables v. Atherton1, (1926) A C 205, is referred to in the judgment of Rowlatt, J. at page 2G2 of the Report as follows: 'But to say that it is a capital expenditure because it secured an enduring benefit by getting rid of an onerous contract is not to state the material thing; and it is completely inconclusive. 'I think I know where that phrase comes from, and that is from the speech of Lord Cave in the ease Of 'Atherton v. British Insulated & Helsby Cables Ltd.', (1926) A C 205 which is reported in (1926) 10 Tax Cas 155, where he said this: 'when an expenditure is made, not only once and for all, but with a view to bringing into existence an asset or an advantage for the 'enduring benefit of a trade,' then it is capital. But the fallacy is in the use of the word 'enduring'. What Lord Cave is quite clearly speaking of is a benefit which endures, in the way that fixed capital endures; not a benefit that endures in the sense that for a good number of years it relieves you of a revenue payment. It means a thing which endures in the way that fixed capital endures. It is not always an actual asset, but it endures in the way that getting rid of a lease or getting rid of onerous capital assets or something of that sort as we have had in the cases, endures, I think that the Commissioners, with great respect, have been misled by the way in which they have taken 'enduring' to mean merely something that extends over a number of years'.
Prom the foregoing, it will be seen that we have the 'once and for all test' of Lord Dunedin in 'Vallambrosa Rubber Co. v. Farmer', (1910) S C 519:5 Tax Cas 529, the 'lasting advantage' or 'enduring benefit' test of Viscount Cave, L. C. in 'British Insulated & Helsby Cables v. Atherton', (1926) A C 205, and the permanent improvement test of Lord MacMillan in the Privy Council case in 'Bhodesia Railways v. Income-Tax Collector, Bechuan Aland', (1933) A C 368. Besides these tests, it will be seen from a careful perusal of the two dissentient judgments of Lord Carson and Lord Blanesburgh in 'British Insulated and Helsby Cables v. Atherton', (1926) A C 205, that there are just one or two more tests which may also have to be borne in mind. The speech of Lord Carson dealing with the fund in question before the House of Lords contains this observation a page 225 of the report:
'It is clear from the terms of the trust deed, as already pointed out, that in no sense was the sum an investment, that it would be eventually exhausted in payment of the pensions, and that in the event of a winding up of the company it could never form any part of the assets of the company'.
The tests suggested by the observation are, (i) whether the sum in question is one which gets eventually exhausted over payments required to be made for the actual working of the business, and (ii) whether in the event of a winding up of the company the sum in question could ever form any part of the assets of the company. Then to turn to the speech of Lord Blanesburgh the same considerations are brought out at page 23S of the Report. After pointing out at an earlier page (233) in terms of Lord Loreburn's statement of the law in the ease of 'usher; Usher's Wiltshire Brewery v. Bruce', (1915) A C 433 that:
'profits and gains must be estimated on ordinary principles of commercial trading by setting against the income earned the cost of earning it, subject to the limitations prescribed by the Act'-
a statement of the law which is not dissimilar to what has been quoted by me earlier from the House of Lords case of 'coltness Iron Co. v. Black', (1881) 6 A C 315, the noble and learned Lord observes thus at page 236: 'In no sense of the word 'capital', circulating, working or fixed, did this expenditure involve any withdrawal. It was made out of gross receipts in a year in which, working capital and, a fortiori, fixed capital, remaining intact, a large surplus still emerged. Nor, in my judgment, did the expenditure in any relevant sense create a new asset of the company of the nature of a fixed capital asset or any other. The learned Lord Justice (Scrutton, L. J.) does not more closely describe this so-called asset or, fixed though it was, did he attach to it a name by which it could be recognized. He did not suggest that it resulted in an enhanced goodwill. He could not, in my judgment, have done so with reason, because it has never, I think, even been suggested that a contented personnel is an element in goodwill, whatever else it may be. In that state of things, it hits occurred to me, my Lords, that the existence or non-existence of this so-called asset might fairly be submitted to the prosaic test of asking what in a liquidation would be forthcoming in respect of it when a liquidator essayed his statutory duty to realize the company's assets and divide the proceeds amongst his constituents. Certainly no part of the fund. That in its entirety is completely alienated. And I can myself think of nothing else'.
That the lasting advantage or enduring benefit to the company which is propounded as the test by Viscount Cave, L. C. has to be regarded from the standpoint of its relation to the fixed capital of the company, is the point of Lord Blanesburgh's observation which I have quoted. If the expenditure in question in any relevant sense creates a new asset of the company in the nature of a fixed capital asset or any other, then the expenditure is in the nature of capital expenditure according to Lord Blanesburgh, and then it will be within the ambit of the process of distribution in a liquidation of the company's assets, not otherwise. While creating a new asset in the nature of lasting advantage or enduring benefit to the company, the expenditure in order not to be entitled to the deduction contemplated by the Income-tax Act must according to Lord Blanesburgh result in the creation of an asset in the nature of a fixed capital asset or any other.
30. I may add in this connection that there is just another test suggested by 'Highland Railway Co. v. Balderston', (1889) 16 R. 950 : 2 Tax Cas 485, a case decided in Scotland in the court of Exchequer, First Division. In that case, there was an acquisition by a railway company of a certain section of the railway line which they needed to bring up to the standard of the rest of the main line in their ownership to make of the whole thing a continuous railway line. There was also certain expenditure incurred over the alterations of the main line itself. The expenditure under the two heads was shown in the account books of the company as capital expenditure. The contention however was that it was in the nature of expenditure chargeable against income. The contention was overruled. The Lord President (Inglis) observes thus with reference to the way in which the account books deal with the expenditure :
'I think it is a pretty good indication to the Commissioners upon their part that they could, not properly make it a charge against income at all. At the same time, although this is the condition of the Appellant's books, I do not by any means say that it is conclusive, it they can show what they have made a charge against capital ought really to have made against income. and properly constitutes a charge against income, and therefore the question remains for consideration whether these charges as described in their book could with any propriety be dealt with otherwise than they have dealt with them themselves'.
So, Lord Mure observes at page 489 of the Report: 'It is certainly a remarkable fact that these charges are entered against capital in the company's books. I agree with your Lordship that that is not conclusive of the question, but it cannot be thrown altogether out of view'.
With reference to the first head of expenditure it was held to be of a capital nature for the reason that what was paid for the Sutherland and Caithness line which had to be brought up after the purchase to the standard of the main line was something lower than what would have had to be paid, had the line acquired been in perfect condition. The Lord President observes at page 487 bottom and 488 top thus:
'It appears to me, therefore, that they must have purchased or acquired this Sutherland and Caithness line at a lower figure than it would otherwise have brought in consequence of its being in that imperfect condition; and if they did so it appears to follow of necessity that the renewal of improvement of this Sutherland and Caithness line to bring it up to the proper standard is just part of the cost of that line to work along with the main line. If it had been brought up to that standard before they bought it, they would have had to pay so much the more for it; and finding it in that condition, and knowing that they could not use it in connection with the main line without expending this large sum of money upon it, just shows that, although it cannot be said in a proper sense to be part of the price of the line, it is certainly part of the cost of acquiring that line to be wrought along with the main line'.
Then with regard to the alterations in the main line itself it is pointed out by the Lord President further down at page 488 of the Report: '. it must be kept in view that this is not a mere relaying of the line after the old fashion; it is not taking away rails that are worn out or partially worn out, and renewing them in whole or in part along with the whole line. That would not alter the character of the line; it would not affect the nature of the heritable property possessed, by the Company. But what has been done is to substitute one kind of rail or another, steel rails for iron rails. Now that is a material alteration and a very great improvement on the corpus of the heritable estate belonging to the Company, and so stated is surely a charge against capital'.
From the foregoing, it seems to me that the entries in the account books of the assessee as showing expenditure either under the head of capital expenditure or under the head of revenue expenditure are 'prima facie', though not conclusive, evidence of the character of the expenditure in question in any particular case. Further, it also follows from the quotations that I have made that where the price paid for the acquisition of an asset is something lower than what it would have been, had the asset been in perfect condition, any improvement of the asset in order to repair the deficiencies of the condition in which it was purchased would be in the nature ol capital expenditure. Further again, where the heritable corpus of a company is so far improved that in quality or calibre something better replaces it, that is a material alteration which is in the nature of capital expenditure.
31. The variety of tests suggested by the case law so far discussed only indicates how true it is --what the Master of the Bolls observed in 'Golden Horse Shoe (New) Ltd. v. Thurgood', (1934) 1 KB 548:
'The test of circulating as contrasted with fixed capital is as good a test in most cases to my mind as can be found; but that involves the question of fact; was the outlay in the particular case from fixed or circulating capital?
After careful consideration of the present case, in the course of which my mind was fluctuated on either side, I think it is to be decided upon its own facts -- that none of the tests suggested afforded a strict rule of guidance.' In the case in 'Golden Horse Shoe (New) Ltd. v. Thurgood', (1934) 1 KB 548 the facts were as follows: A company which was formed for the purpose acquired the right to take away and retreat very large dumps of residual deposits resulting from the working of a gold mine and called 'tailings'. These tailings were known to contain a certain amount of gold, and by a new process of treatment some of this gold was recovered and sold. Finlay, J. on those facts posed the question for determination at page 555 of the Report as follows:
'Was it (the sum paid for the tailings) like money used to acquire a mine which was to be worked, in which case it was clear that it would not be deductible; or was it like money which a draper expended in order to stock his shop, in which case it would be clear that it would be deductible.' Finlay, J. concurring with the Commissioners held that it was not deductible. The company appealed, and the Court of Appeal presided over by Lord Hanworth M. R. reversed Finlay, J. In so doing, the Learned Master of the Rolls referred to a number of cases on the subject including the case in 'Coltness Iron Co. v. Black', (1881) 6 AC 315 which I hare already discussed in the foregoing, and wound up the discussion with what I have just quoted from his Judgment. In my opinion, no particular test can be regarded as sufficient by itself for the purpose of the determination of each and every case; nor are we to suppose that the tests propounded by the majority of the Law Lords in 'British Insulated and Helsby Cables Ltd. v. Atherton', (1926) AC 205 are entitled to greater weight than the tests suggested by the minority of the Law Lords in that case. In relation to each particular case it may be that one or more particular test or tests necessarily appeal to one's mind as the thing or things of predominant significance and therefore most relevant and conclusive. That is why Costello, J. in his judgment in 'In Re Imperial Chemical Industries (India), Ltd.', 62 Cal 87 in which his colleague Lort-Williams, J. concurred, after quoting from Lord Hanworth M. R.'s judgment in 'Golden Horse Shoe (New) Ltd. v. Thurgood', (1934 1 KB 548 observes as follows: 'That is only to say once more that the matter really resolves itself in the last resort into question of fact in each particular case, and there is no sure touch-stone which can be applied universally to solve a problem of the kind involved in the present proceedings.' (32) In this connection, I may also advert to a case of this court reported in 'Ratan Singh v. Commissioner Of Income-Tax'. 2 ITC 294 which was originally dealt with by Sir Murry Coutts-Trotter, Kt. C. J. and Beasley, J. as an Original Side Appeal from the judgment of Kumaraswami Sastri, J. and later dealt with by those two learned Judges as well as by Curgenven, J. on a reference by the Income-tax Commissioner. That was a case in which Clause (ix) which corresponds to the present Clause (xv) of Sub-section (2) to Section 10 of the Act came up for consideration and treatment in relation to the facts of the case there thus:
'A much more difficult point is raised with regard to the second matter which relates to certain items which were disallowed by the income-tax authorities as being of the nature of capital expenditure which is excluded from deduction by Section 10(2)(ix). That sub-section allows any expenditure (not being in the nature of capital expenditure) incurred solely for the purpose of earning the profits or gains of the business. The latter comes to a total of Rs. 3,296-2-2, and it seems reasonably clear that the first three items were additions to the machinery and plant used by the firm, which can clearly be classed under the head of capital expenditure.' So far the point of view suggested by the learned Judges seems, if applied to the present case, to make of the purchase of the boiler an addition to the machinery which is to be classed under the head of capital expenditure. There occurs afterwards in the judgment a further observation in relation to other items of expenditure thus described:
'The largest item is one of Rs. 1,925, which is described as the cost of an old car purchased from Tirali Srinivasa Aiyangar. The evidence of the assessee about that, which seems to have, been accepted, is that ho bought the car not to use it as a car but to resolve it into its component elements and use the parts for casual repairs to his existing feet of cars. The remaining items are for the renewal of various parts of the cars actually engaged in the business of the assessee.'
Dealing with the case of these items from the standpoint of Section 10, Sub-section 2, Clause (v) the learned Judges say:
'It is obviously arguable that most of the repairs in this case can be described as current repairs though of course the matter is one of degree. If a carburetter of a motor car ceases to function, we should incline to the view that the renewal of the carburettor in order to enable the car to keep the road is property described as a running repair. On the other hand, if a car, as a result of an accident, has nothing left but a wheel and everything else had to be renewed, clearly the sensible view would be that the renewal of the car could only be described as 'an increase of capital'. But apart from that, we have the provision of Sub-section (2)(ix) which speaks in general terms of any expenditure (not being in the nature of capital expenditure) incurred solely for the purpose of earning such profits or gains. Without committing ourselves to a view as to what are current repairs within the meaning of Clause (v), we think it reasonably clear that the cost of repairs set forth in the list that was handed up to us must be treated as an expenditure incurred for the purpose of earning the profits or gains of the business, and we do not think that it can properly be treated as capital expenditure which is excluded from the operation of Clause (ix).' This part of the judgment which deals with the question of the application of Section 10, Sub-section (2), Clause (v) I need not dilate upon as I have already considered the, question in the present case with reference to this statutory provision and come to the conclusion that the repair in question here which is the replacement of the old worn out boiler by a new one cannot be regarded as current repair because the old boiler had not ceased to function altogether by the time that it came to be replaced by the new one. The thing that matters, in this judgment in 'Ratan Singh v. Commissioner of Income Tax', 2 ITC 294 for the further purpose of the present case is really what I have already set forth and remarked about, namely, the passage relating to the first three items which were additions to the machinery and plant used by the firm and which the court held liable to be classed under the head of capital expenditure. Curgenven, J., the third Judge, who dealt with the matter on reference refers to the questions formulated by the Income-tax Commissioner as follows:
'(1) Whether the substitution of new parts in the place of old and worn out ones in the machinery in capital expenditure, or is it in the nature of repairs or revenue expenditure, and (2i Whether such replacements are not in the nature of working expenses under Section 10 (2) (ix) of the Indian Income-tax Act.' Then he proceeds to observe: 'The answer to both these questions depends upon the primary question, whether the expenditure is in the nature of revenue expenditure. I would say in reply to the first question, that ordinarily the substitution in a machine of new parts for old and worn out parts is in the nature of repairs or revenue expenditure. This is quite evidently true of the substitution, e.g., of new tyres for old and worn out tyres in a motor car. But the statement needs to be qualified in some manner, because it is clear that by successive substitutions, an old motor car might be converted into a new one and that process would really be equivalent to selling the old car and buying the new one, a matter of capital expenditure. The question is really one of degree and it may perhaps be said that the cost of any substitution of new parts which substantially change the identity of the machine, effect a substantial improvement or result in a substantial extension of the period of the serviceableness, would be capital rather than revenue expenditure. But even such tests as these are not absolute, and the question whether any given item of expenditure is of the one or the other kind can only be answered on a consideration of the circumstances, is, in other words, and in other than extreme cases of misapplication of principle, a question of fact. The same remark applies, in my view, to expenditure not being in the nature of capital expenditure, which may be allowed for under Clause (ix).'
It is contended by Mr. Rama Rao Sahib for the Department that applying the tests of Curgenven, J. in the passage quoted the sum spent over the purchase of the new boiler in replacement of the old changed the identity of the machine, effected a substantial improvement and resulted in such substantial extension of the period of serviceableness as to be liable to be regarded as capital rather than revenue expenditure according to the test of Curgenven, J. irrespective of the superiority of quality of the new boiler as compared with the old. I am not satisfied, I must say, that any change in the identity of the machine has come about within the language of the test of the learned Judge by reason of the sum so spent. The argument of learned counsel that the expenditure has resulted in the kind of substantial improvement or substantial extension of the period of serviceableness contemplated by the learned Judge seems however to stand on a different and stronger footing. The view of the two other Judges who dealt with, the matter on the Original Side Appeal and affirmed the opinion therein expressed in their judgment after the reference seems to my mind to be even more favourable to the contention of learned counsel, because, dealing with the items relating to additions to machinery and plant, as I have already stated, those learned Judges held that they could be classed under the head of capital expenditure. (33) This view resulting from the application of Ratan Singh v. Commissioner of Income-Tax', 294 (Mad) 2 to the case on hand is also on the whole in accord with the English authorities to which I have already referred, and I should, pausing there, give effect to it. The only question however remaining is whether the 'substitution of the new boiler for the old which undoubtedly has extended the period of serviceableness is to be regarded as not capital expenditure for the reason that according to the test of Lord Macmillan in the case in 'Rhodesia Railways v. Income-Tax Collector, Bechuanaland', (1933) AC 368 the replacement has only resulted in toe restoration of the machinery to its original condition and not in an improvement of it in quality or calibre. Right or wrong, it is true that a Privy Council decision was binding authority on Courts in India till the other day when the Constitution came into force. It is true too that, right or wrong, 'a Privy Council decision remains of great weight as persuasive if not binding authority, notwithstanding the Constitution. I am however not prepared to follow the case in 'Rhodesia Railways v. Income-Tax Collector, Bechuanaland', (1933) AC 368 as concluding the matter before me for more reasons than one. In the first place, it does not appear in the P. C. case that the new materials supplied in place of the old were in replacement of old ones after they had become completely worn out and unfit for use. A general scheme of renewal seems to have been undertaken by the Railway Company in that case which included the supply of new rails, sleepers and fastenings wherever found necessary by the Railway Company. New things were used in place of the old ones for about half the line renewed, and the renewal seems to have brought back the worn track to a normal condition, and as renewed it was not capable of giving more service than the original line. That state of facts, to my mind, raises the question of law in a different form to the one which arises here for consideration. Here the boiler became completely worn out and could no longer be used. Moreover, in the Privy Council case if the sums spent could really be regarded as for repairs within one part of the Proclamation there in question, they would according to the reasoning of their Lordships certainly stand excluded from the sphere of capital expenditure in relation to the other part of the Proclamation. That was the way in which the Privy Council dealt with the matter of the two parts of the section of the Proclamation together, and arrived at the conclusion that the renewals were repairs within the meaning of Section 15, Sub-section l(b) of the Proclamation and the cost of them did not constitute an outgoing of a capital nature within the meaning of Section 15, Sub-section 1(a).
In the present case, the fact that the cost of the new boiler is not within 'current repairs' of one part of the statute does not necessarily involve that it is or is not of a capital nature within the other part of the Statute. The latter question has to be considered on its own merits, and considering it so, and applying the principles of the English cases in 'O'grady v. Bollcroft Main Colliery Ltd.', (1933) 17 Tax Cas 93 and 'Margrett v. Lowestoft Water & Gas Co.', (1935) 19 Tax Cas 481 as well as of the Madras case in 'Ratan Singh v. Commissioner of Income Tax', 2 ITC 294 I am of opinion that the Reference at the instance of the Dept. should succeed. The present case is on the whole, in my opinion, more analogous to the case of chimney in 'O'grady v. Bullcroft Main Colliery Ltd.', (1933) 17 Tax Cas 93 and to the case of the reservoir in 'Margrett v. Lowestoft Water & Gas Co.', (1935) 19 Tax Cas 481 than to the case of the railway rails and sleepers in 'Rhodesia Railways v. Income-Tax Collector, Bechuanaland', 1933 AC 388, which as already noticed in the course of this judgment followed and applied the principles laid down in 'Highland Railway Co. v. Balderston', (1889) 2 Tax Cas 485, a decision which I have also separately discussed in detail in the foregoing. It is also worth noticing that the Privy Council decision does not refer to the precise test of Viscount Cave in 'British Insulated and Helsby Cables v. Atherton', (1926) AC 205, as the one which governed the matter before their Lordships. In fact the P. C. decision does not even so much as refer to the House of Lords' decision. After a careful study of the two decisions in 'British Insulted & Helsby Cables v. Atherton', and Rhodesia Railways v. Income-Tax Collector, Bechuanaland', 1933 AC 368, I feel clear that the test suggested by the latter is not identical with the one laid down by the majority of the Law Lords in the former. The lasting advantage or enduring benefit test of Viscount Cave, one of the majority Law Lords, seems to my mind to be sufficiently satisfied in the present case by the replacement by the new boiler of the old worn out boiler rendered completely unfit for further use. The permanent improvement test, of Lord Macmillan which suggests that the new boiler ought to be of superior quality to the old is not, in my opinion, within either the express language or the necessary implication of Viscount Cave's test, nor is it applicable to the case before us, consistently with Viscount Cave's more general test notwithstanding that here the new boiler served merely to ensure the functioning of the business on the same degree of efficiency as before the replacement. Lord Macmillan seems to have propounded the true test applicable to the case before the Privy Council in a rather qualified form-conceived in due relation to the facts of that case and to the language of the enactment there under consideration. That apparently is the reason why His Lordship does not refer at all to the authority of 'British Insulated and Helsby Cables v. Atherton'. In His Lordship's opinion on the facts of the case before the Privy Council the test which applied was the one which His Lordship deduced from 'Highland Rly. Co. v. Special Commissioners of Income-Tax'. (1889) 2 Tax. Cas. 485 with which I have already dealt.
34. In the light of all this discussion of the law on the matter, the finding of the Appellate Tribunal that the boilers were part of a unit of the machinery required for the manufacture of sugar and so could not be treated as a separate unit by themselves is of no materiality whatsoever even if well founded. It may be that as Mr. Bubbaraya Ayyar has rightly pointed out the entire sugar works is treated as a single unit or class of asset for the determination of the allowance under the head of depreciation contemplated by Section 10, Sub-section 2 (6) of the Act. (Vide page 306 of the Income-tax Manual issued by authority of the Central Govt. 10th Edn. Parts II and III). But that, in my opinion, does not throw any light on the question whether for the purpose of the applicability of Section 10(2), Clause (XV) of the Act the boiler can or cannot be regarded as a separate divisible unit. Nor is it material that as found by the Tribunal the replacement of the old boiler is by a new one just having the same pressure which the old one possessed when it was new and doing the same work which the old one was doing previously to its deterioration. The new boiler has come in substitution for the old boiler which was part of the fixed capital of the company and therefore partakes of the character of such capital. It may or may not be of superior quality or calibre to that of the old boiler, but it certainly has resulted in a substantial extension of the period of the serviceableness of the machinery and in the creation of an asset of lasting advantage or enduring benefit to the company in the nature of a fresh fixed capital asset. As pointed out in the Law and Practice of Income-tax by Kanga and Palkhivala, page 328: 'An item of disbursement may be regarded as capital expenditure when it is referable to fixed capital or capital assets; it is revenue expenditure when it is referable to circulating capital or stock-in-trade'.
In the same work, miscellaneous instances of capital expenditure are noticed by the authors at page 341, amongst which the cost of fitting machinery, the cost of 'equipment and apparatus, the cost of constructing a new reservoir are also included.
35. Having prepared the above as my judgment, I have had the opportunity of since looking into the judgment of my learned brother just delivered, to which, I have given my careful and respectful consideration. I have however for the reasons given in the forgoing, although not without regret that I am differing from my learned brother, arrived after an anxious consideration of the whole matter, at the conclusion that the assessee is not entitled to the deduction claimed by him. It is true that no tax can be imposed on the subject without words in the Act clearly showing an intention to lay a burden upon him. On the other hand, it is equally true that tax and equity are strangers, and an equitable construction cannot be put upon the words of a taxing statute, which is not justified by accepted canons of legal interpretation of such words. For the reasons given in the foregoing, I answer the question referred in the affirmative.
Satyanarayana Rao, J.
38. As there is a difference of opinion between us, my judgment which agrees with the opinion of the Tribunal prevails under Section 98 C. P. C. read with Section 66A of the Income-tax Act.