VEERASWAMI J. - This reference relates to the assessment year 1960-61. The assessee is a co-operative society for ex-servicemen engaged in transport of goods and passengers. It appears till 1959-60 the income of such societies was exempt from tax. No assessment was, therefore, made on the society till then, and it was assessed to tax for the first time for the year in question. The assessee claimed deduction of depreciation on the original cost if the assets and also an expenditure of Rs. 12,091 as for current repairs. The claims were disallowed by the revenue. But the Tribunal took a contrary view and permitted the deductions. At the instance of the Commissioner the following questions have been referred to us under section 66(1) of the Indian Income-tax Act, 1922 :
'(1) Whether the depreciation was properly allowed on the original cost of the assets and
(2) Whether the expenditure of Rs. 12,091 was properly treated as being revenue in nature ?'
So far as the first question is concerned, it is not disputed that it is covered by Commissioner of Income-tax v. Straw Products Ltd., a decision of the Supreme Court, in favour of the assessee.
On the second question too we are of opinion that we should answer in favour of the assessee. The finding of the Tribunal is that the assessee completely renovated the body of a certain motor vehicle by putting in a new body on an old chassis. The question is whether the expenditure was of a revenue character. The deduction was claimed under section 10(2) (v). Sub-section (2) of section 10 by clause (v), directs that profits and gains shall be computed after making allowances in respect of current repairs to machinery of the kind mentioned in clause (iv). There is no question as to whether what was done was current. What was in dispute was whether what was done was repairs to the machinery. The Tribunal applied the following test to decide the question :
'Whether a thing is 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.'
Another test which the Tribunal posed in deciding the issue was whether what was done constituted the creation of a new asset. Applying these tests, it was of opinion that this was a case of repair to an existing asset with a view to earn revenue. We are of the same view. The broad test, in our opinion, to find out whether it is a repair is to see whether what has been done is to an existing asset and that by doing the thing, the result is not the creation of a new asset. That is the view which prevailed with Commissioner of Income-tax v. Sheikhupura Transport Co. Ltd. But we may observe that it is not the comparative measure of the expenditure that is relevant or decisive, but whether by the expenditure a new asset has been created. The other test which the Tribunal had in mind may also apply, that is to say, whether what has been done is a replacement of defective parts or a replacement of the entirety or a substantial part of the subject-matter. If it is the last alternative, that will amount to creation of new asset. In effect this and the creation of a new asset test are not different. They are only different ways of looking at the same question. In Commissioner of Income-tax v. Sheikhupura Transport Co. Ltd. the bodies of lorries were renewed and the decision was that it amounted to current repairs within the meaning of section 10(2) (v). That case has direct application here. In Hanuman Motor Service v. Commissioner of Income-tax, the Mysore High Court pointed out :
'In finding out whether a given case falls within the scope of clause (v) of section 10(2), the true test is whether, as a result of the expenditure which is claimed as expenditure for repairs, what is really being done is to preserve and maintain an already existing asset or whether the object of such expenditure was to bring a new asset into existence or to obtain a new or fresh advantage. If it is the former, then it is a repair. If it is the latter, it should be considered as a replacement or renewal.'
With respect, we are in entire agreement with this view. From this point of view too we are of opinion that the Tribunal was correct. The two questions referred to us are answered in favour of the assessee, with costs. Counsels fee Rs. 250.
Questions answered in favour of the assessee.