Indian Kanoon - Search engine for Indian Law

(2) Whether, on the facts and in the circumstances of the case, the whole or any part of the gratuity paid to the heirs of Shri B. D'brass was an allowable expenditure in the hands of the company ?"

2. As far as the first question is concerned, the relevant facts are these : The assessee is a company carrying on business of publishers and book sellers, importing and selling books published by the Oxford University. The assessment year is 1963-64. During the accounting period relevant to the assessment year the assessee incurred an expenditure of Rs. 59,000 in the form of payment made to M/s. John Fleming & Co. for guniting work carried on in its building known as "Oxford House" and also a sum of Rs. 3,680 as fees paid to the architects in connection with guniting work undertaken on the advice of the architects. The assessee claimed both the items as expenditure incurred for repairs to their building. The Income-tax Officer observed that the repairs in question could not be called "current repairs" but that the assessee had undertaken major structural repairs which had the effect of prolonging the life of the building for a least 15 years and as the repairs resulted in extension of the period of the serviceableness of the asset and in the creation of an enduring benefit, the expenditure was a capital expenditure. In the appeal preferred to the Appellate Assistant Commissioner the assessee explained the real nature of guniting work that had been undertaken and as to why it was found necessary and claimed that the expenses were for current repairs and that even if the expenses could be regarded as having been incurred for accumulated repairs, still deduction should be allowed under section 37 of the Income-tax Act, 1961. The Appellate Assistant Commissioner took the view that the expenses incurred for guniting could not be considered to be for the current repairs but could only be considered under section 37 but having regard to the fact that the life of the building has increased by about 15 years and that the structural strength of the building has increased considerably, the expenses should be treated as a capital expenditure incurred by the appellant. He also took the view that the fees paid to the architects should also be considered along with this expenditure as capital expenditure. The assessee carried the matter in further appeal to the Appellate Tribunal and relying upon the correspondence that was exchanged between the assessee and its architects on the subject, which had been produced on record, the assessee submitted that the guniting process was nothing else but improved method of doing the plastering work and by employing this process the assessee had done nothing but carried out the usual repairs to its building and that no new asset was brought into existence as a result of adopting this process but the asset, viz., the house, was brought to its original position. It was, therefore, contended that the expenses incurred on guniting as well as in paying the architects' fees should have been allowed as current repairs or in any case as accumulated repairs under section 37 of the Act. On the other hand, it was contended on behalf of the department that the repairs were major repairs which increased the structural strength as well as life of the building and, therefore, the expenditure in question was capital expenditure. The Tribunal accepted the assessee's contention and held that looking to the facts which were placed before it it was quite clear that what the assessee had done was employing the guniting process to carry out certain repairs which were either current repairs or accumulated repairs. The Tribunal, therefore, held that the amounts spent in guniting process and the architects' fees in connection therewith was an expenditure incurred for the repairs of the building of the assessee and the same should be allowed as a deduction either as current repairs or accumulated repairs under section 37 of the Act. At the instance of the Commissioner of Income-tax the first question set out above has been referred to us for determination.

"Guniting is a process of cement plastering with the use of a gun. By this process the plastering is carried out under pressure and is particularly recommended where there are cracks, etc., and the ordinarily plastering does not last."

5. Having regard to the nature of the guniting process that was undertaken for carrying out the plastering and repair work to the building and the reasons and circumstances as to why the guniting process had been employed, it appears to us very clear that by employing this method, which was nothing but an improved method of plastering and repairing work, all that the assessee had done was to preserve and maintain the already existing asset. No new asset or new advantage as such could be said to have been brought into existence by reason of expenditure incurred for doing the guniting work. As a result of guniting work done the assessee had not changed the nature of the asset, viz., the building as a whole, and the same in no way increased the accommodation or earning capacity of the building; in that sense no new advantage of enduring benefit has been brought into existence. The repairs also could not be regarded as heavy structural repairs, for, according to the assessee's architects, what could not be achieved by the ordinary method of plastering was achieved by a sophisticated method of process of guniting. In this view of the matter, it seems to us very clear that the expenditure of Rs. 59,000 incurred for guniting work done as also the expenditure of Rs. 3,680 being the architects' fees paid in connection therewith will have to be regarded as expenditure of a revenue nature. Since the same was incurred only with a view to preserve and maintain the existing asset and applying the test which has been indicated in Gulamhussein's case [1974] 97 ITR 24 (Bom) the expenditure will have to regarded as allowable deduction.

6. It was sought to be urged by Mr. Joshi for the revenue that on their own showing the assessee's architects had claimed that the effect of repairing work had prolonged the life of the building by at least 15 years and it that was so, it should be held that a new advantage of enduring character had been obtained by the assessee by undertaking guniting work. It would be pertinent to observe that every type of repairs carried out to an asset like a building is bound to extend to a certain extent the life of the asset and simply because the assessee's architects claimed that because of repairs the life of the building had prolonged for at least 15 years, it cannot be said that the expenditure was in the nature of a capital expenditure. There is material on record to show that before plastering work was undertaken by adopting the guniting process, the repairs had been undertaken by doing plastering work in the ordinary way, but such repairs did not last even for a year or two, and, placed in that situation, the assessee was required to undertake the aforesaid repairs by adopting guniting process. Moreover, simply because the life of an asset is extended or that the asset is made to give better service than it was giving in the past is not decisive of the matter. The nature of the repairs undertaken will have to be taken into consideration and, as we have stated above, the repairs undertaken were not by way of any major structural repairs but it was plastering work that was undertaken by adopting sophisticated process called guniting process and, therefore, it will not be possible to accept the contention of Mr. Joshi.