Kantawal, C.J.
1. By this reference under section 66(2) of the Indian Income-tax Act, 1922 (hereinafter referred to as 'the Act'), the following question is referred to us for our determination at the instance of the assessee :
'Whether there was any material to justify the finding of the Tribunal that any portion of the expenditure incurred by the assessee in respect of the items of Rs. 29,366 in the year 1956-57 and of Rs. 27,377 in the year 1958-59 was of a capital nature ?'
2. From the question framed it is clear that it refers to the assessment years 1956-57 and 1958-59, for which the corresponding accounting periods were Samvat year 2011 and Samvat year 2013, respectively. The assessee was manufacturing match boxes in its factory at Kurla and selling them in the market. It owned several godowns, sheds, etc., and they formed part of the said business assets. The business of manufacturing matches was stopped from Samvat year 2009 and the godowns once used for that business were let out to different people and rent was received therefrom by letting out the same. Some time prior to Samvat year 2011 the machinery and stored in a part of the factory shed. In Samvat year 2011 the Food and Agriculture Ministry, Government of India, took a portion of the factory sheds on lease from January 7, 1955, on a monthly rent of Rs. 1,763. In Samvat year 2011 the assessee received approximately Rs. 12,341 as rents from the Food and Agriculture Ministry in respect of Kurla godowns and sheds property and also received storage charges of Rs. 11,792 from other persons who had stored their goods in other parts of these buildings. The assessee incurred a sum of Rs. 29,356 for certain repairs during this assessment year. As the present reference is not concerned with the assessment year 1957-58, it is unnecessary to refer to the income derived by the assessee during Samvat year 2012. From March 18, 1957, most of the godowns (but not all the floor area) were leased out to Messrs Mahindra & Mahindra Ltd. under an indenture of lease dated July 10, 1957, at a rent of Rs. 7,500 per month. In Samvat year 2013 the assessee recovered Rs. 48,500 and Rs. 9,678 as rents and storage charges in respect of these properties. During Samvat year 2013 the assessee incurred a sum of Rs. 27,377 over repairs.
3. During both the assessment years 1956-57 and 1958-59, the assessee respectively claimed the sum of Rs. 29,356 and Rs. 27,377 as permissible deductions on the ground that the said amounts were expended for incurring expenditure of a revenue nature. The claim was rejected by the Income-tax Officer. In his order for the assessment year 1956-57, he observed :
'The expenses incurred are of capital nature. Temporary roofs have been replaced by concrete ones and it has increased the letting out value of the godowns as is evident from the letters written by the Ministry of food & Agriculture, who had taken the godowns on hire.'
4. As in his opinion these expenses on the godowns were of a capital nature they could not be allowed against the receipts of hiring charges, but depreciation on the amount spent has been allowed. For the assessment year 1958-59, the Income-tax Officer took the view that the expenses incurred were of a capital nature in relation to repairs and renewals of the godowns and so depreciation only could be allowed but it could not be allowed as an item of expenditure of a revenue nature.
5. In the appeal preferred by the assessee the Appellate Assistant Commissioner accepted the contention of the assessee. He took the view that the assessee had executed repairs to the godowns in order to maintain or preserve an existing asset as such and the same did not bring into existence any new asset or any new or fresh advantage. According to him the repairs executed during the relevant accounting periods constituted permissible deductions wither under section 10(2)(v) or section 12(2) of the Act for the respective assessment years. In the appeal preferred by the revenue the Income-tax Appellate Tribunal partially allowed the appeal. The Tribunal took the view that the provisions of section 12 of the Act alone were applicable; that part of the expenditure incurred was of a revenue nature and the remaining part was of a capital nature being in the nature of alteration or improvement or both. Rather than going into the details of the quantum of the amount spent on revenue account or on capital account, it took into account the amounts spent by way of expenditure for repairs during the other years and for Samvat year 2011 it allowed 30% of the receipts of Rs. 24,133 and for Samvat year 2013 it allowed 20% of the receipts of Rs. 58,178 as revenue expenditure. The rest of the amount claimed was treated as being one of a capital nature and no deduction in respect thereof was allowed. As upon an application by the assessee the Tribunal declined to refer the case to the High Court, it made an application to this court in which this court directed the above question to be referred by the Tribunal for our determination.
6. Mr. Kolah on behalf of the assessee contended that the Tribunal was in error in taking the view that only a part of the expenses incurred for repairs during Samvat year 2011 and Samvat year 2013 was of a revenue nature. His admission was that the entire amount spent for repairs was of a revenue nature and that the Appellate Assistant Commissioner was right in allowing the claim in toto and the Tribunal was in error in reducing it to merely 30% and 20% for the two years, respectively. His submission in shot was that by carrying out the repairs no new asset had been brought into existence nor has the assessee derived any new or different advantage. These repairs according to his submission were carried out only for the purpose of making the properties equipped for the purpose for which they were let out either to the Government of India or to Messrs Mahindra & Mahindra Ltd. In his submission as neither a new asset came into existence nor any advantage or improvement was derived, it was not open to the Tribunal to disallow a part of the claim made as being a sum spent of a capital nature. The argument of Mr. Hajarnavis on behalf of the revenue, on the other hand, is that there is a clear improvement as a result of carrying out these repairs and when such is the position, it is open to the Tribunal to disallow a part of the expenses as being an amount spent of a capital nature. He relied upon the fact that during both the relevant years the net rateable value increased enormously and that was solely due to considerable alterations and improvement in the property as a result of the repairs.
7. In view of the finding of the Tribunal it is not disputed before us that the income of the assessee during the two years can only be assessed under section 12 as income from 'other sources'. Under that section tax shall be payable by an assessee under the head 'income from other source' in respect of income, profits and gains of every kind which may be included in his total income if not included under any of the heads in the section preceding that section. We are concerned with the first part of sub-section (2) of this section and it provides that such income, profits and gains shall be computed after making allowance for any expenditure not being in the nature of capital expenditure incurred solely for the purpose of making or earning such income, profits or gains. Under the provisions of sub-section (2) an expenditure will be a permissible allowance only if two conditions are fulfilled : (1) that it is incurred solely for the purpose of making or earning income, profits or gains, and (2) the expenditure is not in the nature of capital expenditure.
8. Large number of cases have been cited before us but before we refer to them it will be necessary to refer to the terms of the contract that subsisted during the time when a part of the property was rented out to the Food and Agriculture Ministry in Samvat year 2011 and to Messrs Mahindra & Mahindra Ltd. during Samvat year 2013. While the property was being occupied by the Food and Agriculture Ministry, more than one letter was written requesting the assessee to carry out the repairs. On February 3, 1955, the Regional Director (Food) wrote to the assessee informing it that at the time of taking over the godown it had promised to repair the godown with dimmer and make the roof rain proof; that the said repairs were not carried out till then; that it was used for storage of food-grains by the Government and that in the event of even mild rain the food-grains were liable to damage and damages will be claimed from the assessee. Similar reminders were sent on February 15, 16 and April 25, 1955. It is not disputed in the present case that in Samvat year 2011, the assessee incurred a sum of Rs. 29,356 for carrying out repairs. The Income-tax Officer disallowed this claim, because he was of the view that the expenses so incurred were of a capital nature. According to him temporary roofs had been replaced by concrete roofs and temporary structures had been converted into concrete ones and thereby the letting out value of the godowns was increased. On what material he came to the conclusion that there were concrete roofs or concrete structures, it is difficult to understand. The Appellate Assistant Commissioner in his order has clearly found after examining the vouchers that were produced that during Samvat year 2011 being the relevant accounting year for assessment year 1956-57, the assessee undertook repairs by removing worn out corrugated sheets and by replacing them with asbestos cement trafford sheets. The vouchers for materials and labour were produced and upon scrutiny thereof, he clearly came to the conclusion that the repairs consisted of the removal of corrugated sheets, and their replacement by asbestos cement sheets. There is nothing in the order of the Tribunal to indicate that this finding as regards the nature of the repairs arrived at by the Appellate Assistant Commissioner is erroneous or not borne out by evidence on record.
9. On July 10, 1957, the assessee executed in favour of Messrs. Mahindra & Mahindra Ltd. an indenture of lease whereby the properties therein described were let out for a term of five years commencing from March 18, 1957, at a monthly rent of Rs. 7,500. The first schedule to this indenture of lease described the area of the land that was let out and it is pointed out therein that several sheds and structures were standing thereon. Under the lease it was covenanted by the lessees that all minor repairs to the demised premises will be carried out by them. However, clause 2 of this indenture of lease contained a clear covenant on the part of the assessee as lessor to carry out certain specified repairs which are described in the second schedule to the indenture of lease. There was also a covenant on the part of the lessors to carry out all heavy and major repairs including plumbing work and any repairs to roof and repairs to all drains, sewers and gutters. Sub-paragraphs (a) and (b) of clause 2 of this indenture of lease are as under :
'(a) The joint Lessees shall carry out the repairs mentioned in the second schedule hereunder written within a period of one month from the date of execution of these presents and for this purpose will be entitled to appropriate and use the sum of Rs. 22,500 (rupees twenty-two thousand and five hundred) deposited as security with the joint lessors by the lessees as aforesaid.
(b) The joint Lessors shall carry out at their cost all the heavy and major repairs including plumbing work and any repairs to the roof and repairs to all drains, sewers and gutters on and loading from the demised premises required to be carried out to the demised premises, provided that the Lessees shall have given reasonable notice in writing requiring the joint lessors to carry out such repairs. The cost of such repairs shall be borne by the joint lessors in proportion to their respective shares in the demised premises and in the event of on or the other co-lessors being required to defray more amount, he or they will be entitled to recover such excess from the other co-lessors as the case may be and the same will be deducted by the lessees from the rent payable to such other co-lessors and paid to the co-lessons defraying such excess.'
10. The repairs to be carried out by the lessors are described in the second schedule which is as under :
'1. Roof of shed D to be completely removed and asbestos cement sheets roof to be installed.
2. Roof of shed F to be completely repaired (including damaged sheets to be removed and replaced by new sheets).
3. Roofs of all other sheds to be repaired.
4. All gutters to be repaired and made leak-proof.
5. Flooring in shed B to be relied in Shahabad stone.
6. All the sheds to be made leak-proof, and if any leakage is found during monsoon (during the continuance of the term of this lease) the sheds to be made leak-proof forthwith after receiving one week's prior notice from the Lessees.
7. Repairs to the flooring wherever necessary to be effected in all other shed (except shed B).
8. Weather sheds to be affixed on the west side of the sheds B and C.'
11. The Income-tax Officer except for observing in his order that the expenses incurred for repairs and generals of the godowns were of a capital nature, has not stated any reason why that view is taken by him. The Appellate Assistant Commissioner has taken the view that in Samvat year 2013 being the previous years relevant for assessment year 1958-59 the assessee had re-roofed the sheds in accordance with the conditions of the indenture of lease. Tenders for replacement with asbestos cement sheets were invited by the Custodian of Evacuee Property. The bills produced indicated that asbestos cement sheets were purchased for a total sum of Rs. 23,434 out of which a rebate of Rs. 2,500 for the value of corrugated sheets was given. He accordingly took the view that there were no major structural alterations in the godowns. On the other hand, the repairs to sheds consisted exclusively of removal of old corrugated sheets and their replacement by asbestos cement sheets or some plastering work carried out in the godowns. According to him during both the relevant years the repairs executed were permissible deductions either under section 10(2)(v) or section 12(2) of the Act.
12. In the appeal by the revenue before the Tribunal the various items specified in the second schedule to the indenture of lease were scrutinised. Upon scrutiny of that schedule it took the view that it was not possible to take the view that all the repairs therein mentioned were of a capital nature. The Tribunal, however, took no pains to find out which of the items contained in this schedule can be regarded as repairs of a revenue nature and which can be regarded as repairs of a capital nature. Only items Nos. 2, 4, 6 and 7 in this schedule were referred to by way of illustration and it was observed that by no stretch of imagination the expenditure on these items could be said to be capital in nature. As regards the remaining items in the schedule, there is no precise or detailed findings, but there is a passing observation to the effect :
'There may be some force in the contention of the department as far as the removal of corrugated sheets from the roofs and their replacement by asbestos cement sheets and construction of weather sheds is concerned.' According to the Tribunal this expenditure prima facie is of a capital nature being in the nature of alteration or improvement or both. Without precisely finding which of the items in the second schedule can be regarded as repairs of a capital nature and which of them can be regarded as repairs of a capital nature and which of them can be regarded as repairs of a revenue nature, it tried to apportion the expenses on repairs. It did not think it necessary to go into the exact amount spent for every item, but looking to the percentage of amounts spent by way of repairs in the other years it took the view that 30% of the receipts of Rs. 24,133 for Samvat year 2011 and 20% of Rs. 58,178 for Samvat year 2013 should be allowed as revenue expenditure. The rest of the items claimed were not permitted on the footing that the same were of a capital nature. In coming to this conclusion, it took the view that by reason of these repairs considerable alteration and improvement were caused in the property and thereby the net rateable value increased enormously. No data or reasons are given in the order how that conclusion was arrived at.
13. It is not disputed on behalf of the revenue that whatever expenditure is claimed as permissible deduction for Samvat Year 2011 and Samvat year 2013, is incurred solely for the purpose of making or earning income from the property which was either let out at one time to the Food and Agriculture Ministry and at another time to Messrs. Mahindra & Mahindra Ltd. The question however, arises whether the amount of repairs disallowed can be regarded as being expenditure in the nature of a capital expenditure. As pointed out in New Shorrock Spinning and . v. Commissioner of Income-tax, the expression 'repairs' must be understood in contradistinction to renewal or restoration. The test that has to be applied is that as a result of the expenditure which is claimed as an expenditure for repairs what is really being done is to preserve and maintain an already existing asset. The object of such expenditure is not to bring a new asset into existence, nor is its object the obtaining of a new or fresh advantage. But, if the amount spent was for the purpose of bringing into existence a new asset or obtaining a new advantage, then such an expenditure would not be an expenditure of a revenue nature but it would be a capital expenditure. In this case, the Bombay High Court was construing the phrase 'current repairs' occurring in section 10(2)(v) and it points out that the word 'current' in the expression 'current repairs' does not mean 'petty' but denotes such repairs which are attended to when the need for them arises and are not allowed to fall into arrears or to be accumulated. If the assessee, although the need has arise, does not attend to that need and allows the repairs to get accumulated, it could not be said that when he is expending money on these repairs he is expending them on current repairs. But, if the need for repairs had not arisen before they were actually effected, even repairs done long after the acquisition of the asset would be 'current repairs'. The expression 'current repairs' used in section 10(2)(v), therefore, means expenditure on buildings, machinery, plant or furniture which is not for the purpose of renewal or restoration, which is only for the purpose of preserving or maintaining an already existing asset which does not bring a new asset into existence or does not give to the assessee a new or different advantage, and they must be repairs which are attended to as and when the need for them arises. The question as to when a building, machinery, plant or furniture requires repairs and when the need arises must be decided by not any academic or theoretical test but must be decided by the test of commercial expediency. It is for a businessman primarily to decide when his building, machinery, plant or furniture requires repairs and it is by that test alone that the question must be decided as to whether the repairs are current repairs or repairs which have fallen into arrears or have been accumulated over a period of time and then expenditure has been incurred in carrying out those repairs. On the facts of this case the High Court took the view that the expenditure was incurred for current repairs with a view to preserve and maintain the asset, even though it was incurred more than 60 years after the acquisition of the asset and was allowable as a deduction under section 10(2)(v).
14. The Tribunal in the present case has taken the view that the expenses incurred for removal of corrugated sheets from the roofs and their replacement by asbestos cement sheets and construction of weather sheds are expenses of a capital nature, because they are in the nature of alteration or improvement or both. It cannot be disputed that unless a new asset is brought into existence or the object of incurring the expenditure is to obtain a new or fresh advantage, the expenditure incurred will be of a revenue nature. As pointed out above, the Tribunal has taken the view that by replacing asbestos cement sheets for corrugated iron sheets and by constructing weather sheds, there is improvement or alteration. There is nothing in the order of the Tribunal to indicate that a new asset has come into existence. There cannot be any improvement unless there is a new or fresh advantage. There is not even material on record nor is there any discussion in any of the orders referred to above, to suggest whether the cost of providing asbestos cement sheets is more or less than that of providing corrugated iron sheets. If the cost of providing asbestos cement sheets is less than the cost of providing corrugated iron sheets, then there is neither any improvement nor any advantage. Further, from one point of view it may be stated that in a city like Bombay due to humidity a roof of corrugated iron sheets may get rusted earlier while such rusting may not take place in the case of a roof of asbestos cement sheets. However, a roof of asbestos cement sheets is likely to be damaged if a hard or heavy article falls over it and may need repairs even earlier than in the case of a roof of corrugated iron sheets. Thus, there is no material on record even to come to a conclusion that there is any new or fresh advantage or improvement by reason of replacement of old corrugated iron sheets by asbestos cement sheets. So far as the weather shed are concerned, there is nothing to show of what nature they are or of what materials they were to be built or in fact built.
15. Mere quantum of the amount spent for repairs is by itself not decisive of the question whether it is an expenditure of a revenue nature or a capital nature. A sum can be allowed as the cost of repairs and can be held not to be a capital expenditure even though the expenditure in a particular year is heavy on account of the fact that it is undertaken to remedy the effect of several years of wear and tear or neglect and also in spite of the fact that such expenditure may not be necessary for several years to come after the repairs have been effected. See Commissioner of Income-tax v. S. B. Ranjit Singh. In this case an expenditure amounting to Rs. 24,904 incurred by the assessee in resurfacing with concrete the approach roads fallen into a bad state was allowed as a permissible deduction. A similar view is taken by the Nagpur High Court in R. B. Bansilal Abirchand Spinning and Weaving Mills v. Commissioner of Income-tax.
16. Mr. Kolah relied upon two unreported decisions of this court in the case of Commissioner of Income-tax v. David Mills Ltd. (Income-tax Reference No. 17 of 1950, decided by Chagla C. J. and Tendolkar J. on October 10, 1950) and Mevor Mills Ltd. v. Commissioner of Income-tax (Income-tax Reference No. 36 of 1950 decided by the same Bench on March 30, 1951). The judgments in these two cases are to be found at pages 46 and 81 of the volume entitled Unreported Income-tax Judgments of the Bombay High Court, published by the Western India Regional Council of the Institute of Chartered Accountants of India, Bombay. In the first of these cases the assessee-company in the past repaired the flooring by replacing the upper layer which was a wooden layer by wooden boards. In the year of account, a layer of oxychloride was laid between the two layers. Though this process cost the company less than the original process, it made the floor more durable. The contention of the department was that by this particular process a new asset had come into existence and, therefore, the amount spent was not of a revenue nature. That contention was rejected by this court and this court took the view that the assessee was only maintaining and preserving an asset, which he already possessed, by the process which he adopted. The life of the asset was made longer and it was made to give better service than it was doing in the past. This court took the view that the expenditure incurred as not of a capital nature. The principle in David Mills Ltd.'s case was followed in Mevor Mills Ltd.'s case where the amount spent was for oil-painting rather than for white-washing which was done every year.
17. Reliance was placed by Mr. Hajarnavis on behalf of the revenue upon a decision of the Privy Council in Rhodesia Railways Ltd. v. Income-tax Collector, Bechuanaland Protectorate. Actually the ratio of this decision is against the contention urged on behalf of the revenue. In this case the appellants owned a railway of which 394 miles ran through the Bechuanaland Protectorate, and in making a return of the profits derived for the year of assessment to June 30, 1931, debited a sum of Pound 252,174 under the heading 'Renewals of permanent way', thereby bringing out a loss for the year. The respondent disallowed the deduction of Pound 252,174. The track was laid down in 1896-1897 and was maintained in the ordinary way but in 1929 the track was in a worn and dangerous state, requiring heavy repairs beyond what could be dealt with in the ordinary way, and in 1930, new rails had to be put in a over a large part of the track and new sleepers which did no more than bring the track back to normal condition and did not render the line capable of giving more service. The question arose whether the outgoing was of a capital nature and whether the work was one of reconstruction and not of repair. Their Lordships of the Privy Council took the view that the sum so expended was an outgoing not of a capital nature and was expended for the repairs of property occupied for the purpose of trade, and as such was rightly deductible from the income assessable to income-tax. Their Lordships of the Privy Council referred to the observations of Buckeley L. J. in Lurcott v. Wakeley and Wheeler :
''Repair' and 'renew' are not words expressive of a clear contrast' and
'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.'
18. It is pointed out by their Lordships in this case that the periodical renewal by sections of the rails and sleepers of railway line as they were worn 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 in that case was held to have been 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 appellant's existing line in a state to earn revenue.
19. Applying the test laid down by Lord Justice Buckley it can never be said that by substituting asbestos cement sheets in place of worn out corrugated iron sheets there is reconstruction of the whole or substantially the whole of the subject-matter.
20. Strong reliance was, however, placed by Mr. Hajarnavis upon the case of Highland Railway Co. v. Special Commissioners of Income-tax, which is one of the cases referred to by their Lordships of the Privy Council in Rhodesia Railways Ltd.'s case. In that case the railway company had relied a portion of their main line and in doing so had substituted steel rails of greater weight for the previous iron 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. This contention was rejected by the Lord President (Inglis). At page 488 he points out :
'..... 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 for 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.'
21. So far as the principle goes, there cannot be any dispute that if there is an improvement effected or a material alteration caused in the corpus of the property, that may be a charge against capital. In Highland Railway's case it was not even open to dispute that, apart from the weight of the new rails that were substituted, steel rails were automatically costlier than the iron rails. We have pointed out earlier that there is no material to indicate that asbestos cement sheets are costlier than corrugated iron sheets. So far as corrosion is concerned, it may be said that they are likely to be less corrosive when compared when to corrugated iron sheets, but at the same time they are brittle and are likely to break in case any heavy article falls over them. When such is the position, it is difficult to see how by substituting worn out corrugated iron sheets by asbestos cement sheets a new and fresh advantage or a material alteration or an improvement is effected in the corpus of the property.
22. It will not be out of place to refer to a decision of the Allahabad High Court in Kanpur Agencies Private Ltd. v. Commissioner of Income-tax. The question that arose for consideration in this case was whether the repairs in the shape of putting up flush-out latrines for manual latrines, and putting up cement concrete roofs for tiled roofs for tiled roofs are repairs of a revenue nature or of a capital nature. The Allahabad High Court took the view that they are repairs of a capital nature and are not allowable deduction under the provisions of section 10(2)(ii). Much reasons are not given in this case but there is a passing observation that by the alteration a substantial improvement was effected in the property. That may be a good decision so far as the facts of that case go. It may possibly be said that conversion of a manual latrine by putting up a flush-out latrine is an improvement. The other type of alteration effected was putting up cement concrete roofs in place of tiled roofs. The Allahabad High Court had no occasion to consider the question of substitution of asbestos cement sheets roof in place of worn out corrugated iron sheet roof. As stated earlier, whether there is a material alteration or improvement would depend upon the facts of each case and in the absence of material on record that asbestos cement sheet roof is costlier or otherwise more advantageous than the roof of corrugated iron sheets, it cannot be said that the expenses incurred can be regarded as those of a capital nature.
23. In the result, we answer the question referred to us in the negative. The revenue shall pay the costs of the assessee.
24. Question answered in the negative.