D.K Kapur, J.:— These two Income-tax References (Nos. 208 and 281 of 1975), relate to the assessment years 1967–68 and 1968–69. The Tribunal has stated a common case under section 256(1) of the Income-tax Act, 1961. The questions referred are as follows for the assessment years 1967–68 and 11968–69:

Assessment year 1967–68:

“Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the expenses of Rs. 4,190 and Rs. 710 were not allowable under section 37 of the Income-tax Act, 1961, as they were expenses of a capital nature?

Assessment year 1968–69:

Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the expenses of Rs. 10,506, Rs. 3,876 and Rs. 15,000 were not allowable as they were expenses of a capital nature?”

2. We have on an examination of the case decided to reframe the questions in the following way so as to bring out the real point in controversy for the assessment years 1967–68 and 1968–69 Assessment year 1967–68:

“Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the expenses of Rs. 4,190 and Rs. 710 were not allowable as revenue expenditure?”

Assessment year 1968–69:

“Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the expenses of Rs. 10,506, Rs. 3,876 and Rs. 15,000 were not allowable as revenue expenditure?” There is only a slight difference in the questions because the real point urged on behalf of the assessee is that these amounts are to be allowed as revenue expenditure.

3. The facts of the case are quite simple. The assessee is a Hindu undivided family which does cinema exhibition business at Kanpur under the name and style of “Nishat Talkies The cinema is leased in favour of the assessee.” Copies of the lease deed dated September 4, 1956, and November 29, 1965, have been submitted along with the statement of the case. In the year 1967–68, a deduction of Rs. 36,055 was claimed as revenue expenditure. In 1968–69, the expenditure claimed was Rs. 1,07,595. The Income-tax Officer disallowed a portion of the claim as being of a capital nature. The claim arose because there were expenses on repairs and renovations to the cinema hall in question during these two years. Part of this expenditure was claimed as on capital account and part as on revenue account. It was contended that the repairs and renovations were carried out in compliance with the directions of the District Magistrate given by a letter dated December 30, 1965, and, therefore, this had to be treated as revenue expenditure, the assessee not being the owner of the cinema theatre.

4. There was an appeal against the disallowance to the Appellate Assistant Commissioner who sustained the disallowance in respect of repairs and replacements of urinals. The Appellate Assistant Commissioner gave some further relief to the assessee which led to the assessee's further appeal to the Tribunal against the disallowed amounts. For 1967–68, the disallowed amount was Rs. 4,190 and Rs. 710 on account of repairs and replacements of urinals. The Tribunal held that these were expenses on reconstruction and not to be treated as a revenue expenditure.

5. For the assessment year 1968–69, the same was the position. This disallowance of Rs. 10,506 was on account of replacement and repairs of urinals, which was treated as not being on revenue account. The second claim was for repairs of boundary walls for which 20,000 bricks were used. This was also treated as a construction and not a repair. There was a further amount of Rs. 22,423 which was disallowed by the Income-tax Officer on the ground that no detalils were filed. This was sustained by the Appellate Assistant Commissioner. On going through the account, the Tribunal felt that some of these expenses were of capital nature and some of revenue nature. The Tribunal upheld that the sum of Rs. 15,000 was of capital nature and the balance was a revenue expenditure.

6. The assessee claims that all these sums, i.e, Rs. 4,190 and Rs. 710 for 1967–68 and Rs. 10,506, Rs. 3,876 and Rs. 15,000 for 1968–69 are all to be allowed as a revenue expenditure.

7. We have considered this from two points of view urged by learned counsel for the assessee. Firstly, it is contended that this amount has to be allowed under section 37 of the Act as expenditure not being in the nature of capital expenditure, but laid out or expended wholly and exclusively for the purposes of the business. It is urged that the assessee is only a lessee and not the owner of the cinema and, therefore, the amount in question cannot be treated as a capital expenditure.

8. The other contention is that this sum has to be treated on account of repairs, which are allowable in the case of this assessee. To take up the second point first. The relevant section is section 30, which allows certain rents, rates, taxes, repairs and insurance for premises, if the same is used for the purposes of business or profession. Sub-clause (a) reads:

“(a) where the premises are occupied by the assessee—

(i) as a tenant, the rent paid for such premises; and further if he has undertaken to bear the cost of repairs to the premises, the amount paid on account of such repairs?”

9. The contention of the learned counsel is that these expenses are to be allowed as repairs, as under the terms of the lease, the repairs have to be done by the tenant. Learned counsel has urged that all repairs have to be allowed whatever be their nature.

10. In this connection, it is necessary to note that the District Magistrate, Kanpur, had issused a letter dated December 30, 1965, annexure ‘C’, under rule 38 of the Uttar Pradesh Cinematograph Rules, 1951, directing that certain defects existed in respect of the cinema. These directions included the construction of an extra staircase, some verandahs to provide shelter to public going to buy tickets and some changes in the furniture. It was also stated:

“All the urinals and latrines should be repaired and porcelain pots with flush system should be provided in all of them.”

11. It is contended that the new urinals and latrines are replacements which amount to repairs. As the finding of the Tribunal is that this is not a repair, but is a capital expenditure being a replacement by something quite new, we cannot hold that the provision of urinals can be treated as a repair. Also, the sum of Rs. 3,876 on repairs of the boundary wall has been held to be construction of a new wall especially as 20,000 bricks were purchased for this purpose, we think this matter cannot be treated as repairs. The last contention is regarding the addition of Rs. 22,423 out of which a sum of Rs. 15,000 has been treated as a capital expense. Learned counsel showed us an account, which, according to him, showed that even the sum of Rs. 15,000 was on revenue account. As this is all a factual question, even if the finding is wrong, we cannot interfere with the same. We must take the break-up as correct as far as the answer to this question is concerned.

12. Turning now to the other alternative contention, namely, that the expenditure can be allowed under section 37 as a business expenditure, we have to first ascertain whether the expenditure is on revenue account or is on capital account. The learned counsel for the parties have cited a very large number of authorities bearing on this question. We may take it for granted that the expenditure incurred for the running of the cinema would be a revenue expenditure and expenditure incurred otherwise, i.e, for bringing into existence assets of an enduring benefit, would be treated as a capital expenditure. Whether the particular expenditure is to be treated as on capital account or on revenue account, will depend on the particular facts and circumstances of the expenditure under consideration. The authorities are only indicative of the proper approach to ascertain whether a particular expenditure is to be treated as a revenue deduction or it is to be treated as a capital expanse. In this particular case, a sum of Rs. 36,055 was treated as a revenue expenditure in the year 1967–68. Out of this expense, all has been allowed except a sum of Rs. 4,190 and Rs. 710. This is an expenditure incurred on replacement of the urinals. In a sense, as new urinals have been put up, this sum could not be treated as revenue expense because it is not an amount spent for the running of the cinema. However, as it is done under a direction issued by the District Magistrate as per order dated December 30, 1965, it has also to be treated as a revenue expense, being a necessary expense incurred in furtherance of the District Magistrate's order. Though the penalty for non-compliance is not mentioned in the order, we presume that if these defects were not removed, the licence could have been cancelled. So, the amount can be allowed as a revenue expense necessitated by the District Magistrate's order.

13. Turning to the year 1968–69, the three items are Rs. 10,506, Rs. 3,876 and Rs. 15,000. As far as the expense of Rs. 10,506 is concerned, it is on account of replacement of urinals. So, on the same argument, this can also be allowed being under the directions of the District Magistrate, Kanpur. The next item of Rs. 3,876 is on account of repairs to the boundary wall. This is a capital expenditure because as many as 20,000 bricks were used. So, the finding is that this is a new construction. Furthermore, there is nothing in the order of the District Magistrate regarding this wall, so this cannot be allowed. Similarly, the amount of Rs. 15,000 which has been treated as a capital expenditure cannot be allowed as a deduction because it cannot be related to the order of the District Magistrate. In any event, the finding is that this is on capital account.

14. The result is that we would answer the question for the assessment year 1967–68 in the negative, in favour of the assessee and against the Department. The sums of Rs. 4,190 and Rs. 710 have to be treated as a revenue expenditure. For the assessment year 1968–69, we would answer the question partly in the negative, in favour of the assessee and against the Department to the extent of the expenditure of Rs. 10,506, but in the affirmative regarding the amounts of Rs. 3,876 and Rs. 15,000. The sum of Rs. 10,506 would be allowable as a revenue expenditure, but the remaining two amounts are not deductible as revenue expenditure.

15. We would leave the parties to bear their own costs.