1. At the instance of Revenue, following questions have been referred for opinion of this Court by the Income-tax Appellate Tribunal, Delhi, Bench (in short, the 'Tribunal') under Section 256(1) of the Income Tax Act, 1961 (in short, the 'Act,):-
"1. Whether on the facts and in the circumstances of the case the ITAT was justified in holding that the expenses of Rs.121752/ incurred by the assessed in replacement of the air-conditioning plant was a revenue expenditure being in the nature of current repairs?
2. Whether on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the deduction of Rs.6000/- paid to the counsel as retainership fee was admissible to the assessed u/s 37(I) of the Income Tax Act?
Dispute relates to assessment year 1976-77.
2. Factual position in a nutshell is as follows:
assessed was carrying on business of running Volga Restaurant at Connaught Place New Delhi. On 12.6.75 business premises got damages because of a fire and the air-conditioner plant installed in the premises also got damaged. A sum of Rs.145516/ was claimed as expenses under the head "current repairs". Assessing Officer however allowed a sum of Rs.25563/- and treated the balance as capital expenditure. He was of the view that the plant was so extensively damaged that it was to be replaced and necessary components were supplied by M/S Voltas Limited. It was noted that the assessed had claimed Rs.6,000/- on account of legal charges which were paid to Mr.H.L. Chadha in addition to Rs.5170/- which was paid for appearance before the Income Tax authorities. Placing reliance on Section by CIT(A). The matter was carried in further appeal before the Tribunal which reversed the finding and directed deletion of addition of Rs.121752/- being of the view that the expense were revenue in character. Before the Tribunal, assessed's stand was that payment was made to Chartered Accountant and therefore Section 80VV had no application. Tribunal referred to the certificate issued by the retainer and held that disallowance was improper. Revenue's prayer for reference was accepted and the question as set out above was referred.
3. We have heard learned counsel for Revenue. There is no appearance on behalf of assessed. According to learned counsel for Revenue, the Tribunal's order is misconceived. The expenditure which was incurred was capital in nature considering the fact that there was practically replacement of damaged air-conditioning plant. The amount in question should have been held to be capital expenditure. So far as the question relating to applicability of Section 80VV is concerned it was submitted that the retainer's job is not merely advisory and has linkS with appearance of the assessed before the authorities and therefore disallowance should have been sustained.
4. Section 31 of the Act applies to repairs, insurance, machinery, plant and furniture. The said provision reads as follows:
31. Repairs and insurance of machinery, plant and furniture- In respect of repairs and insurance of machinery plant or furniture used for the purposes of the business of profession, the following deductions shall be allowed-
i) the amount on account of current repairs thereto;
ii) the amount of any premium paid in respect of insurance against risk of damage or destruction thereof.
The requirement is that amount in order to be eligible for deduction should have been spent on current repairs. The provision corresponds to Section 10(2) of the Indian Income Tax Act 1922 ( in short, the Old Act). Section 30 deals with deduction of certain expenditure on the business premises, section 31 provides for deduction of certain expenditure in respect of machinery and plant used for the purpose of his profession. The Apex Court in Ballimal Naval Kishore vs Commissioner of Income-tax 1994(224) ITR 414 had occasion to consider as to what is the meaning of expression "current repairs". The view expressed by the Bombay High Court in New Shorrock Spinning & Mfg Co Ltd v. CIT (1956) 30. ITR 338 were endorsed.
5. The expression "current repairs" means expenditure on building machinery, plant which is not for renewal or restoration. It is only for preserving or maintaining an already existing asset which does not bring a new asset into existence or does not give to the assessed a new or different advantage and they must be such repairs as are attended to as and when the need for t hem arise and that 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. As was observed by Bombay High Court in the last quoted case, 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 he 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.
6. Coming to the facts of the case, it has to be noted that the Tribunal has recorded the following finding on the factual aspects.
"We have carefully considered the submissions urged on both sides and perused the papers placed before us in the light of the authorities referred to above. From the details placed before us, it is clear that the assessed had entrusted the job of re-starting its air conditioning plant to Voltas Ltd but at the same time it had not given the entire work to Voltas Ltd. Rs., 75804/- was paid to Voltas Ltd for repairing and replacing the air conditioning plant and restarting it. The other equipments required for restarting the air conditioning plant were acquired by the assessed itself such as two electric motors from M/s Seimens India Ltd for Rs. 9838/- three pumping sets for Rs.6465/- from M/s Rajasthan Krishi Udyog, six starters for Rs.6122 from Naval Electric & Machinery Stores. Apart from the above the assessed had spent a sum of Rs. 2792 for electric wiring etc Rs. 17656 was spend for repairing the furnishings as could be seen from the amount paid to M/s. Continental Furnishers. The assessed had also paid Rs. 4283/- to Behari Lal Sons Co for pipes supplied by them and it also spent a sum of Rs. 1041/- on plastering and Rs. 1523/- for wall photographs. Thus, it would be seen that the various items of expenditure were incurred by the assessed by way of replacement and repairs of the damaged parts of the air conditioning plant of its restaurant where some of the parts of the air conditioning plant, such as electric motors, pumping sets etc were completely damaged, the assessed had to remove them and replace them with new motors and new pumping sets, starters etc. But that does not mean that what the assessed put up was an entirely new air conditioning plant after scraping the old plant which was damaged in the fire as a total loss. The materials placed before us clearly establish that the assessed had tied to retain as much as possible of the existing air conditioning plant which was not damaged by the fire and tied to restore the same by replacing the damaged parts of the plant with new parts of machinery of the plant. The order of the Commissioner of Income-tax (A) shows that the cost of providing a new air conditioning plant of 27.5 tons would approximately be Rs. 2,15,000/-. In the light of the above fact it would be clear that the expenses incurred by the assessed were only in the nature of revenue expenditure incurred for the purpose of repairing and restoring its damaged air conditioning plant to its original working condition."
Applying the test laid down by the Apex Court, we are of the considered opinion that the Tribunal's view is in order. The answer to the first question is in the affirmative in favor of the assessed and against the revenue.
7. Coming to the second question, Section 80VV which was deleted by Finance Act, 1995 w.e.f. 1.4.1986 read at the relevant time as follows:
80VV. Deduction in respect of expenses incurred in connection with certain proceeding under the Act.--In computing the total income of as assessed there shall be allowed by way of deduction any expenditure incurred by him in the previous year in respect of any proceedings before any income-tax authority or the Appellate Tribunal or any Court relating to the determination of any liability under this Act by way of tax penalty or interest.
Provided that no deduction under this section shall, in any case, exceed in the aggregate five thousand rupees."
For the assessment year 1976-77 to 1985-86, the section permitted deduction of Rs. 5000/- in respect of an expenditure incurred by the assessed in the relevant accounting year in respect of proceedings under the Act before the Income-tax authority or the Tribunal, or any Court relating to the determination of any liability under the Act by way of tax, penalty or interest. The Tribunal had noted that the amount was paid as retainer fee and was not relatable to any proceedings for determination of any liability under the Act by way of tax, penalty or interest. That being the factual conclusion, answer to the second question is in the affirmative in favor of the assessed and against the revenue.