Holding

The expenditure of Rs 1,61,742 was revenue in nature and deductible under section 10(2)(xv) of the Income‑Tax Act.

Summary

Kalyanji Mavji & Co., a coal mining firm, owned several collieries, one of which (South Samia Colliery) was requisitioned by the military from 1942 to 1955. During the occupation the firm paid surface rent, royalty and watch‑ward salaries, which were allowed as business expenses. After the colliery was derequisitioned, the firm spent Rs 1,61,742 on renovating the building, reconditioning machinery and clearing debris to resume mining and claimed a deduction under section 10(2)(xv) of the Indian Income‑Tax Act, 1922. The Assessing Officer disallowed the claim as capital expenditure; the appellate authorities affirmed. The Calcutta High Court held the expenditure was revenue in nature and deductible. The Revenue appealed to the Supreme Court, arguing that only "current repairs" under s.10(2)(v) were deductible and that the High Court had no jurisdiction to re‑appraise facts. The Supreme Court affirmed the High Court, stating that the expenditure was incurred wholly for the purpose of carrying on an existing business, was not a new asset, and therefore revenue in character, deductible under the residuary clause s.10(2)(xv). The appeal was dismissed with costs.

Issues considered

Whether the expenditure incurred on renovation, reconditioning and debris removal after military derequisition is capital or revenue in nature.
Whether deduction can be claimed under section 10(2)(v) (current repairs) or under the residuary clause section 10(2)(xv).
Whether the High Court had jurisdiction to re‑appraise the facts and determine the nature of the expenditure.

Legislation cited

Income Tax Act, 1922s. 10(2)(v), s. 10(2)(xv), s. 66A(2)

Subjects

income taxcapital expenditurerevenue expendituresection 10(2) deductioncurrent repairsresiduary clausecollierymilitary requisitionbusiness expense

Judgment

758

COMMISSIONER OF INCOME-TAX, WEST BENGAL-IT,
CALCUTTA
v.
KALYANJI MAVJI & COMPANY
January 14,. 1980
B
[N. L. UNTWALIA AND R. S. PATHAK, JJ.]

Indian Income 1ax Act 1922 (11 of 1922), Ss. 10(2)(v) & 10(2)(xv)-
Assessee d1Jing business in coal-Working various collieries--One colliery requi~
sitioned for n1ilitary use-Later cferequisitioned-Expenditure incurrred far re~
suniing operation of Colliery-Whether capital or revenue expenditur~.
c '
The respondent~asses.&ee carried on business in coal as the owner of various
collieries. One of the collieries, was' occupied by the niilitary from 1942 until
it was derequisitioned in 1955. During that per)od the assessee did not work
the said colliery : M.though the business in coal and working of the other
collieries were carried on. While the colliery remained under military occupation
the assessee incurred expenditure in respect of the colliery on account of payment
D of surlaco rent, minimum royalty and; sala•ry for the watch and ward staff, which
expenditure was claimed and allo\ved as business expenditure\ of the assessee.
After the colliery was handed over to the assessce upon dorequisiticn the
assessee incurred an expenditure of about Rs. 1.6 lakhs in renovating the build~
ing, reconditioning tha machinery and. clearing the land of all debris accumulated
over a number of years.
E
In the assessment proceedings for the assessment year 1959-60 th~ a8Se,s.iee
claimed deduction of the aforesaid amount under section 10(2) (xv) of the
Indian Income Tax Act. The deduction was disallowed by the Income! Tax
Officer on the ground that the expenditure was capital in nature~

The appeals by the assesseei to the Appellate AssistMlt' Comn1issioner and the
/
/
Income Tax Appellate Tribunal were dismissed.

In the reference to the 1-Iigh Court· at the instance of the ·assessee 'the High
Court observed that the business of the assessee had to be considered as a
wholei and not on the basis1 of its different sources of supply or units of produc-
tion, and held thM: on the facts admitted and found it could not be said that
any fresh asset had been acquired by the assessee by spending Rs. 1.6 lakhs
G and that the expenditure: was incurred by the assessee for the purpose of carrying
on an existing concern. The expenditure was, therefore, in the nature of a \
·revenue expenditure. ,'..-

In the appeal by the Revenue to this Court, it wao contended : (a) where
repairs are effected to buildings and machinery a deduction under section 10(2)
is permissible only in respect of "current r~pairsl' and, repairs which are not
H 1
' current repa-irs" are not intended to be the subject of relief, (b) the repairs
made by the assessee cannot be described as "current repairs", and (c) if section
10(2) (v) is the relevant clause, being the specific provision in respect of expendi-
C.!.T. V. KALYANJI MAVJI 759

ture on "current repairs" to buildings and machinery, there is nu justifiration
for relying on section 10(2)(xv) a residuary clause.
Dismisoing the appeal,
HEI.D: I. The High Court Wa.9 right in holding that the expenditure was
• eot of a carital nature. [764 EJ
2. The expenditure of Rs. 1.6 Jak.hs was expenditure laid out. as part of the B
process of profit earning. The nature of tho expenditurr. was clearly revenue
in characfer. (764 DJ
3. There can be little doubt that the expenditure incurred was incidental to
the business of the assessee. It was involved in renovating the buildings, recondi·
tioning the m&.<::hinefy and clearing the debris~ fron1 the land, for the purpose
of resuming the operation of the co1liery. The expenditure \Vas laid out wholly
for the pUrpQSe of the business. [763 DJ c
4. There must be stroug evidence that in, the case of repairs which arc not
"current repairs'' the Legisl<c1ture intended a depc:·rturc from the principle that
an expenditure iaid out or expended wholJy and exclusively for the purposes of
the business, and which expenditure is not capital in n<:.•ture, should not be
allo'ved in computing the incon1e from business. There is nothing in the language
of section 10(2)(v) \vhich declares or necessarily implies that repairs, other than, D
"current repairs", will not qualify for the benefit of that principle. On accepted
commercial practice anJ trading principles an item of business expenditure must
be deducted in order to arrive at the true figure of profits and gains for ta·x
' purposes. [762 G-763 AJ
C.l.T. v. Chitnis 50 I.A. 292; Mo'tipur Sugar Facto1y Ltd.. v. C./.T. Bihar
and Orissa, 28 I.T.R. 120; Devi Fibns Ltd. v. C.l.T. /rrfadras, 75 I.T.R. 301;
E
Badrldas Daga v. C.1.T. 34 I.T.R. 10, 15; Calcutta Co. Ltd. v. C.l.T. rv·csl
Bengal, 37 I.T.R. 1, 9; Ihe Law Shipping Co. Ltd. v. Con1111issioners of Inland
Revenue 12 Tax Cases 621, 625 referred to.
The scope of Sectien !0(2)(xv) should be construed liberally. [763 BJ
Jn the instant case even if the expenditure n1ade by the assessee cannot b~
d~cribed as "current repairs" he is entitled to invoke' the benefit of s. 10(2) (xv). F
[763 CJ
5. \Vhether a·n expenditure can be described as capital or revenue falls to
be decided by several ti?'sts, each one of which approaches the question from
oae perspective or another, conditioned by the particular facts of each case.
[763 FJ
Assam Bengal Cement Co. Ltd. v. C.l.T. West Btngal (1955) 27 I.T.R. 34 G
referred to.

In the instant case the business of the as.Sessee· was coal mining and it was
carried on by th~ Operation of a networ~ of collieries. Each colliery was a unit
of production. \\'hile the several units of production continued to be employed
and the business continued to be carried on, one alone of all the units, was
compelled to suspend production. The suspension was due to the property be.ing H
requisitioned for military use. As soon as it was derequisitioncd the a'8CS"See
I l-9ISCil80
760 SUPREME COURT REPORTS [1980) 2 S.C.R.

A took measures to resume production of coal. The buildings were renovated, the
machinery reconditioned and the accumulated debris removed from the la.nd ''
No new as~ct was brought into existence, no advantage for the enduring benefit
of the business 'vas acquired. The activity which was continuously in operation
but had been te1upora1y suspended was resumed. [763 G-764 CJ

OyIL APPELLATE JURISDICTION : Civil Appeal No. 2098 of 1972
B
From the Judgment and Order dated 5-8-1971 of the Calcutta High
Court in Income Tax Rderence No. 109 /65.
D. V. Patel, ]. Ramamurthy and Miss A Subhashini for the
Appellant.
c S. R. Banerjee, Mrs. lndu Goswamy and Arvind Minocha for the
Respondent.
The Judgment of the Court was delivered by

PATHAK, J. : This appeal by certificate granted by the High Court
D at Calcutta under s. 66A(2) of the Indian Income-tax Act, 1922 is
directed against the judgment dated August 5, 1971 of that High
Court disposing of an income-tax reference. )

The respondent asscssee is a registered firm and owns several col-
lieries in West Bengal and Bihar. One of the collieries is known as
E the South Samia Colliery. The South Samia colliery was under mili-
tary occupation from 1942 and was released in 1955. During the
period of military occupation the assessee incurred expenditure on
account of minimum royalty payable in respect of the coJ:iery, the sur·
face rent and salaries for the watch and ward employees. The ex-
penditure was allowed in income-tax proceedings as a business ex-
F penditure. After the colliery was released by the military, the assessee
incurred n further expenditure amounting to Rs. 1,61, 742 on the col-
liery with a view to resuming mining OJX'rations. The expenditure
was incurred during the previous year beginning October 24, 1957 and
ending November 11, 1958 relevant to the assessment year 1959-60.
G In the assessment proceedings for that assessment year the assessee
claimed a deduc'ion of the amount of Rs. 1,61,742 under s. 10(2)
(xv) of the Indian Income Tax Act, but the deduction was disal1owed
by the Income-tax Officer on the ground that the expenditure was
capital in 'nature. On apJX'al, the Appe:late Assistant Commissioner
affirmed that the expenditure was in the nature of capital expenditure.
H The assessee proceeded in second appeal, but the Income Tax Appel-
late Tribunal, without giving any reasons of its own, merely recorded
itE agreement with the income-tax authorities. The assessee obtained
C.I.T. v. KALYANJ! MAVJ! (Pathak, !.) 7 Gi

a reference to the High Court at Calcutta for its opinion ob the follow· A
ing question :
"Whether on the facts and circumstances of the case, the
Income-tax appellate Tribunal was justified in holding that
the expenditure claimed on the South Samla Colliery at
Rs. 1,61,742 was capital in nature."
B.
Th~ High Court noted the following facts :

-~
The assessee carried on busihess in coal as the owner of various
collieries. The South Samia Colliery, which was one of them, was
.1 occupied by the military from 1942 until it was derequisitioncd in
" 1955. During that period the assessee did not, because hei c
could not, work the colliery. He continued, however, carrying
on hie business in coal and working other collieries during
that period. While the South Samia Colliery remained under military
occupation the assessee incurred expenditure on payment of surface
rent and minimum royalty in respect of that colliery and also on
account of salary for the watch and ward staff. The expenditure had D
been claimed and allowed as business expenditure of the assessee.
After the colliery was handed over to the assessee upon derequisition,
the assessee incurred, during the relevant period, an expendi'.ure of
Rs. 1,61,742 in renovating the bnil\ling, reconditioning the machinery
and clearing the land of debris accumulated over a numrer of years.
E
The expenditure of Rs. 1,61,742 consisted of Rs. 66,937 spent on the
staff and labour force by way of salaries, wages and other benefits and
an amount of Rs. 94,805 spent on the purchase of various stores,
machinery repairs, dhowrah repairs etc. This expenditure had to be .
incurred by the assessee for the purpose of putting the machinery in
working order and bringihg the colliery to a state where the mining F
operations could be resumed. The colliery had not started working
and mining operations had not been resumed . during the relevant
year.

The High Court observed that the assessee was carrying on its
business throughout and the circumstance that one of the collieries was
• G
not being worked did not affect the carrying on of that business. The
--'. . business of the assessee, the High Court said, had to be considered as
a whole and not on the basis of its different sources of snpr~Y or uuits
of production. The High Court held that on the facts admitted and
fon:nd it could not be said that any fresh asset had been acquired by
the assessee by spending Rs. 1,61,742. The expenditure, it observed, H
was incurred by the assessee for the purpose of carrying on an exist-
ing concern and not for acquiring any concern not in existence. Ac-
SUPREME COURT REPORTS [1980] 2 S.C H.
'
762

cordi'ngly, it held that the expenditure was in the n&ture of revenue ex-
penditure and, therefore, answered the question in favour of the )
assessee.
In this appeal the first con:ention raised by the Revenue is that
the High Court had no jurisdiction to re-appraise the facts and there-
B fore its finding on th~ nature of the expenditure is vitiated. The con-
tention is without substance. The facts on which the High Court has
relied are admitted between the parties or are facts found by the in-
come-tax authorities. We have no hesitation in rejecting the first
contention.

c The second contention is that the claim of the assessee must be \
considered with reference to s.10(2) (v) and not s.10(2)(xv) of tho
Act. It is urged that if s.10(2) (v) is the relevant clause, being the
specific provision in respect of expenditure on current repairs to build-
ings nnd machinery, there is no justification for relying on s.10(2)(xv).
S. 10(2) (xv) is a residuary clause, and deals with expenditure not be-
D ing an allowance of the 'nature described in any of the preceding
clauses of s.10 (2). The submission is that where repairs are effected
to buildings and machinery a deduction under s.10(2) is permissible
only in respect of curo~nt repairs, and repairs which are not "curre·nt
repairs" are not intended to be the subject of relief. The Act, it is
conte'nded, limits the repairs to "current" repairs. Th·~ repairs made
by the assessee, it is said, cannot be described as "current repairs".
Now, this contention rests on the principle; that if a special rrovision
covers the case, resort cannot be had to a general provision. It seems
to us that if the renovation of the building. the reconditioni'ng of machi-
nery and the removal of debris cannot be described as "current re-
F pairs"-and we assume that to be so--the case would be entitled to
consideration under s.10(2)(xv). Section 10(2) (v) deals with cur-
rent repairs only. The subject matter of s.10(2) (v) is "current
repairs" a'nd it appears· difficult to agree that repairs which are not
"current repairs" should not be considered for deduction on general
princiQles or under s.10(2) (xv). There must be very strong evidence
G that in the case of such repairs, the Legislature intended a departure
from the principle that an expenditure, laid out or expended wholly
and exclusively for the purposes of the business, a'nd which expendi-
ture is not capital in nature, shoud not be allowed in computing the
income from business. There is nothing in the language of s.10(2)
(v) which declares or necessarily implies that repairs, other than,
H current repairs, will not qualify for the benefit of that principle. We
must remember that o'n accepted commercial practice and trading
principles an item of business expenditure must be deducted in order
...
C.I.T. v. KALYANJI MAVJI (Pathak, J.) 763

to arrive at the true figure of profits and gains for tax purposes. The A'
rule was held by the Privy Council in C.l.T. v. Chitnis(') to be appli-
cable in the case of losses, and it bas been applied by the courts in
India to business expenditure incurred by an assessee. Motipur Sugar
Factory Ltd. v. C.I.T., Bihar and Orissa(') and Devi Films Ltd. . v.
C.I.T. Madras('). The principle found favour with this Court in
Badridas Daga v. C.I.T.( 4 ) and Calcutta Co. Ltd. v. C.I.T. West Ben- B
zal(5). If the contents of that rule be true on general principle, there
·.~ is good reason why the scope of s.10(2) (xv) should be construed
liberally. In our opinion, even if the expenditure made by the asseswe
!
in the present case cannot be described as "current repairs", he is en-
" titled to invoke the benefit of s. 10(2) (xv). We may mention that
in The Law Shipping ·ca. Ltd. v. Commissioners of Inland Revenue(')
c
it has been held that accumulated arrears for repairs are none the less
repairs necessary to earn profits, although they have been allowed to
accumulate.
The question then is whether s.10(2)(xv) is attracted. There can
be little doubt that the expenditure incurred is incidental to the busi- D
ness of the assessee. It was involved in renovating the buildings, re-
conditioning the machinery and clearing the debris, from the land. All
the work done was for the purpose of resuming the operation of the
colliery. The expenditure was laid out wholly and exclusively for the
purposes of the business. We do not think there can be any dispute
as to that. E

But the more serious question is whether the expenditure can be
regarded as capital in '.nature, for if that be so the benefit of s.10(2)
(xv), o.-i its plain ternis, must be denied. Now, whether an expendi"
ture can be described as capital or revenue falls to be decided by seve-
ral ~osts, each one of which approaches the queGtion from one pers- F
pective or another, conditioned by the particular facts of each case.
We need not refer to all of them. On the facts of the present case, it
seems sufficient to mention the tests laid down by this Court in Assam
Bengal Cement Co. Ltd. v. C.I.T. West Bengal('). The business of the
' assessee in the present case was coal-mining, and it was carried on by
the operation of a network of collieries. Each colliery was a unit o~ G
production. While the several units of production continued to be
(!) 59 I.A 297.
(2) 28 l.T.R. 120.
(3) 75 l.T.R. 301.
(4) 34 l.T.R. 10, 15.
(5) 37 l.T.R. 1, 9.
• <(G) 12 Tax Cases 621, 625 .
17) [1955] 271.T.R. 34.
764 SUPREME COURT REPORTS [1980) 2 S.C.R.

1A employed· and the business continued to be carried on, one alone of
the units, the South Samla Colliery was compelled to suspend produc-
tion. The suspension was expected to be of temporary duration, b~
cause the property was merely requisitioned for military use, it was not
acquired. As soon as the property was de-requisitioned, the assessee
took measures to resume production of coal. It was necessary to re-
B move the impediments which had come in the way by reason of the
temporary suspension of work. The buildings were renovated, the
machinery reconditioned and the accumulated debris removed from the
land. The colliery was, in a word, reinstated to the condition neces-
sary for ensuring production. No new asset was brought into exis-
tence; no advantage for the enduring benefit. of the business was ac-
c quired. Ail activity which was continuously in operation but had been
temporarily suspended was to be resumed. It is imm:rterial that during
the year under consideration there was no m!ning activity. That the
colliery was regarded as an asset of a continuing business all along,
even during the period of military occupation, is evidenced by the fact
D that expenditure incurred by the assessee during that period in respect
of the colliery was allowed as a permissible deduction ih its income tax
assessments. The expenditure of Rs. 1,61,742 under consideration in
the present case was also expenditure laid out as part of the process of
profit earning. The nature of the expenditure is clearly revenue in
character. The High Court is right in holding that the expenditure is·
E not of a capital nature.
The appeal is dismissed with costs.

N.V.K. Appeal disJ01i.1•rcl .

•