H.R. KHANNA C, J.

( 1 ) THE following question has been REFERRED TO this Court under section 256 (1) of the income tax Act, 1961. "whether on the facts and in the circumstances of the

case, the expenditure of Rs. 9,418. 00is a permissible deduction"

( 2 ) THE statement of the case relates to the assessment year 1962-63. The

relevant previous year ended on 31/12/1961. Jagat Cinema (Bareilly), the

assessee, is a partnership firm. The assessee took Cinema Hall,known as Jagat

Cinema, with shops and out houses situated in Bareilly on lease under a lease deed

dated 20/12/1957. The period of the lease began from 1/01/1957 and terminated

on 31/12/1961. Clauses (6), (10) and (11) of the lease deed read as under:-" (6)

That on the termination of the lease, the lessee will be entitled to remove his

Talkie equipment with its wiring and all fittings and furnitures and deliver possession

to the lessor without any damage to the building whatsoever. (10) That the Lessee

will keep the fixture, decoration etc. , in good condition and in order and will allow the

lessor or his nominee to inspect his property any time except at the time of actual

show. The lessee will replace all shortages, breakages etc. , with due expeditions.

(11) That the repairs of the building will be made by the lessee and the annual

whitewashing and painting etc. , will be made by the lessee at his own cost according

to their taste, but the lessor will contribute Rs. 120. 00 (one hundredtwenty)

annually towards white washing and painting to the lessee. "

( 3 ) DURING the relevant previous year the lintel near the stage of the cinema hall

collapsed as a result of which damage was caused to the screen and the stage. The

lintel was reconstructed by the assessee in pursuance of the aforesaid terms of the

lease deed. While reconstructing the stage and the screen, the assessee increased

the dimensions. Rs. 11,418. 00 were spent by the assessee on the above

construction and be claimed that amount as a permissible deduction. In answer to

the query of the Income-tax Officer regarding the increase in the expenditure under

the head "repairs and renewals the assessee wrote as under: the expenditure under

this head last year was Rs 1,716. 00, while this year it is Rs. 11,418. 00. Similar

normal expenditure this year is about Rs. 2,000. The rest of the expenditure relates

to the alteration and replacement of the stage in to a large size than what it was

before and replacement thereof. The stage had fallen off. The cinema was closed for

7 day for alteration and repair from 13-3 to 17-3. Thus no new asset was created by

these expenses. The stage was already there. Mere alteration thereof does not create

any new asset. The expenses have taken the character of revenue nature only ".

( 4 ) THE Income-tax Officer allowed Rs. 2,000. 00 out of the total expenditure and

disallowed the balance of Rs. 9,418. 00 on the following ground:-"the assessee has

filed a written explanation in which it has been stated that the normal expenditure in

this year is about 2,000 and that the rest of the expenditure relates to the alteration

and replacement of the stage into a larger size. It has further been contended that

the stage has fallen off, and that the cinema had to be closed for 7 days for new

alteration. It was contended by Shri Aiyer that no new asset has come into existence

and that this should be allowed as ordinary repairs and renewals. The assessee

himself has stated that in place of old stage, a new and bigger stage was made.

This clearly goes to show that a new asset has come into existence and, therefore,

the amount of Rs. 9,511 is treated as capital expenditure and disallowed. "

( 5 ) ON appeal the Appellate Assistant Commissioner upheld the finding of the

Income tax Officer that the expenditure in question was of a capital nature as a

newasset or improvement had come into being in the shape of a new stage, new

screen and a new flooring. The assessee then took the matter in appeal to the

Income-tax Appellate Tribunal. The Tribunal REFERRED TO the provisions of section

10 (2) (ii) and 10 (2) (v) of the Income-tax Act of 1922 and observed: in our

opinion, section 10 (2) (ii) applies to the case of premises held by an assessee as

a tenant while section 10 (2) (v) applies to the case of a building held by an assessee

as an owner. The reason for using different expressions viz. ,repairs in section 10

(2) (ii) and "current repairs in section 10 (2) (v) is not far to seek in the case of a

building owned by an assessee, the expense incurred for anything beyond current

repairs would be of a capital nature, while in the case of premises held by an

assessee as a tenant, repair expenses incurred in pursuance of a term of the lease

deed cannot, speaking broadly, be said to be of a capital nature inasmuch as the

assessee does not normally thereby acquire any interest or benefit of an enduring

nature. Such a repair would appear to form a part and parcel of the consideration of

rent agreed to be paid for the use and occupation of the property. "

( 6 ) IT was further observed. "5. The only point that remains to be considered is

whether the repair expense, even to a limited extent, can be said to be of a

capital nature. It has been pointed out that the stage has been widened and the

screen has been enlarged. Unless the construction brings a benefit of an enduring

nature to. the assessee, or unless it changes the identity of the property, it cannot be

categorized as a capital construction. So far as the question of the change of the

identity of the property is concerned, one has to look to the building as a whole and

not to the part which is reconstructed. It is possible to say in the present case that

the cinema theatre has lost its identity and that new asset has come into existence

simply because the stage and the screen have been enlarged. We have hence

to consider whether the enlargement of the stage and the screen can be said to bring

a benefit of an enduring nature to the assessee. We are ata loss to understand how

the enlargement of the stage is of any significant value to the assessee who exhibits

pictures in the building. Perhaps the position may have been slightly different if the

assessee were a dramatic company. We also fail to appreciate how the enlargement

of the screen has formed a benefit of an enduring nature to the assessee. "

( 7 ) THE Tribunal arrived at the conclusion that no portion of the expenditure

incurred by the assessee could beheld to be of a capital nature. The assessees

claim for allowing the deduction of the balance amount of Rs. 9,418 was accordingly

allowed. The question reproduced above was thereafter REFERRED TO this Court

atthe instance of the Revenue.

( 8 ) AT the time of the hearing of the case, the learned counsel for the parties are

agreed that as the matter relates to the assessment year 1962-63, it would be

the provisions of the Income-tax Act of 1961 which would apply. All the same it is

conceded that there is no material difference in this respect in the provisions of the

Act of 1922 and those of the Act of 1961. According to section 30 of the Income-tax

Act of 1961 the deduction on account of repairs of premises occupied by anassessee

as a tenant and used for the purpose of business or profession is permissible "if he

(the assessee tenant) has undertaken to bear the cost of repairs to the premises. The

extent of the deduction is "the amount paid on account of such repairs". The

question with which we are concerned is whether the entire amount of Rs. 11,418.

00 spent by the assessee can beheld to be the amount paid on account of repairs.

In this respect we find that the amount of Rs. 11,418. 00 was spent not merely on

the reconstruction of the lintel and the restoration of the stage and screen which

had been damaged as a result of the collapse of the lintel but also on the widening of

the screen and the stage. The amount to the extent it was spent on the

reconstruction of the lintel and the restoration of the screen and stage to the state in

which the lintel, screen and stage were before the wearing out and collapse of the

lintel, can legitimately be held to have been incurred on the repairs. Any amount,

which was spent over and above that for the purpose of the widening of the screen

and the stage, cannot be held to have been expended on repairs. The dictionary

meaning of the word "repair" as given in Shorter Oxford English Dictionary, is "the

act of restoring to a sound or unimpaired condition; the process by which this is

accomplished. Restoration of some material thing or structure by the renewal of

decayed or worn out parts, by refixing what has become loose or detached". In the

case of Highland Railway v. Special Commissioners of Income Tax, 2 Tax Cases 485

the railway had relaid a portion of the main line and in doing so had substituted steel

rails of greater weight for the previous iron rails. No question was raised as to the

cost of relaying the rails except as regards the additional weight and cost of the

improved rails as compared with the original 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. The lord President, in rejecting the companys contention, said "it must be

kept in view that this is not a mere relaying of 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 the whole line". The above case was relied upon by their Lordships

of the Judicial Committee in the case of Rhodesia railways, Ltd. , v. Income-tax

Collector, Bechuanalard Protectorate, (1933) 1 ITR 227 and it was observed: the

contrast between the cost of relaying the line so as to restore it to its original

condition and the cost of relaying the line so as to improve it is well brought out in

the passage just quoted, and while the former is recognized as a legitimate charge

against income the extra cost incurred in the latter case in the improvement of the

line is equally recognised as a proper charge against capital".

( 9 ) IN view of the above, we are of the opinion that so much of the amount as was

spent for the widening of the screen and the stage, can be considered to have been

incurred for the purpose of effecting improvements. It cannot, however, be said to

have been spent for repairs.

( 10 ) THE above finding would not, however, settle the matter. According to subsection (1) of section 37 of the income-tax Act of 1961, any expenditure (not

being expenditure of the nature described in sections 30 to36 and not being in the

nature of capital expenditure or personal expenses of the assessee), laid out or

expended wholly and exclusively for the purposes of the business or profession shall

be allowed in computing the income chargeable under the head "profits and gains of

business or profession". It is not disputed by Mr. Kirpal, on behalf of the Revenue,

that the entire amount of Rs. 11,418. 00 was expanded wholly and exclusively for

the purposes of the business of the assessment that other conditions contemplated

by the above provision except in one respect, to which reference would be made

hereafter, are fulfilled. The contention of Mr. Kirpal, however, is that the amount to

the extent it was spent for the purpose of widening the screen and stage was in the

nature of a capital expenditure and as such the assessee cannot claim deduction

to that extent under sub-section (1) of section 37 of the act. In this connection we

are of the view that if the assessee had been the owner of the cinema building, the

above amount would have been characterised as capital expenditure. The same

would have been the position if the assessee, though not an owner of the cinema

building, was to retain its possession as a lessee for some years after the year in

which the amount was spent. Where, however, as in the present case the

expenditure was incurred for the widening of the screen and stage in the last year of

the lease, the expenditure cannot be held to be one in the nature of capital

expenditure. There is nothing to show that the lessee was entitled to remain in

possession of the cinema building on the expiry of the period of lease or that he in

fact continued in possession of that building after the expiry of the above period. It

has also. not been shown to us that the lessee was entitled to any compensation

from the lessor for the improvement effected by the assessee in the widening of the

stage and screen. As the expenditure made for the widening of the screenland stage

did not bring into existence an asset or advantage for the enduring benefit of the

business of the assessee it cannot be deemed to be a capital expenditure. The

border line between revenue and capital expenditure, though very thin and

sometimes blurred and baffling, is not very elusive. It yields to close examination and

admits of being discerned and delineated. In deciding the question as to whether a

particular expenditure is in the nature of a capital expenditure or not for the purpose

of section 37, we have to look to the nature of expenditure, the purpose and object of

incurring it and more especially whether the business or profession of the assessee

would have a benefit of enduring nature as a result of that expenditure. If the

business or profession of the assessee does not derive a benefit of enduring nature

from the incurring of the expenditure, it would not be excluded from the permissible

deduction REFERRED TO in section 37 of the act. The above rule only enunciates the

broad approach; ultimately each case would have to be decided on its facts within

the frame work of that approach and in the light of the basic principle. As

observed by Viscount Radcliffe in Commissioner of Taxes vs. Nchanga Consolidated

Copper Mines Ltd. , (1965) 58. T. R. 241 "all these phrases, as, for instance,

enduring benefit or capital structure are essentially descriptive rather than

definitive, and, as each new case arises for adjudication and it is sought to reason by

analogy from its facts to those of one previously decided, a courts primary duty is to

inquire how far a description that was both relevant and significant in one set of

circumstances is either significant or relevant in those which are presently before it. "

( 11 ) IN the case of Assam Bengal Cement Co. Ltd. vs Commissioner of Income-tax

West Bengal, (1955) 27 ITR34 their Lordships of the Supreme Court, while dealing

with the question of revenue expenditure and capital expenditure, observed: if the

expenditure is made for acquiring or bringing into existence an asset or advantage for

the enduring benefit of the business it is properly attributable to capital and is of

the nature of capital expenditure. If on the other hand it is made not for the purpose

of bringing into existence any such asset or advantage but for running the business or

working it with a view to produce the profits it is a revenue expenditure. If any such

asset or advantage for the enduring benefit of the business is thus acquired or

brought into existence it would be immaterial whether the source of the payment

was the capital or the income of the concern or whether the payment was made once

and for allor was made periodically. The aim and object of the expenditure would

determine the character of the expenditure whether it is a capital expenditure or a

revenue expenditure. The source of the manner of the payment would then be of

no consequence. "

( 12 ) IN the light of the above observations and the facts of the present case we are

of the opinion that the expenditure in question cannot be held to be a

capital expenditure as the object of the incurring of that expenditure was not to bring

into existence an asset or advantage for the enduring benefit of the business of the

assessee. The assessee as such would be entitled to claim the amount of expenditure

for widening the screen and stage as permissible deduction under subsection (1) of

section 37 of the Income Tax Act of 1961.

( 13 ) WE would, therefore, answer the question, referred to this Court, in the

affirmative, in favour of the assessee. Looking to all the facts, we leave the

parties to bear their own costs.