1. This is a reference under Section 256(1) of the I.T. Act, 1961 (hereinafter called " the Act "), by the Income-tax Appellate Tribunal, Hyderabad Bench, for the opinion of this court on the following question of law :
" Whether, on the facts and in the circumstances of the case, the expenditure of Rs. 15,851 incurred by the assessee in replacement of motor engine is allowable as revenue expenditure in computing the assessee's income from business ? "
2. We may notice the material facts, which lie in a short compass, as disclosed in the statement of case. The applicant-assessee is a firm carrying on business in the manufacture and sale of beedies. During the accounting year, corresponding to the assessment year 1972-73, the assessee incurred an expenditure of Rs. 15,851 by way of replacement of an old diesel engine of its motor van which was used and kept for its own business, by a new diesel engine. The assessee claimed deduction of this expenditure in the computation of its income on the ground that it was a revenue expenditure. The written down value of the van in question at the commencement of the accounting year was Rs. 9,727. Having regard to the written down value of the vehicle, the expenditure claimed by the assessee could not be considered by the ITO as revenue expenditure but it was treated as of a capital nature. He, therefore, disallowed the same on the ground that the magnitude of expenditure involved bears out eloquently that there has been a substantial replacement effected by the assessee. However, depreciation on the sum of Rs. 15,851 was allowed to the assessee. The appeal to the AAC was unsuccessful. In the further appeal to the Income-tax Appellate Tribunal, the assessee reiterated its claim that the expenditure incurred in replacing the diesel engine by another diesel engine was an allowable deduction as it was a revenue expenditure and not capital expenditure and it at there was no extra benefit obtained by the assessee as a result of the replacement. The Tribunal, relying on R. B. Shreeram & Co. (P.) Ltd. v. CIT  67 ITR 428 (AP), held that it was a capital expenditure as the assessee got an advantage of enduring nature and disallowed the assessee's claim. Hence, this reference at the instance of the assessee.
3. A Division Bench of this court, before which this referred case came up for hearing, referred the case to a Full Bench as it thought that there was an apparent conflict between the two Bench decisions in R.B. Shreeram & Co. (P.) Ltd. v. CIT  67 ITR 428 (AP) and Hanuman Motor Service v. CIT . That is how this referred case has come up before us.
4. We may state at the outset that the answer to the referred question largely depends upon the true nature and character of the expendtiure of Rs. 15,851 incurred by the assessee in replacing the worn out diesel engine with a new diesel engine to its motor vehicle. Mr. Y. V. Anjaneyulu, learned counsel for the assessee, contends that the expenditure in question falls under the category of " repairs to the machinery " as per the provisions of Section 31 of the Act since the worn out engine of the motor vehicle was replaced by a new diesel engine in the year of account. In any event, according to him, it is not a capital expenditure as the assessee did not derive any enduring benefit or advantage by the replacement of the worn out diesel engine with the new diesel engine and is, therefore, deductible under Section 37(1) of the Act. This claim of the assessee is resisted by the learned standing counsel for the department, Sri P. Rama Rao, contending inter alia, that there was no whisper about the claim of the assessee under Section 31, which pertains to repairs to machinery, that, in any event, the expenditure does not fall under the category of either " repairs to the machinery " or " revenue expenditure " but falls under the category " capital expenditure " and, therefore, the assessee is not entitled to have this expenditure allowed either under Section 31 or under Section 37(1) of the Act.
5. We shall first deal with the submission of Mr. P. Rama Rao, standing counsel for the I.T. Dept., that the assessee cannot be permitted to claim for the first time in this referred case, deduction of the amount in dispute under Section 31 of the Act since there was no such claim either before the assessing authority or the appellate authority or the Appellate Tribunal. True, as submitted by Mr P. Rama Rao, the assessee did not specifically plead for deduction of the amount under Section 31 which provides for deduction of the amount paid on account of current repairs to machinery. But the question now referred to us is comprehensive enough to take in any provision whereunder the expenditure of Rs. 15,851 incurred by the assessee for the replacement of the motor engine is allowable as revenue expenditure as it is not limited to any particular provision.
6. Chapter IV of the Act consisting of Sections 14 to 59 deals with computation of total income. Profits and gains of business or profession referred to in Section 28 shall be computed in accordance with the provisions contained in Sections 30 to 43A. Sections 30 to 36 provide for the deduction of specific items. Section 31 (corresponding to Sections 10(2)(iv) and (v) of the 1922 Act) provides that the amount spent by an assessee for repairs and insurance of machinery, plant and furniture used for the purposes of the business or profession is allowable as deduction. Section 32 (corresponding to Section 10(2)(vi) and (vii) of the 1922 Act) permits depreciation in respect of buildings, machinery, plant or furniture owned by the assessee and used for the purpose of business or profession. Section 33 (corresponding to Section 10(2)(vib) of the 1922 Act) deals with development rebate in respect of a new ship or new machinery or plant. Section 37(1) is a residuary provision whereunder any expenditure laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed, provided such expenditure is not the one indicated in Sections 30 to 36 and Section 80VV and not being in the nature of capital expenditure or personal expenses of the assessee. In order to attract the provisions of Section 37(1) the expenditure must not be personal expenses of the assessee nor should it be a capital expenditure. This being residuary in nature, the expenditure should not have fallen under any one of the categories specified in Sections 30 to 36 and Section 80VV. Simply because the assessee contends that the expenditure is revenue in character and not capital, it cannot be said that the assessee cannot be permitted to contend or bring its case within any of the provisions of Sections 30 to 36, which provide for deduction pertaining to specific items of expenditure. Section 37(1) being a residual provision, it cannot be taken aid of unless and until it is established that none of the provisions of Sections 30 to 36 are applicable to a given case. Before examining the question of applying Section 37(1), it is the duty of the assessing authority to see whether the claim of the assessees falls under any one of the items of deduction specified in Sections 30 to 36. Where the case specifically falls under any one of the specific provisions of ss, 30 to 36, although it was not specifically pleaded by the assessed, the assessing authority has a statutory duty and obligation to consider the claim of the assessee pertaining to a particular item as revenue expenditure. The question whether the expenditure in question is capital expenditure or revenue expenditure is not relevant to the application of the provisions of Sections 30 to 36. It is relevant only in the case of an expenditure falling under Section 37(1). The contention that Section 10(2)(v) of the 1922 Act permits only a deduction where the expenditure is a revenue expenditure and not a capital expenditure is not tenable. If the intendment of the sovereign Parliament was not to permit any expenditure which is of a capital nature, it would have been clearly imported into the language of Section 10(2)(iv) to (xv). It is also pertinent to notice that such a distinction has been made in Section 10(2)(xv), the residuary clause permitting deductions only of a revenue expenditure and not a capital expenditure. Therefore, the approach of the assessing authority in considering the claim of the assessee under Sections 30 to 36 is altogether different from the one applicable to a claim under Section 37(1).
7. A close reading of Sections 30 to 36 makes it abundantly clear that the deductions claimed thereunder may fall either under the category of " revenue expenditure " or under the category of " capital expenditure ". To put it differently, even the items falling under " capital expenditure " are deductible under Sections 30 to 36 unlike under Section 37(1) which specifically excludes the items falling under " capital expenditure " from being allowed as permissible deductions. This difference must be borne in mind by the concerned authorities while determining the claim of the assessee as a permissible deduction under Section 31. In view of the comprehensive nature of the question, we express our inability to agree with Mr. P. Rama Rao, learned counsel for the revenue, that the assessee should not be permitted to contend before this court in this referred case that the expenditure is an allowable deduction under Section 31.
8. Therefore, we have to consider whether the amount of Rs. 15,851 was paid on account of current repairs to the machinery and the assessee is entitled to its deduction under Section 31 of the Act or whether it is a capital expenditure and the assessee is not entitled to its deduction even under Section 37(1) of the Act. We prefer to consider first whether the amount in question was paid on account of current repairs to the machinery.
9. The point to be considered here is whether the engine fitted to the motor vehicle is or is not a " machinery " within the meaning of Section 31. The term " machinery " has not been defined although it is used in Sections 31 to 33 of the Act. The question relating to the scope and true meaning of the word " machinery " used in Clauses (iv), (v), (vi) and (via) of Section 10(2) of the Indian I.T. Act, 1922, fell for decision in CIT v. Mir Mohammad Ali  53 ITR 165 (SC) while considering the question whether, in addition to normal depreciation, the assessee was entitled to extra depreciation allowance under the second paragraph of Clause (vi) and Clause (via) of Section 10(2) of the Indian I.T. Act, 1922, in respect of replacement of the petrol engines in two of the assessee's buses by diesel engines, incurring an expenditure of Rs. 18,544 in the accounting year ending with March 31, 1950. The learned judge, Sikri J. (as he then was) for himself and on behalf of Subba Rao J. (as he then was), ruled at pages 170, 171, 172 :
" ......the word ' machinery ' occurs in Clauses (iv), (v), (vi) and (via) of section 10(2). Prima facie, the same meaning must be given to the word ' machinery ' in all these clauses. If a machine is machinery for purposes of giving an allowance in respect of insurance or for repairs or in respect of normal depreciation or for the purpose of paragraph one of Clause (vi), it must also be machinery for the purpose of the second paragraph of Clause (vi) and Clause (via).........It is true that the machinery must be new and it must be installed and the rate of allowance is prescribed in the Act itself. But the requirement that the machinery must be new does not tell us what is ' machinery '.........The definition of the word 'plant' in Section 10(5) equally does not throw any light on the meaning of the word ' machinery '.........What then is the test for determining whether a mechanical contrivance is machinery for the purposes of the second paragraph of Clause (vi) and Clause (via) ? The Privy Council in the case of Corporation of Calcutta v. Chairman, Cossipore and Chitpore Municipality  ILR 49 Cal. 190 hazarded the following definition of ' machinery '.........
......the word ' machinery ' must mean something more than a collection of ordinary tools. The Privy Council case was not a tax case but prima facie the ordinary meaning of the word ' machinery '--and the word ' machinery ' is an ordinary and not- a technical word--must, unless there is something in the context, prevail in the Indian Income-tax Act also.
According to the above definition, a diesel engine is clearly ' machinery '......Further, when the assessee purchased the diesel engines, they were not ' plant ' or part of a plant, because they had not been installed in any vehicle. They were, according to the definition given by the Privy Council, machinery. They were not yet part of a plant, and, according to the Act, 20% of the cost thereof was allowable to the assessee. All the conditions required by the Act are satisfied. If we look at the point of time of purchase and installation, what was purchased and installed was machinery."
10. The aforesaid decision is an authority for the proposition that a diesel engine fitted to or installed in a motor vehicle is " machinery " for the purpose of claiming depreciation under the second paragraph of Clause (vi) and cl. (via) of Sub-section (2) of Section 10 of the Indian I.T. Act, 1922. The Supreme Court held that the assessee was entitled to the extra depreciation allowance in respect of replacement of the petrol engines in the assessee's buses by diesel engines in addition to normal depreciation.
11. The above decision of the Supreme Court has affirmed the decision of the Madras High Court in Mir Mohd. Ali v. CIT  38 ITR 413, which has been followed by the Mysore High Court in Mangalore Ganesh Beedi Works v. CIT  52 ITR 615 and by this court in R. B. Shreeram and Co. (P.) Ltd. v. CIT  67 ITR 428 (AP). We also respectfully follow the same.
12. The next point to be considered is whether the replacement of an old engine of a motor vehicle with a new engine amounts to " repair " within the meaning of Section 31 of the Act. What is meant by " repair "? As observed by Buckley L.J. (as he then was) in Lurcott v. Wakely & Wheeler  1 KB 905, 923, 924 (CA) :
" ' Repair ' and ' renew ' are not words expressive of a clear contrast ...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...the question of repair is in every case one of degree, and the test is whether the act to be done is one which in substance is the renewal or replacement of defective parts, or the renewal or replacement of substantially the whole."
13. The aforesaid test of Buckley L.J., which decides the question whether a thing is a repair or not is tc see whether the expenditure incurred was for the purpose of replacement of defective parts or replacement of the entirety or of a substantial part of the subject-matter. This definition or meaning of the term " repair " has been followed by the Privy Council in Rhodesia Railways Ltd. v. Income-tax Collector  1 ITR 227 and the courts in India. In Rhodesia Railways Ltd. v. Income-tax Collector  1 ITR 227, a sum of 2,52,174 spent for the purpose of renewing 74 miles of its railway track out of 394 miles of the total length of the track owned by them was held to be an allowable deduction as it was not of a capital nature but was expended for the repair of the property occupied for the purpose of trade. However, in the case of Highland Railway Co. v. Balderston  2 TC 485, it was held that the substitution of one kind of rail for another--steel rails for iron rails--was a capital expenditure as it would have been a material alteration and improvement in the corpus of the heritable estate of the company. Repair may be a major repair spending considerable amount of money but that alone would not take away its character as repair. This view of ours gains support from the decision of the Supreme Court in CIT v. Mahalakshmi Textile Mills Ltd. , where the amount spent was Rs. 93,215.
14. Whether a particular expenditure is capital or revenue in character is an age-long debatable point. These are really abstract concepts which have not been defined by Parliament in the Act. In the absence of any legislative definition, it becomes necessary for the courts to find out for themselves from time to time whether the expenditure in a given case falls under the category of " capital expenditure " or " revenue expenditure ". Decisions of courts recognise this necessity and in deciding so each concrete case provided innumerable illustrations as to both the legal criterion and its applicability. Lord Radcliffe observed that " the subject is one where it is difficult to find any fresh ground upon which to stand, so much has been trampled down by armies of conflicting words. And yet peace has not come to this poor section." What Lord Radcliffe said of Section 1 of the English Scientific Societies Act of 1843 in Institution of Mechanical Engineers v. Cane  AC 696, 718 (HL) applies with equal force to the present problem.
15. In the decision of the Madras High Court in CIT v. Sri Rama Sugar Mills  21 ITR 191 Satyanarayaria Rao J., confirming the decision of the Income-tax Appellate Tribunal, held that the expenditure incurred in the purchase, erection and fitting of the new boiler for replacing the old one was a business expenditure within the meaning of Section 10(2)(xv) of the Indian I.T. Act, 1922. If it was merely a replacement of the boiler by the use of which, the process of manufacture was carried on, no additional advantage was thereby derived and it could not be said that the productive capacity of the sugar manufacturing unit was in any manner increased.
16. In C. R. Corera v. CIT  49 ITR 188, a Division Bench of the Madras High Court held that the sum of Rs. 30,000 out of the total outlay of Rs. 31,818 on boat No. 95 incurred by the assessee, a registered firm which owned and plied cargo boats and carried out lighterage work within the Tuticorin harbour, in repairing their cargo boat involving caulking, replacement of underwater planking and copper sheathing, was held to be an allowable expenditure under Section 10(2)(v) of the Indian I.T. Act, 1922, on the ground that, as a result of the repairs, the boat was not structurally altered nor was there any improvement in its loading capacity, performance or other features, as the effect of the repairs was to restore the machinery to its original condition. If any amount had been spent with a view to or for the purpose of bringing into existence a new asset or obtaining a new advantage of an enduring nature, the expenditure would undoubtedly be capital in character. The pertinent question, therefore, that falls for determination is what exactly is the intendment of the expenditure, whether the same was spent to preserve and maintain an already existing asset or with the specific purpose of bringing into existence an individual asset or to obtain a new advantage of an enduring nature. In the case of the former, it is a revenue expenditure whereas in the case of the latter it must be held to be capital in character.
17. The next important case which may be noticed is that of the Supreme Court in CIT v. Mahalakshmi Textile Mills Ltd. .
Therein the assessee, which carried on the business of manufacture and sale of cotton yarn, had spent in the accounting year relevant to the assessment year 1956-57 a sum of Rs. 93,215 for introduction of " casablanca conversion system " in its spinning plant which involved replacement of certain roller stands and fluted rollers fitted with rubber aprons to the spinning machinery, removal of ring-frames from certain existing parts, introduction of ball-bearing jockey-pulleys for converting the original band-drivers to tape-drivers and other additions and alterations in the drafting mechanism. This expenditure was claimed by the assessee as " current repairs " allowable under Section 10(2)(v) of the Indian I.T. Act, 1922. The Income-tax Appellate Tribunal, after personal inspection of the plant, held on a consideration of the entire facts and circumstances that by introducing the " casablanca conversion system " the assessee made only current repairs to the machinery and plant and, therefore, the expenditure was allowable as an expenditure incurred for current repairs under Section 10(2)(v) of the Indian I.T. Act, 1922. The High Court and the Supreme Court affirmed the view of the Tribunal although the assessee's claim for development rebate was rejected. The Supreme Court observed at page 713 :
" The Tribunal, on investigation of the true nature of the alterations made by the introduction of the casablanca conversion system, came to the conclusion that it did not amount to installation of new machinery or plant, but it amounted in substance to current repairs to the existing machinery.
The subject-matter of the appeal in the present case was the right of the assessee to claim allowance for Rs. 93,215. Whether the allowance was admissible under one head or the other or Sub-section (2) of Section 10, the subject-matter for the appeal remained the same, and the Tribunal having held that the expenditure incurred fell within the terms of Section 10(2)(v), though not under Section 10(2)(vib), it had jurisdiction to admit that expenditure as a permissible allowance in the computation of the taxable income of the assessee. "
18. In that case a huge sum of Rs. 93,215 was expended. On the facts of that case it was held that it was only a current repair but not the installation of a new machinery or plant.
19. In Hanuman Motor Service v. CIT  66 ITR 88, the Mysore High Court had to consider whether the expenditure of Rs. 14,485 incurred by the assessee, a firm of bus operators, in replacing the worn-out petrol engine of some of their buses with diesel engines, was an allowable deduction either under Section 10(2)(v) or under Section 10(2)(xv) of the Indian I.T. Act, 1922. It was held that the machinery concerned therein were buses and not the petrol engines that were replaced and, therefore, the replacement of worn out parts of the petrol engines by diesel engines does not by itself bring a new asset into existence but it amounts to only a current repair of the buses and there was no justification to hold that " current repairs " means "petty repairs" allowable under Section 10(2)(v), The Punjab High Court in CIT v. Khalsa Nirbhai Transport Co. (P.) Ltd. , where an
expenditure of Rs. 35,895 was incurred on the replacement of petrol engines of its buses by diesel engines, held the same to be a revenue expenditure, which was an allowable deduction under Section 10(2)(v).
20. The expression " current repairs " was construed by the Allahabad High Court in Ramkishan Sunderlal v. CIT  19 ITR 324, as petty recurring expenditure. This view of limited and narrow construction of the expression "current repairs " used in Section 10(2)(v) of the Indian I.T. Act, 1922, was not accepted by the Patna High Court in CIT v. Darbhanga Sugar Co. Ltd. (1956) 29 ITR 21. The Madras High Court in CIT v. Sri Rama Sugar Milts Ltd.  21 ITR 191, and the Bombay High Court in New Shorrock Spinning and Manufacturing Co. Ltd. v. CIT  30 ITR 338, which accepted the definition of Lord Justice Buckley of the expression " repair " in' contradistinction to " renewal ". Chagla C.J., who spoke for the court, in New Shorrock Spinning and Manufacturing Co. Ltd. v. CIT  30 ITR 338, observed at page 343 :
" The simple test that must be constantly borne in mind 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 the expenditure is not to bring a new asset into existence, nor is its object the obtaining of a new or fresh advantage. This can be the only definition of ' repairs ' because it is only by reason of this definition of repairs that the expenditure is a revenue expenditure.
If the amount spent was for the purpose of bringing into existence a new asset or obtaining a new advantage, then obviously such an expenditure would not be an expenditure of a revenue nature but it would be a capital expenditure, and it is clear that the deduction which the Legislature has permitted under Section 10(2)(v) is a deduction where the expenditure is a revenue expenditure and not a capital expenditure. "
21. It admits of no doubt that the mere quantum of expenditure is not by itself decisive of the question whether it is revenue or capital expenditure. A sum of Rs. 59,000 spent by an assessee-company for guniting work done and a sum of Rs. 3,680 being the architect's fee paid in connection thereof were held by the Bombay High Court in CIT v. Oxford University Press  108 ITR 166 as revenue expenditure and allowable deduction.
22. The Gujarat High Court in Addl. CIT v. Desai Bros. held that the expenditure incurred for replacing the petrol engine by a diesel engine in a truck engaged by the assessee in his business of manufacture of beedies was in the nature of a revenue expenditure and was for current repairs to machinery of the assessee and was deductible under Section 31 of the Income-tax Act, 1961. Each case has to be judged with regard to the determination of the question whether the sum expended amounts to " current repairs " or renewal of a new asset from the commercial point of view. Whether a particular repair was really needed at a relevant period or not or what is the amount to be spent are matters to be decided by the assessee as it is his province to take appropriate measures at a proper time. Whether a particular asset requires current repair at a relevant time depends upon the several circumstances relating to the use of the part or parts, their wear and tear, the need for replacement and the due care with which the parts were used by the assessee. In New Shorrock Spinning and Manufacturing Co, Ltd. v. CIT  30 ITR 338 (Bom), a sum of Rs. 30,557 spent for replacement of certain parts in 646 looms out of 864 looms in the year 1951, after a lapse of 60 years, was held deductible under Section 10(2)(v) as " current repairs " from the point of view of commercial expediency.
23. The decision of this court in R. B. Shreeram & Co. (P.) Ltd. v. CIT  67 ITR 428, to the effect that the expenditure of Rs. 28,027 incurred by the assessee, a private limited company engaged in the business of plying trucks, in replacing petrol engines by diesel engines was of a capital nature not allowable under Section 10(2)(xv) of the 1922 Act is not correct. The view of the court that " we have the least doubt that in the instant case, the expenditure incurred is of a capital nature " cannot be justified. The decision of the Privy Council in Rhodesia Railways Ltd. v. Income-tax Collector  1 ITR 227, relied upon by the learned judges therein in support of their decision that the expenditure incurred was of a capital nature, does not actually support their decision. On the other hand, as pointed out earlier in that decision, a huge sum of 2,52,174 was found to be revenue expenditure. Relying upon the decision in Atherton v. British Insulated and Helsby Cables Ltd.  AC 205 at 215 (HL), the learned judges held that the replacement of petrol engines by diesel engines is an advantage of an enduring benefit and forms part of the assets of the undertaking. With great respect to the learned judges, we are unable to subscribe to the aforesaid view. We are, on the other hand, in entire agreement with the view taken by the Mysore High Court in Hanuman Motor Service v. CIT  66 ITR 88.
24. This view of ours gains support from the decision of the Supreme Court in CIT v. Mahalakslmi Textile Mills Ltd. . The decision of the Supreme Court in CIT v. Mir Mohammad Ali  53 ITR 165, on which strong reliance was placed by Sri P. Rama Rao, learned counsel for the revenue, is not relevant on this aspect as it applies to the case of development rebate under Section 10(2)(vib) of the Indian I.T. Act, 1922. It has no application to the case on hand although it was held therein that the new diesel engine substituted for the worn-out petrol engine in a motor vehicle was held to be " machinery ".
25. The decision of this court in Guntur Merchants Col/on Press Co. Ltd. v. ITO  108 ITR 620 is not very material to the point at issue in this reference. That was a case where the amount spent for the repair of the roof of the assessee's building was held, on the facts and circumstances as a deductible expenditure and it was not of a capital nature.
26. On a consideration of the entire facts and circumstances, we hold that the expenditure of Rs. 15,851 incurred by the assessee was on account of current repairs to the machinery within the meaning of Section 31 of the Act and the same is revenue expenditure and not capital expenditure. Judged from any angle, we are satisfied that the view taken by the Tribunal, relying upon the decision of this court in R. B. Shreeram & Co. (P.) Ltd. v. CIT  67 ITR 428, is erroneous in law.
27. For all the reasons stated, our answer to the question is in the affirmative and in favour of the assessee, holding that the expenditure of Rs. 15,851 incurred by the assessee on account of replacement of the motor engine is allowable as revenue expenditure under Section 31 of the Act in computing the assessee's income from business. There shall be no order as to costs.