Meaning of “current repairs” - V. K. Subramani - Article published in Business Advisor, dated December 10, 2014 http://www.magzter.com/IN/Shrinikethan/Business-Advisor/Business/

1. Volume IX Part 5 December 10, 2014 16 Business Advisor
Meaning of ―current repairs‖
V. K. Subramani
There are certain provisions in the Income-tax law which
may look plain and simple outwardly but the taxpayers
and tax gatherers have interpreted in such a way that the
courts interfere now and then to set right the position by
deciding the case. Section 30 dealing with repairs for
buildings and section 31 meant for repairs in respect of
machinery, plant or furniture are discussed in this write-
up.
Legal provisions
In respect of premises used for the purposes of business or profession in the
case of tenant the cost of repairs to the premises is deductible. In the case
of a person incurring expenditure in the capacity otherwise than as a
tenant, the amount paid on account of current repairs is only eligible for
deduction. The point of distinction is that in the case of tenant any repair
expenses is deductible while computing the income from business or
profession. However, when it is incurred otherwise than as a tenant, the
expenditure by way of ―current repairs‖ is deductible and expenditure by
way of ―repairs‖ is not deductible. Thus the distinction between ―repairs‖
and ―current repairs‖ assumes significance. Similarly, in respect of repairs
of machinery, plant or furniture expenditure incurred on account of
―current repairs‖ is deductible. Again expenditure towards repairs is not
governed by section 31 and only section 37 will come into play.
Legal precedents
In Girdhari Dass & Sons v. CIT (1976) 105 ITR 339 (All), it was held that
―current repairs‖ means only such repairs as are necessitated by the day-to-
day wear and tear during the relevant previous year only, while repairs may
In respect of repairs of machinery, plant or furniture,
expenditure incurred on account of ―current repairs‖ is
deductible. Expenditure towards repairs is not governed by
section 31, and only section 37 will come into play.

2. Volume IX Part 5 December 10, 2014 17 Business Advisor
mean accumulated repairs of several years.
In New Shorrock Spg & Mfg Co Ltd v. CIT (1956) 30 ITR 338 (Bom), it was
held that current repairs must be to preserve and maintain existing asset
and not to bring a new or different advantage. If the object of the asset is to
bring a new or fresh advantage it would not fall within the expression
―current repairs‖. The simple test to conclude expenditure as ―current
repairs‖ is to see that it is done to preserve and maintain an already existing
asset. In CIT v. Chowgule & Co P Ltd (1995) 214 ITR 523 (Bom), the
propositions relating to ―current repairs‖ were laid down as under:
(i) The amount paid should be on account of current repairs;
(ii) ―Current repairs‖ means repairs undertaken in the normal course
of user for the purpose of preservation, maintenance or proper utilisation or
for restoring it to its original condition;
(iii) ―Current repairs‖ do not mean only petty repairs or repairs
necessitated by wear and tear during the particular year;
(iv) Such repairs should not bring into existence nor obtain a new or
different advantage;
(v) Neither the quantum of expenses nor the fact that in the process of
repairs there was substantial replacement of the parts of the machine or
ship, is decisive of the true nature of the expenditure;
(vi) The original cost of the asset is not at all relevant for
ascertainment of the true nature of the expenditure on repairs;
(vii) The replacement cost of the asset may, however, at times be used
as an indicator of the true character of the expenditure. If the expenditure
on repairs added to the written down value or disposal value exceeds the
replacement cost of the asset, a presumption is possible that it is not a
revenue expenditure but expenditure of capital nature. Such a presumption,
In New Shorrock Spg & Mfg Co Ltd v. CIT (1956) 30 ITR 338
(Bom), it was held that current repairs must be to preserve
and maintain existing asset and not to bring a new or
different advantage.

3. Volume IX Part 5 December 10, 2014 18 Business Advisor
of course, would be rebuttable;
(viii) The expression ―current‖ preceding ―repairs‖ appears to have been
used by the legislature with a view to restricting the allowance to
expenditure incurred for preservation and maintenance thereof in its
current state in contradistinction to that incurred on any improvement or
an addition thereto;
In Super Spinning Mills Ltd v. Asstt. CIT (2013) 357 ITR 720 (Mad), the
Madras High Court has propounded the following principles with regard to
―repairs‖ and ―current repairs‖ in page 727.
(i) To decide the applicability of section 31(i), the test is not whether the
expenditure is revenue or capital in nature, but whether the expenditure is
―current repairs‖. The basic test is to find out whether expenditure is
incurred to ―preserve and maintain‖ an already existing asset and the
expenditure must not be to bring a new asset into existence or to obtain a
new advantage, vide CIT v. Saravana Spinning Mills P Ltd (2007) 293 ITR 201
(SC).
(ii) Under section 31(i), the deduction admissible is only for current repairs.
Therefore, the question as to whether the expenditure incurred by the
assessee conceptually is revenue or capital in nature is not relevant for
deciding the question whether such expenditure comes within the
etymological meaning of the expression ―current repairs‖. In other words,
even if the expenditure is revenue in nature, it may not fall in the
connotation of ―current repairs‖ CIT v. Saravana Spinning Mills P Ltd (2007)
293 ITR 201 (SC).
(iii) A new asset or new/ different advantage cannot amount to ‗current
repairs‘ (CIT v. Sri Mangayarkarasi Mills P Ltd (2009) 315 ITR 114 (SC) (2009)
TIOL-86-SC-II).
(iv) Repair implies existence of a part of the machine which has
malfunctioned, thereby requiring repair to that machinery, plant, etc.
To decide the applicability of section 31(i), the test is not
whether the expenditure is revenue or capital in nature, but
whether the expenditure is ―current repairs‖.

4. Volume IX Part 5 December 10, 2014 19 Business Advisor
Replacement cannot be a current repair; for, ―replacement‖ and ―current
repair‖ do not go hand in hand. If one is to hold otherwise, it would only
make section 31(i) wholly redundant and absurd. Thus, replacement
expenditure cannot be said to be ―current repairs‖, vide CIT v. Saravana
Spinning Mills P Ltd (2007) 293 ITR 201 (SC) and CIT v. Sri Mangayarkarasi
Mills P Ltd reported in (2009)315 ITR 114 (SC) – TIOL -86-SC-II.
(v) Expenditure is deductible under section 37 only if it (a) is not deductible
under sections 30-36, (b) is of a revenue nature, (c) is incurred during the
current accounting year, and (d) is incurred wholly and exclusively for the
purpose of the business. CIT v. Sri Mangaryarkarasi Mills P Ltd reported in
(2009) 315 ITR 114 (SC) (2009) TIOL-86-SC-II.
(vi) Expenditure is of a capital nature when it amounts to an enduring
advantage for the business and repair is different from bringing a new asset
for the business. Further bringing into existence a new asset or an enduring
benefit for the assessee amounts to capital expenditure; vide Lakshmiji
Sugar Mills P Co v. CIT (1971) 82 ITR 376 (SC) AIR 1972 SC 159 referred in
CIT v. Sri Mangayarkarasi Mills P Ltd reported in (2009) 315 ITR 114 (SC)
(2009) TIOL 86 SC-II.
(vii) Therefore, whether an expenditure is revenue or capital in nature would
depend on the facts of each case – CIT v. Saravana Spinning Mills P Ltd
(2007) 293 ITR 201 (SC).
Conclusion
The above legal decisions and legal provisions indicate that ―repairs‖ and
―current repairs‖ do not mean the same. The deductibility of expenditure
must satisfy the various tests laid down by the courts from time to time.
These decisions/ observations of the courts actually help us in our practical
life while suggesting the taxpayers on the nuances of the principles to be
satisfied for claiming the expenditure on revenue account.
(V. K. Subramani is Chartered Accountant, Erode)
Whether an expenditure is revenue or capital in nature would
depend on the facts of each case – CIT v. Saravana Spinning
Mills P Ltd (2007) 293 ITR 201 (SC).