JUDGMENT
In this case the assessee is a public limited company which runs a railway knows as “Dehri-Rohtas Light Railway” over a distance of 24 miles from Dehri-on-Sone to Rohtas and also another branch line from Sasaram to Sugerkher over a distance of 15 miles. During the accounting years corresponding to the assessment years 1953-54 and 1954-55, the assessee spent Rs. 35,306 and Rs. 14,095 respective in replacing the old and worn out sleepers on the railway line by new ones. In 1953-54, the number of old worn out sleepers so replaced was 6,200 covering a distance of 3 1/4 miles of the railway line of 24 miles and in 1954-55 the number of sleepers was 2,712 covering a distance of 1 1/2 miles of railway track. The assessee claimed this expenditure as revenue expenditure for both the accounting years, but the claim was rejected by the Income-tax Officer and the Appellate Assistant Commissioner in appeal. The assessee took the matter in further appeal before the Income-tax Appellate Tribunal which allowed the appeal and held that the amount should be deducted as revenue expenditure in the assessment of tax. At the instance of the Commissioner of Income-tax, the Appellate Tribunal has stated the following question of law for the opinion of the High Court :
“Whether, on the facts and in the circumstances of the case, the sums of Rs. 34,306 in the assessment year 1953-54 and Rs. 14,095 in the assessment year 1954-55, incurred for replacement of the old and worn out sleepers by new ones, were rightly treated as revenue expenditure of the years of account ?”
The question of law arising in this case has been the subject-matter of consideration by this Bench in Dehri Rohtas Light Railway Co. Ltd. v. Commissioner of Income-tax. It was held in that case that the expression “current repairs to machinery” in section 10 (2) (v) of the Income-tax Act, 1922, must be interpreted to mean repairs to machinery in the current accounting year and there is nothing to suggest that the expenditure on repairs cannot be allowed as a proper deduction if repairs are not petty. It was also pointed out in case that current repairs may involve replacement of subsidiary parts of machinery. The test applicable to a case of this description is whether the act of replacement is one which is in substance replacement of defective of the entire machinery or a substantial part of the entire machinery. It was further pointed out in that case that renewal may be either repair or reconstruction, and renewal is repair only if it is restoration of, subsidiary parts of old machinery. If, on the other hand, there is replacement of the entire machinery or substantially the whole of it, it is a case of renewal of machinery and not repair.
In our opinion, the principles of law down in that case govern the present case also and for the reasons elaborately given in that case we hold that the amounts of Rs. 34,306 for the assessment year 1953-54 and Rs. 14,095 for the assessment year 1954-55 incurred for replacement of the old and worn out sleepers by new ones were rightly treated as revenue expenditure by the Income-tax Appellate Tribunal. Accordingly, we answer the question of law referred by the Income-tax Appellate Tribunal in favour of the assessee and against the income-tax department. There will be no order as to costs of this reference.
Question answered in favour of the assessee.