The law allows current repairs specifically under section 31 of the Income-tax Act. Current repairs do not rule out accumulated​​ repairs undertaken during the year. Where a restaurant is renovated involving large outlay in replacement of airconditioning plants and parts of electric motors, etc., to renovate the same after a fire, the entire amount is allowable. [2002] 253 ITR 0405 VOLGA RESTAURANT (DELHI HIGH COURT)​​ Various items of expenditure were incurred by the assessee by way of replacement and repairs of the damaged parts of the air-conditioning plant of its restaurant where some of the parts of the air-conditioning plant, such​​ as electric motors, pumping sets, etc., were completely damaged, and the assessee had to remove them and replace them. But that did not mean that what the assessee put up was an entirely new air-conditioning plant after scrapping the old plant which was damaged in the fire as a total loss and that the assessee had tried to retain as much as possible of the existing air-conditioning plant which was not damaged by the fire and tried to restore the same by replacing the damaged parts of the plant with new parts. Hence, the expenditure of Rs. 1,21,752 incurred by the assessee in replacement of the air-conditioning plant was a revenue expenditure being in the nature of current repairs. ​​ 

RATIO OF SOME OF OTHER DECIDED CASES

• The expression “current repairs” in​​ section 31 of the Income-tax Act, 1961, means expenditure on building, machinery, plant which is​​ not for renewal or restoration.​​ 

• It is only for​​ preserving or maintaining an​​ already existing asset​​ which does not bring a new asset into existence or does not give to the assessee a new or different advantage and they must be such repairs as are attended to as and when the need for them arises and the question as to when a building, machinery, plant or furniture requires repairs and when the need arises must be decided not by any academic or theoretical test but must be decided by the test of commercial expediency.​​ 

• But if the amount spent was for the purpose of​​ bringing into existence a new asset or obtaining a new advantage, then such an expenditure would not be an expenditure of a revenue nature but it would be a capital expenditure.​​ 

• “Repair” implies the existence of a thing which has malfunctioned​​ and can be set right by effecting repairs which may involve replacement of some parts, thereby making the thing as efficient as it was before or as close to it as possible.​​ 

• After repair the​​ thing to which the repair was carried out continues to be available for use.​​ 

• Replacement is different from repair. Replacement implies the removal or discarding of the thing that was in use, by a different or new thing capable of performing the same function with the same or greater efficiency. The​​ replacement of a section in a series of machines which are interconnected, in a segment of the production process which together form an integrated whole may in some circumstances, be regarded as amounting to repair when without such replacement that unit in that segment will not function.​​ That logic cannot be extended to the entire manufacturing facility from the stage of raw material to the delivery of the final finished product.​​ 

• In CIT v. Sri Rama Sugar Mills Ltd., a decision reported in [1952] 21 ITR 191 (Mad). It was held therein that renewal is a repair if it is only restoration by renewal or replacement of subsidiary parts of a whole, and that if the​​ reconstruction is of the entirety or of substantially the whole of the subject-matter, it is not a repair but a reconstruction.​​ 

• as regard upgradation​​ of computers the Court relying on Supreme Court decision in Alembic Chemical Works Co. Ltd. v. CIT [1989] 177 ITR 377/43 Taxman 312 held that​​ upgradation of computers by changing certain parts thereby enhancing the configuration of the computers for improving their efficiency, but without making any structural alterations is not of an enduring nature.

[2002] 255 ITR 0243- ​​​​ Commissioner of Income-tax vs. Madras Cements Ltd. (Madras High Court)

The assessee, a cement company invested a sum of Rs. 5,31,55,319​​ in installing a new cement mill known as “Combidan Cement Mill” during the year, which mill was technologically superior to the four cement mills which it had installed in the earlier years and which four old mills were subsequently sold. The assessee claimed that the sum invested was deductible as current repairs. The claim for deduction made under the head “Repairs” was made by the assessee despite the fact that it had in its own books of account, treated this investment as “investment on capital equipment” and the amount had been capitalised in its accounts. Held, that the Combidan Cement Mill which the assessee had installed and which replaced four old cement mills, was a new cement mill, installed at a different location, was technologically superior,​​ was far more efficient than the four mills together and was capable of delivering a recognizably superior product.​​ The acquisition and installation of that mill, could not by any stretch of imagination be regarded as “repair” to the four cement mills which​​ were discarded and subsequently sold. ​​ 

Conclusion

It is revenue expense to be allowed as deduction