Not all repairs are entitled to the deduction. When one is using the premises of its own then the law entitles him to a deduction of current repairs only whereas a tenant who is obliged under the agreement to incur even non- current repairs could get the deduction in full as he may not be able to move out the additions. And as regards the user of machinery whether as owner or otherwise there is a provision only for deduction of current repairs. However, any capital nature of expenditure would exclude from current repairs. What is current and what is not current is not defined in the Act in the absence of which often disputes arise on their classification.
The Supreme Court in 279ITR209 held that expenditure incurred in replacing old machinery like an electric control panel does not qualify as current repairs. The Madras High Court in 389ITR94 a little later held that the control panel board is electrical equipment and these can be classified under the head “Instrumentation and monetary systems for monitoring energy flows” and thereby qualify for depreciation at 80 percent.
Also, it is settled law that the question of whether the expenditure on replacement of machinery is capital or revenue is not determined by the treatment given in the books of account or in the balance-sheet. The claim has to be determined only by the provisions of the Act and not by the accounting practice of the assessee.
Also much will depend on the nature of business. For instance, in a case of auto sector expenditure on moulds and dies is held current repairs vide 417ITR236. Likewise in the case of a cinema theatre in 325ITR133 the assessee installed Dolby stereo system instead of repairing the existing old stereo system. The Court held that this had not benefited in any way since there was no change in the seating capacity of the theatre or increase in the tariff rate of the ticket.
Therefore if the expenditure is substantial in the future with far-reaching benefits for the future then the ratio may change. Also to judge whether the expenditure does fall within the ambit of current repairs one good inquiry would be the size of the advantage gained/new advantage or new asset if any having regard to the size and nature of business of the assessee.