SATYANARAYANA RAO, J.

At the instance of the Commissioner of Income-tax and Excess Profits Tax, Madras, the Appellate Tribunal referred to us the following question for our decision

"Whether on the facts and in the circumstances of the case, the expenditure of Rs, 86,496 incurred in the purchase, erection and fitting of the new boiler for replacing the old one was capital expenditure within the meaning of Section 10(2)(xv) of the Indian Income-tax Act, 1922." *

The assessee is Sri Rama Sugar Mills Ltd., Bobbili. The company manufactures sugar at two factories owned by it, one at Bobbili and another at Sithanagaram. The machinery for manufacturing sugar included, among other things, boilers. The factory at Bobbili owned three boilers which were used for the manufacture of sugar. During the crushing season which extends nearly for six months in the year, the factory undoubtedly has to work for 24 hours and during such period two boilers have to be constantly in use. The third boiler is necessary and has to be used when any one of the other boilers have to be cleaned up at intervals and have to be. given rest. One of these three boilers deteriorated in its efficiency during the relevant accounting period and the assessee was obliged to purchase another boiler at a cost of Rs. 86,496 and the old boiler was sold for a sum of about Rs. 15,000

The assessee company claimed this sum as a deduction from and out of its profits as expenditure chargeable to revenue. The deduction was not allowed by the Income-tax Officer and the Excess Profits Tax Officer and his decision was confirmed by the Appellate Assistant Commissioner. They held that it was a capital expenditure and not an expenditure chargeable to revenue. On a further appeal, the Appellate Tribunal reversed this decision and upheld the claim of the assessee company. Hence this referenceThe question whether the expenditure incurred for the purpose of trade is properly debitable to the incomings of the trade or is capital expenditure is not always easy to decide

The scheme under the Indian Act adopted in Section 10 in computing the profits of a business is the allowances enumerated in sub-section (2) are treated as permissible deductions and therefore chargeable to the receipts from the business. Of these allowances, sub-clause (v) relates to current repairs to buildings, machinery, plant or, furniture and sub-clause (vi) relates to depreciation of such buildings, machinery, plant and furniture and clause (xv) is in the nature of a residuary clause which permits a deduction in respect of expenditure laid out or expended wholly and exclusively for the purpose of such business, profession or vocation but is subject to the qualification that such expenditure should not be in the nature of capital expenditure or personal expenses of the assessee. While Section 10 enumerates the permissible allowances there is no indication either in that section or elsewhere regarding the mode and the manner in which the profits of a business have to be computed for the purpose of assessing such profits to income-tax. It is, however, understood that apart from the allowances indicated in the section, the profits have to be determined by the ordinary principles of commercial accounting. It is here that what one might call a residuary clause, clause (xv), affords useful guidance in determining whether a particular item of expenditure could be legitimately charged to the revenue or not. If it is a revenue expenditure, it is permissible to deduct it, but if it is not, it cannot be excluded

To understand the decisions in England under the corresponding, provisions in Schedule D and the rules applicable to Cases I and II of that schedule, particularly rule 3, it may not be out of place to remember the scheme adopted by those rules. Under the English Act, two things are clear. An item of expenditure is deductible only if it is not expressly prohibited by statute or if it is not considered proper on the