Page 641 - SAIT Compendium 2016 Volume2

IN 74 Income Tax acT: InTeRPReTaTIon noTes IN 74 ‘the terms ‘repair’, maintenance’ and ‘adjustment’ are not mutually exclusive. One cannot, therefore, by
describing some operation as ‘maintenance’ or ‘adjustment’, exclude the possibility that it is also a ‘repair’ . The court held that –*
‘[t]he whole object of ‘free service’ is to ensure that the car is maintained in good working order and condition by doing such limited repair work as is necessary to keep or place it in good working order and condition’.
4.3 Maintenance deductible as repairs under section 11 (d)
Expenditure incurred on maintenance will be deductible under section 11 (d) provided it complies with the essential elements of a repair and the other requirements of that section. Maintenance requires keeping the asset in good working order and condition which implies that it has become defaced or worn out or worn down by use or possibly by wear-and- tear, a requirement considered by the courts that meets the broader meaning of repairs.†
4.4 Repairs in relation to the entire property
In judging whether a renewal or repair has been carried out, regard must be had to the extent of the restoration work in relation to the entire property of which the portion restored forms a part. The greater the restoration work in relation to that entirety, the less likely it is that a repair has taken place.‡ In ITC 617§ the court considered the deductibility of various expenses incurred on a racecourse comprising a number of buildings and the race track. The court stated the following on what constituted the subject matter:
[A]s far as the buildings are concerned the general principles applicable to the repair of each building as constituting a separate and distinct subject matter, are applicable to that particular building, whether used for one purpose, or conjointly for several purposes. In the case of the race-track or course itself the whole subject matter is to be regarded as comprising the track itself, the rails along it and the starting gates, discs indicating distances and so on.’
One of the stands had been blown down and reconstructed of new materials. The court held that It was substantially a reconstruction of the whole of a separate subject matter and therefore not a repair.
In ITC 709¶ a weir which had suffered ood damage consisted of three parts, namely, a platform, a rock support and a wall. The platform remained intact but the greater number of rocks making up the rock support had to be replaced and the wall was rebuilt to a greater height. The court found on the facts that the entirety of the weir had not been replaced and allowed the cost of replacement as a repair with the exception of a sluice valve which was not present previously.
In B v COT** the appellant had embarked on a large scheme of reconstruction, which converted a building comprising doctors’ consulting rooms from three suites of consulting-rooms to ve. In the course of these operations about half the original walls were pulled down and rebuilt, many in positions other than they had originally occupied, while doors and windows were placed in new positions. Only one room in the original building was entirely unchanged. In addition the roof was reconstructed on a new plan and some 60 per cent of the timber replaced, a large portion of the ooring replaced and the electric wiring entirely replaced as the old installation did not conform with existing municipal regulations. Having regard to the extent of the work undertaken, the court held that there had been a substantial reconstruction and renewal of the building as a whole which constituted expenditure of a capital nature. The court noted that the operation must be viewed as a whole and that it was not permissible in such a case to isolate individual items of expenditure and attempt to allocate some to repairs of the old building.
In ITC 925†† the appellant had derived rental income from the letting of ve dwelling houses. During the year of assessment certain building work was carried out on each of the ve houses which the appellant sought to allocate between repairs and improvements. On the facts and viewing the work done on the houses as a whole, the court concluded that the work was one of reconstruction of substantially the whole subject-matter and not one of repairs and it was accordingly not permissible for appellant to isolate individual items of expenditure and to allocate them to repairs.
In ITC 1408‡‡ the appellant replaced the brick façade of a commercial building which had deteriorated with concrete panels. The court found that the work related to a subsidiary part of the whole, namely, the exterior walls. The cost of replacing the brick façade with the concrete panels was accordingly allowed as a repair.
Even if only a subsidiary part of the whole subject matter is replaced it must still be determined whether it constitutes a repair or an improvement.
4.5 Distinction between repairs and improvements
In view of the sometimes narrow distinction between ‘repairs’ and ‘improvements’, there are a variety of cases on this subject which are not always consistent. However, the following general principles have emerged:
* Above at 98.
† ITC 491 (1941) 12 SATC 77 (U).
‡ Rhodesian Railways v Collector of Income Tax Bechuanaland 1935 AC 368, 6 SATC 225. § (1946) 14 SATC 474 (U).
¶ (1950) 17 SATC 227 (C).
** 1955 (1) SA 404 (SR), 19 SATC 353.
†† (1959) 24 SATC 252 (C).
‡‡ (1985) 48 SATC 21 (T).
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