High Court of Australia Windeyer J. W Thomas & Co Pty Ltd v Commissioner of Taxation (Cth) [1965] HCA 54 ORDER Appeal allowed. Case remitted to the Commissioner to re-assess tax in accordance with the finding of the Court. Cur. adv. vult. The following written judgment was delivered:— Nov. 3 Windeyer J. This is an appeal from the Commissioner of Taxation who disallowed the taxpayer's objection to an amended assessment in respect of the year of income ended 31st October 1961, a period adopted by this taxpayer in lieu of that ending on 30th June. The taxpayer lodged its return on 31st January 1962 and an assessment was issued on 28th February 1962 on the basis of a taxable income of £50,901. This amount was arrived at on the assumption that an amount of £5,082 10s. 1d., claimed to have been incurred for repairs to part of the taxpayer's premises, was an allowable deduction. The tax so assessed was paid. Later, namely on 12th March 1963, the Commissioner, after some correspondence with the taxpayer in the meantime, issued his amended assessment on the basis that the deduction for repairs ought not to have been allowed. The expenditure in question was incurred for work done upon a building called the Berry Building, which the taxpayer company had purchased during the year in question. Two questions arise. One is whether the expenditure was "expenditure for repairs not being expenditure of a capital nature" within the meaning of s. 53 of the Income Tax and Social Services Contribution Assessment Act 1936-1962 Cth. The other is whether the Commissioner had any power to amend his original assessment. The taxpayer's contention, duly raised by its notice of objection, is that it had in its taxation return made to the Commissioner a full and true disclosure of all the material facts necessary for his assessment and that therefore, by virtue of s. 170 (3), no amendment was permissible except to correct an error of calculation or a mistake of fact. It is not said that there was an error of calculation or mistake of fact. The Commissioner has expressly said there was not. Counsel for the taxpayer put in the forefront of his case reliance upon the sufficiency and the truth of what was told to the Commissioner as to the work done upon the building. But the onus being upon the taxpayer to bring its case within s. 170 (3) (McAndrew v. Federal Commissioner of Taxation [1] ) counsel, after some discussion, recognized the need to call evidence of the nature of that work so that I might judge of the sufficiency and truthfulness of the description of it. The other question is whether, apart from any question of the truth or sufficiency of the taxpayer's statements, the expenditures in question were or were not in fact of such a nature as to be allowable deductions under s. 53. The Commissioner's attitude is that the whole of the sum of £5,082 10s. 1d., represented by expenditure on different items, was wholly outside s. 53. The taxpayer's contention is that the whole amount is allowable. 1. (1956) 98 C.L.R. 263. The appellant taxpayer is a company which carries on business in a large way as a flour miller and grain merchant. The size of its business is indicated by the amount of its turnover, which in the year in question was £1,319,807, as appears by its trading account. Its main premises, including its flour mills, are at Port Adelaide. They are on opposite sides of two public roads, and cover about four and a half acres. The company employs a regular maintenance staff—three carpenters (called millwrights), one plumber, two painters, fitters, turners and riggers—for the care of its premises and plant. The Berry Building has been so called because before the time when it was acquired by the taxpayer it belonged to a company, Henry Berry & Company Limited (which I shall call "Henry Berry"). One part of it is an old stone building erected more than a hundred years ago. To this, considerable additions in brick were made thirty or more years ago. Henry Berry used the building as a warehouse in connexion with its grocery business. It also carried on there some factory processes—blending spices, pepper-grinding, mixing curry powders. The building adjoins a part of the taxpayer's premises. The taxpayer, being in need of further storage space for its business, sought at first to lease part of the Berry Building from its then owner, Henry Berry. But that company did not wish to lease it, saying that it was intending to vacate it and put it up for sale. Thereafter it was sold to the taxpayer by a contract dated 1st November 1960 for £14,000. On signing the contract the taxpayer was let into possession of part of the building and began at once to store there bales of corn sacks, phosphate from Christmas Island (which the taxpayer imports and sells as agricultural fertilizer) and bran and pollard. It progressively increased the area of its occupation by moving in concurrently with Henry Berry's moving out. The transaction was completed by settlement and conveyance on 14th February 1961 and the taxpayer thereafter occupied the whole building. Some parts of the building were somewhat dilapidated when the taxpayer got it. It proceeded to renovate or repair or do it up progressively as need appeared and convenience dictated. This work was done by its own workmen, its ordinary maintenance staff, except for the laying of an asphalt floor on top of the existing brick and concrete floor in the basement. This was done by a contractor. The building is on three levels. The lowest, called the basement, was in fact the ground floor level of the oldest part of the building when it was first built; but a general raising of the levels of streets in Port Adelaide has put it now below the present street level. The land at Port Adelaide is low-lying and water sometimes seeps up through aged or damaged concrete flooring in what are now basements. According to the contractor E. S. Wells who did the work, who was an eagerly informative and I thought reliable witness, the cost of laying the asphalt was very much less than the cost of putting down a new concrete floor would have been. During the year in question the taxpayer company bought the business of a company known as A. McAulay & Co. Limited, a bag manufacturer carrying on business near the taxpayer's premises. This company then became a subsidiary of the taxpayer. This enabled the taxpayer in effect to have its own bag-making department. According to evidence which I accept, the decision to buy the Berry Building was not related to the acquisition of the McAulay business. The McAulay transaction occurred in June 1961 and had not been in contemplation for more than a few weeks before then, whereas the Berry Building had been bought six months earlier. However, having acquired the McAulay business, the taxpayer decided to transfer the bag-making activities from McAulay's then premises, which were a leasehold, to the Berry Building. This made necessary certain additions to that building. As women would be working there in connexion with the bag-making new lavatories were installed. A lunch room was built and alterations of a structural character were made to the office. This is an outline of what was done. I shall describe it in more detail later. It is convenient to turn first to what the taxpayer said of the matter in its income tax return, for the Commissioner when he issued his original assessment had no more information before him than the return gave. The return included a copy of the taxpayer's trading account for the year. Two items in this were: By Repairs and Renewals £534. 9.11. Repairs and Renewals Berry Building £5,082.10. 1. There was also an item £74,246 19s. 1d. for wages. This, it seems reasonable to assume, included wages paid to the maintenance staff not specifically attributed to either of the items of repairs and renewals mentioned above and did not include wages that are included in the £5,082. The return included also a copy of the taxpayer's balance-sheet. Under a heading "Buildings—at valuation and cost" there is an entry as follows: Port Adelaide, Berry Building £15,015.7.4. It was admitted by counsel for the Commissioner that the balance-sheet disclosed to the Commissioner and that he was aware when he made the original assessment that the Berry Building was acquired during the year and taken into the balance-sheet as having a value at cost of £15,015 7s. 4d. This figure is in fact arrived at by adding to the purchase price of £14,000 a sum of £1,015 7s. 4d. representing the cost of the reconstruction of the office and the construction of the lunchroom and lavatories (described as amenities). This expenditure the taxpayer considered to be of a capital nature and it was thus treated as enchancing the balance-sheet value of the building. The rest of the expenditure on the building, namely the sum of £5,082 10s. 1d. now in question, was, as I have said, treated by the taxpayer as a proper debit to revenue account and thus brought into its trading account and reflected in its profit and loss account. Details of the whole of the expenditure on the Berry Building were given in a document forming part of the return. This document, read with the other matters in the return already mentioned, is what the taxpayer relies upon as a full and true disclosure of the material facts. The document in full is as follows: 31st OCTOBER, 1961. DETAILS OF EXPENDITURE ON BERRY BUILDING BY W. THOMAS & CO. LIMITED 1. Roof & Guttering Repairs. Material 638.13. 7 Labour 408. 8. 7 Workmen's Comp. & Payroll Tax 18. 7. 5 426.16. 0 1,065. 9. 7 Fibre Glass, perspex, plugs, nails etc. 84.17. 6 Galvanised iron 501. 2. 6 Less proceeds of sale of old iron 44. 7. 0 456.15. 6 Timber 73. 7. 9 Ridgecap & Lead Sheet 23.12.10 638.13. 7 2. Repairs to Walls Material 32. 4.10 Labour 97. 5. 3 Workmen's Comp. & Payroll Tax 4. 7. 7 101.12.10 133.17. 8 Cement 6.10. 9 Filleting (sic. a misprint for filling) 22.14. 6 Rimlocks, tail pieces, clips, etc. 2.19. 7 32. 4.10 3. Painting Material 360.18. 6 Labour 1,499. 2. 1 Workmen's Comp. & Payroll Tax 67. 9. 3 1,566.11. 4 1,927. 9.10 Paint, glass, putty, brushes, etc. 360.18. 6 4. Alterations and enlargement of Office Material 110. 9.10 Labour 123. 6. 4 Workmen's Comp. & Payroll Tax 5.11. 0 128.17. 4 239. 7. 2 Masonite, cement, bolts, etc. 30.15.11 Timber 58.17. 4 Glass 8. 1.10 Alterations to light fittings 12.14. 9 110. 9.10 5. Repairs to Basement Floor Material & Labour supplied 750 sq. yds. of asphalt flooring 1,345.15. 0 (SGD) W. SYMONDS 31st OCTOBER, 1961. DETAILS OF EXPENDITURE ON BERRY BUILDING (CONT.) 6. Installation of Lunchroom and other amenities Material 407.10.10 Labour 352.11.11 Workmen's Comp. & Payroll Tax 15.17. 5 368. 9. 4 776. 0. 2 Plumbing 245.12. 3 Timber 88. 6. 8 Asphalting & Filleting walls 68. 3. 0 Bolts, nails, etc. 4. 8.11 407.10.10 7. Repairs to Wooden Floor Material 363. 4. 0 Labour 236. 1. 7 Workmen's Comp. & Payroll Tax 10.12. 5 246.14. 0 609.18. 0 Timber, nails, etc. 363. 4. 0 TOTAL Material and Services supplied 3,258.16. 7 Own Labour (Incl. W.C. & Payroll Tax) 2,839. 0.10 6,097.17. 5 SUMMARY CAPITAL EXPENDITURE MATERIAL LABOUR TOTAL Office 110. 9.10 128.17. 4 239. 7. 2 Amenities 407.10.10 368. 9. 4 776. 0. 2 518. 0. 8 497. 6. 8 1015. 7. 4 REPAIRS. Roof 638.13. 7 426.16. 0 1,065. 9. 7 Walls 32. 4.10 101.12.10 133.17. 8 Painting 360.18. 6 1,566.11. 4 1,927. 9.10 Basement Floor 1,345.15. 0 — 1,345.15. 0 Wooden Floor 363. 4. 0 246.14. 0 609.18. 0 2,740.15.11 2,341.14. 2 5,082.10. 1 (SGD) W. SYMONDS. Evidence was given, which I accept, that this document (which I shall call "the Berry Building statement", or "the statement") is a correct summarized abstract of information in the taxpayer's records which show in detail and in accordance with proper accountancy principles the cost to the taxpayer of all work done on the Berry Building. The taxpayer's methods of control of expenditure, including wages paid, enabled these costs to be accurately dissected. The accuracy of the figures is not disputed by the Commissioner. His challenge is to the description of the purpose and nature of the expenditure amounting to £5,082. This, he says, was not for repairs properly so called: or, if it was, it was none the less an expenditure of a capital nature. Assuming that there was not a true and full disclosure of material facts and thus a power to amend, the main argument for the Commissioner on what I may call the substance of the matter is that all the expenditure on the building was necessary to fit it for the taxpayer's use and thus in a business sense part of the cost of acquiring a new capital asset. The best way in which to test the respective contentions is, I think, to see what exactly was done in relation to each of the items 1, 2, 3, 5 and 7 as set out in the Berry Building statement. Items 4 (the office) and 6 (the amenities block) are admittedly capital matters. The taxpayer called as a witness Thomas Paul Leppinus, the chairman of directors of the company. He was able to describe in considerable detail what was done and why it was done. His evidence was relevant, indeed necessary, to the taxpayer's case, for two purposes: first to support the proposition that what was done was correctly described by the several headings in the Berry Building statement, and secondly that, in the event of it appearing that there had not been a true and full disclosure, the Court might be in a position to decide whether the Commissioner was correct in amending his assessment by disallowing the whole amount of £5,082. Mr. Leppinus was a careful and helpful witness. He had an exact personal knowledge of his company's affairs, including details of the work done on the building. I accept his evidence. I may say here that in my view the Berry Building is the entirety that is to be considered for the purpose of deciding whether any particular work was or was not a repair. On this aspect I need do no more than refer to what Kitto J. said in Lindsay v. Federal Commissioner of Taxation [1] . The relevant question is not whether the roof or the floor or some other part of the building, looked at by itself, was repaired as distinct from being reconstructed or replaced. It is whether what was done to the roof or the floor or some other part was a repair of the building. 1. (1961) 106 C.L.R. 377. Turning now to the facts. First as to the roof. When the building came into the possession of the taxpayer the greater part of the roof, looked at as a whole, was of galvanized iron. The roof of the stone building was originally slate. It had fallen into disrepair and been patched in part with malthoid. In other parts the slates had been removed and galvanized iron had been fairly recently substituted by Henry Berry. Of the rest, that is the galvanized iron section, much of the iron was old although there too some parts had been fairly recently renewed by Henry Berry. That company had it seems been progressively renewing the roof but the work was far from complete. Mr. Leppinus said that when the building was taken over some parts were in need of immediate repair and that it was obvious that the whole of the old iron sections would need renewal sooner or later. It was not, however, realized by the taxpayer until winter was approaching that, if the building was to be used to its full capacity for the storage of goods that might be damaged by water, the task of repairing the roof as a whole must be put in hand at once. On 9th June 1961 the work started. New galvanized iron was put wherever Henry Berry had not already replaced the old iron, and the slates and malthoid were replaced with iron. The old iron removed was sold by the taxpayer, as is shown by the statement. Much of the guttering was in bad repair. It too was removed and replaced by new guttering at the same time. Work on the roof and guttering went on for about nine weeks, but not continuously. It was done intermittently, depending upon what other work had to be done by the maintenance staff and as the need to make various sections of the roof completely watertight became apparent or urgent. In the course of carrying out the work certain existing skylights were replaced by new ones of a larger size made of fibreglass perspex. This was done, as the statement shows, at a cost of £84 17s. 6d. The purpose was to improve the lighting in part of the upper floor where in connexion with the McAulay undertaking bag sewing and branding was to be carried on. So much for the work on the roof. It was accurately described in the statement as "roof and guttering repairs". And the statement shows too: that it was done by replacing old iron with galvanized iron purchased; that it involved the use of fibreglass perspex; and that the total cost in labour and materials of £1,065 was a considerable expenditure upon the roof of a building newly acquired at a cost of £15,000. The next subject in the statement is Repairs to Walls. When the building was taken over from Henry Berry the interior surface of some of the walls had fretted and was fretting in part and plaster from them kept falling upon the floor. To overcome this, parts of the surface of the walls were picked out where necessary and replaced by concrete cemented over. The word "filleting" appearing in the statement is a misprint for "filling". It refers to the crushed metal screenings used in the concrete. This work was done in February 1961. The next subject is described in the statement as " Painting ". The expenditure on this is the largest single item of those in question. The internal surfaces of the walls and those parts of the woodwork that had previously been painted were repainted, also some of the roofing timbers that had not been painted were painted. Quite soon after the purchase of the building was completed, in February 1961, Mr. Leppinus decided that the whole interior must be freshly painted. The work began apparently in April. It went on intermittently and was still in progress on 31st October, the end of the income tax year. Painting in one part or another of the taxpayer's premises seems to go on continuously, there being two painters regularly employed as part of the maintenance staff. The expenditure compendiously described in the statement as for painting includes the cost of cleaning the building in preparation for painting. This proved to be a considerable operation because, the building having been for a long time used for blending spices and grinding pepper, the walls, rafters and other surfaces were found to be heavily overlaid and in places impregnated with dust containing pepper and spices. A thorough cleaning of the interior surfaces of the building, followed by extensive painting, was necessary to get rid of the smell and dust of the previous occupation and ensure that foodstuffs could be stored without risk of contamination and people could work in comfort. The cleaning proved a troublesome and expensive business. Pepper had got into corners and crevices everywhere. Steel brushes, vacuum cleaners and blowers were used to get rid of it, and those engaged on the work had to be paid dirt money. The original intention had been to paint the walls with boncote, which is a white cement wash, to repaint woodwork and where the tie beams and rafters had not been painted to paint them after filling any weather warps and cracks. This work was done but because of the discolouration caused by the spices two coats of boncote instead of one had to be applied in places. The next item is the sum of £1,345 15s. 0d. paid for the basement floor. When the taxpayer first got possession of the building it used the basement for storage. At that time it seemed suitable for the purpose. But later the floor became damp. This may have been partly the result of its surface crumbling under the weight of trucks used to move the bales of bags. Each bale weighs about 300 pounds. They were delivered by vehicles at road level, put down a ramp to the basement and there moved about by hand trucks. It had not been realized that the floor was porous until the damp appeared and the stock of phosphate had to be re-bagged and moved pending the repair of the basement floor. The contractor, Mr. Wells, was then called in and asked to advise. He found the floor damp and "rather badly chopped about". He recommended that a surface of a special mastic asphalt, as supplied and laid by his firm, be put on top of the existing brick and concrete floor. This was done in July or August. The story of the basement takes some time to tell; but it seems to me that what was done is quite properly called in the Berry Building statement "Repairs to Basement Floor" and that it is there sufficiently and correctly described as "750 square yards of asphalt flooring supplied" at a cost of £1,345 15s. 0d. The last subject in question is that described as Repairs to wooden floor. This relates to the wooden floor on what has been called the first or ground floor of the old stone building, the floor that there is above the basement. This had become worn. And it seems too that it had been damaged by white ants in some places. A part of the actual flooring was replaced by new boards and some of the supporting timbers which were considered faulty were renewed to strengthen the floor and ensure that it was stable. This work was done in August and September 1961 at a total cost of £609, the greater part of this being the cost of new timber, as is apparent from the statement. I turn now to a peculiar feature of the case. On 9th March 1962, that is only nine days after the issue of the assessment, the Commissioner having apparently become doubtful whether the deduction of £5,082 should have been allowed wrote to the taxpayer requesting to be given, within fourteen days, information as follows: 1. The date on which the Berry Building was acquired. 2. The dates between which each of the following items claimed as repairs was effected:— a. Roof and Guttering Repairs b. Repairs to Walls c. Painting d. Repairs to Basement Floor e. Repairs to Wooden Floor. 3. Whether the Berry Building was in a state of disrepair when acquired and, if so, how much of each of the separate items of expenditure listed in Question 2 was attributable to making good defects in the buildings when it was acquired. 4. The type of material with which the Basement Floor was surfaced prior to the expenditure of £1,345 15s. 0d. on repairs. The letter was received by Mr. W. Symonds, the secretary and public officer of the taxpayer company. He was, by reason of his absence from the office, unable to answer the questions until 30th March. He then replied in a lengthy letter in which he questioned the power of the Commissioner to reopen his assessment, but, without prejudice to this contention, answered the questions about the building as follows: 1. Berry's Building was acquired on 10th February, 1961. 2. The dates between which each of the items was effected are: a. Roof and guttering repairs 9.6.61 to 18.8.61 b. Repairs to walls 31.3.61 to 14.4.61 c. Painting 21.4.61 to 31.10.61 d. Repairs to basement floor 4.8.61. to 8.9.61 e. Repairs to wooden floor 11.8.61 to 1.9.61. 3. Berry's Building was not in a state of disrepair when acquired. 4. The basement floor was surfaced with brick and cement. On 17th April the Commissioner wrote again: 1. Demonstrate in respect of each of the items of expenditure referred to in Question 2 of the departmental letter of 9th March 1962, the reasons why the Building deteriorated so rapidly as to necessitate the incurrence of such expenditure. 2. The approximate dimensions of the Building and the number of floors therein. 3. The purposes for which the Building is used by the Company. 4. As regards the expenditure on the basement floor— (1) whether the brick and cement floor was removed before the surface was asphalted. (2) the reasons why the floor was resurfaced in asphalt in preference to brick and cement. On 25th May, Mr. Symonds replied. So far as it is directly material his letter reads as follows: Berry's Building was purchased on 10th February, 1961, for use in the Company's business and for accommodation for storage of products. Generally speaking the building was in satisfactory state for the Company's purposes, but it was recognised that some repairs were advisable to the roof and guttering, the walls and the wooden floor, the estimates for these items were £200 for roof and guttering, £70 for the walls and £50 for the floor. Subsequently, the Company acquired the business of A. McAulay & Co. Limited, bag manufacturers, etc., and as their premises were inadequate to allow any expansion it was decided that Berry's Building be used to house the new Company. Settlement of the purchase of A. McAulay & Co. Limited was arranged for 1st July 1961. It was then decided that as the new Company would require the whole of the building it would be more economical to do a major overhaul of the building rather than to repair when repairs became unavoidable as the latter policy would have increased the ultimate cost and at the same time interfered with the efficient running of the factory, with a resultant reduction in overall profits. Dealing with your request as numbered in your letter of 17th April, we set out the following:— 1. The above general statement applies to each of three items mentioned in question 2 of your letter of 9th March 1962, namely Roof and Guttering Repairs, Repairs to Walls and Painting. In regard to painting and the walls, in addition to the object of avoiding doing frequent small repairs, it was desirable that the woodwork and walls should be well surfaced as a considerable section would be used for preparing containers for packing food for human consumption. We deal with repairs to the basement floor in reply to your question No. 4 (i) and (ii) in your letter of 17th April. In regard to the wooden floor, it was in condition for ordinary wear and tear, but it was considered, in view of the type of machinery that was to be installed, vibration might have made necessary constant watch on the floor supports and periodical attention and expense in addition to possible delays in operating. The supports, therefore, were replaced. 2. A floor plan of the building is enclosed herewith. 3. A. McAulay & Co. Limited moved into the building on 15th September 1961. 4. (i) The bricks and cement were not removed. (ii) Re-surfacing with brick and cement would have involved removing in whole or in part the old floor. Mr. Symonds has died since this correspondence occurred. The Commissioner was obviously justified at the time in taking the statements in his letters as correct. Yet the taxpayer now, to a large extent, disavows them. Mr. Leppinus gave evidence that until recently he was not aware of the letter having been written and further that he knows of no basis for the statements that there had been estimates for the repair of the roof and guttering of £200, for the walls £70, and £50 for the floor. He says that he has been unable to ascertain the source of any of these figures. It seems that Symonds, who had signed and apparently prepared the income tax return, had personally attended to the Commissioner's questions and that he drew partly on facts known to him and partly on surmise. It seems that his purpose was to justify his statement that the building was not in disrepair when bought, yet explain, in answer to the Commissioner's inquiry, how so much expenditure on it became necessary within such a short time. He may have been right in thinking that an expenditure of under three hundred pounds would have sufficed to meet the most immediate needs. And it may well be that the doing of the work that was ultimately done was hastened by the decision to transfer the McAulay business to the Berry Building; and that decision may have to some extent dictated what was to be done by way of repairs as well as by way of the additions of the lunch-room, lavatories and office. But I accept the evidence of Mr. Leppinus that, quite apart from the acquisition of the McAulay business, the building would have been put into good order, and that this sooner or later would have been necessary if it were to be used effectively for the taxpayer's purposes. The taxpayer is a prosperous company and I have no doubt that the building having been added to its premises, the bringing of it into thorough repair would have been put in hand as a task for the maintenance staff. The works in question can all be fairly described as repairs to the building. They were done to make good a deterioration that had occurred by ordinary wear and tear or by the operation of natural causes during the passage of time. I was referred to various definitions of the word "repair" and to a number of cases illustrative of its meaning. I need not discuss them. Cases arising between landlord and tenant are only of indirect assistance. And nothing much is to be gained by comparing the particular facts of other cases with the facts of this case. And understanding the concept of "repair" is not much aided by constrasting that word with other words that in themselves gain only by contrast whatever precision of meaning they have in this field. The words "repair" and "improvement" may for some purposes connote contrasting concepts; but obviously repairing a thing improves the condition it was in immediately before repair. It may sometimes be convenient for some purposes to contrast a "repair" with a "replacement" or a "renewal". But repairs to a whole are often made by the replacement of worn-out parts by new parts. Repair involves a restoration of a thing to a condition it formerly had without changing its character. But in the case of a thing considered from the point of view of its use as distinct from its appearance, it is restoration of efficiency in function rather than exact repetition of form or material that is significant. Whether or not work done upon a thing is aptly described as a repair of that thing is thus a question of fact and degree. But the answer to that question does not of itself decide whether the expenditure on the work is properly to be considered as an outgoing upon capital account or upon revenue account. And that is what must be decided when the question is whether that expenditure is an allowable deduction in the ascertainment of taxable income. Expenditure upon repairs is properly attributed to revenue account when the repairs are for the maintenance of an income-producing capital asset. Maintenance involves the periodic repair of defects that are the result of normal wear and tear in operation. It is an expense of a revenue nature when it is to repair defects arising from the operations of the person who incurs it. But if when a thing is bought for use as a capital asset in the buyer's business it is not in good order and suitable for use in the way intended, the cost of putting it in order suitable for use is part of the cost of its acquisition, not a cost of its maintenance. The decision of the Court of Session in Law Shipping Co. Ltd. v. Inland Revenue Commissioners [1] , is commonly cited as authority for that proposition. The principle is obvious without the need for any supporting authority. I may nevertheless quote as a clear exposition a passage from the judgment of Woodhouse J. in the New Zealand case of Collector of Inland Revenue, Cook Islands v. A. B. Donald Limited [2] . That case, like the Law Shipping Company's Case, was concerned with the acquisition of a vessel. His Honour said: When this general principle is applied to the present case the issue becomes one of deciding whether the expenditure upon the vessel is part of the company's organization of capital in order to earn profits with her, or whether it arises from causes associated with the course of operations embarked upon for that purpose. In this regard nobody would doubt that to maintain such an asset which otherwise would deteriorate by its use in operations directed to produce income is a revenue charge. Work of this sort is done to preserve the asset, and following the work the character of the asset is left unchanged. But equally clearly the initial purchase of the asset involves an outlay of capital—it is a part of the organization of capital by the taxpayer to enable income-producing activity to be carried out. How then must one label an expenditure which remedies some flaw in the asset existing at the time of purchase? To me there can be only one answer. To the extent that such initial defects are restored, the result is an improvement in the quality of the asset purchased, and, in my opinion, there has been an outlay of capital. To treat this outlay as a revenue loss is no more justified, in my opinion, than to treat the value of the improvement as an income gain. Defects may arise gradually over an extended period or develop from unexpected or sudden causes, but in so far as they have matured by the time of purchase by the new owner, they affect the quality of the asset he has acquired. Any subsequent need to remove them must be regarded as a legacy inherited by him as part of his bargain. It follows, therefore, that I take the view that the restoration of defects in an asset cannot be classed as a revenue charge unless the defects have arisen out of the taxpayer's application of that asset in his search for income and unless the work is limited to those defects and does not become enlarged into such a reconstruction that a permanent improvement in quality has been effected. 1. [1924] S.C. 74; 12 Tax. Cas. 621. 2. (1965) 9 A.I.T.R. 501, at p. 506. Applying the principle to the present case it seems to me that the expenditure of £5,082 upon repairs upon the Berry Building in the year ended 31st October 1961 was of a capital nature. It seems to me immaterial that when the taxpayer acquired the building it did not know of some of its defects, those in the basement floor for example. That means only that the cost of obtaining an asset suitable for its purpose was greater than had been expected. It is equally immaterial that some parts of the work of repair were done progressively as parts of the building were taken into actual use. Expenditure of a capital nature does not cease to be so because made for work the doing of which was spread over a period of weeks or months and paid for as it was done. It is perhaps possible that some part of the expenditure might perhaps on a more close analysis than the evidence permits be shown to contain elements that would, if they could be separated, be a justifiable charge to revenue account. There are always some difficulties in applying in a strict way the concept of repairs, as limited to those resulting from a taxpayer's own operations, to work such as painting that is periodically done not merely to make good defects but also to prevent defects developing. A stitch in time is as much a repair as would be the nine it saves. And the cost of it may be in the same category as would the cost of nine. It may be too that the need for some of the work done on the building in the second half of 1961 was contributed to by the use that the taxpayer had made of it during the first half of that year. But I can see no basis for apportioning between capital and revenue the actual expenditure that was incurred on any of the items listed in the statement. Looked at as a whole, each was I consider expenditure of a capital nature. As Kitto J. said in Federal Commissioner of Taxation v. Western Suburbs Cinemas Ltd. [1] , "if a total expenditure is of a capital nature, so is every part of it". 1. (1952) 86 C.L.R. 102, at p. 109. It therefore becomes critical to decide the question of true and full disclosure. The taxpayer can succeed on this issue if it appears that without any accompanying misrepresentation it had made known to the Commissioner all that, properly considered, would lead to the conclusion that the expenditure was of a capital nature. It was said by counsel that if any single material fact had not been disclosed the taxpayer's case must fail. That is true enough. But the question is not as to the expenditure of a single sum of £5,082. That amount is, as the Commissioner knew, made up of separate items of expenditure. Whether there was a true and full disclosure of its capital nature must, I consider, be decided in respect of each. I do not think it can be said that there has been a failure to make a full and true disclosure of all material facts simply because the Commissioner was not told everything that was elicited by examination and cross-examination before me. If the evidence contradicted anything of a material nature that the Commissioner had been told, it could not be said that there had been a true and full disclosure. But, if it amounted only to explanatory detail confirmatory of a conclusion that he could and should have reached on the facts before him, then it cannot be said that there was a lack of true and full disclosure. Looking at the matter in this way, what did the Commissioner know? He knew that a building had been acquired during the year at a cost of £15,015. He knew that after its acquisition and within the year a total sum of £6,097 had been spent upon it of which £1,015 was for structural alterations and additions and the balance, £5,082, for work described as repairs. It was thus apparent that, whether or not this expenditure was properly described as for repairs, the work was extensive and costly considered in relation to the value of a building newly acquired. In my view the information that the Commissioner had would lead inevitably to the conclusion that prima facie this expenditure was of a capital nature. It is said that the Commissioner was not told that the building was in bad repair when it was bought. But the use of a relative and imprecise phrase of that kind would have added little, if anything, to what is revealed by what he was told. It is said that the Commissioner was not told the date when the building was bought or the dates on which the various works were commenced and completed. But all this occurred within the year; and having regard to the nature of the work it does not seem that it could be material for him to know more than that. The character of the work and the nature of the expenditure on it could not depend on the time it took to do it. There is nothing in the statement to suggest that the work was for repairs made necessary by the taxpayer's use of the premises, and a great deal that indicates that this was not so. It is also said for the Commissioner that the information given by the taxpayer was insufficient as there was no mention of the acquisition of the McAulay business. But the taxpayer did not have to describe the particular purpose for which it in fact used or intended to use the building. It appeared clearly enough that within a matter of months of its acquisition the building was done up at considerable cost to make it suitable for the business purposes of the taxpayer. Finally it is said for the Commissioner that there was not a true and full disclosure because the taxpayer impliedly stated that the work done was not of a capital character. It is said that this was an accompanying misrepresentation which neutralized the description of the work done. This contention requires consideration. What the taxpayer actually said was that it had met the cost out of revenue, regarding it as a proper outgoing in ascertaining its trading profit. That of itself is of course inconclusive. If the taxpayer chose to finance capital works out of income that would diminish its distributable profit; but it would not mean that in assessing its taxable income the cost of the works must be treated as an allowable deduction. On the other hand however what must be disclosed are the material facts concerning a particular expenditure. It does not seem to me to be correct to say that if these be truly and sufficiently stated the effect of doing so is neutralized by a claim based upon an erroneous view of their legal complexion and consequence. As Kitto J. said in the case referred to above, "the capital or income character of expenditure actually incurred depends upon the nature of the purpose for which it was incurred". If that purpose sufficiently appears, there is I consider no failure of full disclosure because the taxpayer treats the expenditure as of a revenue and not of a capital nature in its own accounts and claims to do so for taxation purposes. The distinction between expenditures on capital account and revenue account has in many cases proved to be debatable and difficult and to cause differences of opinion. For several reasons the taxpayer could honestly, although mistakenly, think that its claim was justifiable. The work was a repair: most of it was not begun until some time after the taxpayer had entered into possession and begun to use the building, it not being absolutely necessary that it be done before the building be put to some use: it was (with the exception of the basement) done by regular servants of the taxpayer who, if not doing this, would have been paid, just the same, for doing ordinary maintenance work: the expenditure was not for making suitable for the purposes of trade a separate profit-earning asset, as in the ship cases; it was upon a building that had been added to the taxpayer's adjoining premises to be used therewith and which the taxpayer had done up as part of the larger undertaking of keeping all its premises in good order. These considerations explain, I think, an honest view that the expenditure was a proper outgoing on trading account. Making the claim that that was so did not, I think, negative full disclosure. I have come to the conclusion that, except in respect of the item "Painting", there was a true and full disclosure of material facts. As to the cost of the "painting" the taxpayer has failed to satisfy me that all that the Commissioner needed to know was told him. As I have said, painting does not always have to wait upon insistent necessity. It would not necessarily follow that because the building was painted shortly after its acquisition the cost was part of the cost of gaining a capital asset. But here I think it was. It was done as part of an unusual and costly operation necessary to dispel the relics of spice-making and pepper-grinding and to make the premises suitable for use by the taxpayer. The Commissioner may have been induced to a belief that the original material put before him was not a full and true disclosure by the letters that were written by the late Mr. Symonds. His statement that practically the whole of the expenditure was caused by an "overhaul" of the building to enable it to be used for McAulay's business seems to have been at best an exaggeration of the effect of the acquisition of the McAulay business. Actually it matters not whether the expenditure was to fit the building for the taxpayer's purposes having acquired McAulay's business, or for its purposes independent of that. It was still in the nature of a capital expenditure. But the answers given to the Commissioner by the taxpayer and now repudiated by the chairman of directors are a somewhat disquieting aspect of the case. For this reason and because the appellant has succeeded only in part I make no order as to costs. The objection to the amended assessment is allowed in part. The amended assessment is set aside. The case is remitted to the Commissioner to assess the tax payable by the taxpayer on the basis that the sum of £5,082 that by the amended assessment was disallowed as a deduction in ascertaining the taxpayer's taxable income be, except as to £1,927 9s. 10d., allowed.