Hi Yogesh,
Although this docuemnt http://www.sdn.sap.com/irj/scn/index?rid=/library/uuid/b0ed3f8b-ac55-3010-779c-aa6eebf10bf1&overridelayout=true is for SAP Solution Manager 7.1, you still can find the reason for choosing install or update.
Regards,
Ning