1992 (10) TMI 31 - HC - Income Tax

Summary

Issues:
Whether the expenditure incurred by the assessee-company on replacing a petrol engine with a diesel engine is of revenue or capital nature for the assessment year 1978-79.

Analysis:
The High Court of Rajasthan was presented with the issue of determining the nature of expenditure incurred by an assessee-company on replacing a petrol engine with a diesel engine during the assessment year 1978-79. The Income-tax Officer initially disallowed the expenditure as capital in nature, as it was believed to have brought about a permanent advantage. However, the Commissioner of Income-tax (Appeals) found that the installation of the diesel engine created a permanent advantage through reduced fuel costs. The Income-tax Appellate Tribunal, Jaipur Bench, Jaipur, held that the replacement did not result in an advantage of enduring nature to the assessee, allowing the deduction. The Tribunal's decision was challenged, with the Revenue contending that the replacement should be considered capital expenditure based on a decision by the Kerala High Court regarding fishing boats fitted with imported engines. The court emphasized that capital expenditure is incurred for enduring benefits, while revenue expenditure is recurring. It referenced a Supreme Court case where extra depreciation was allowed for replacing a petrol engine with a diesel engine in a bus, as it was considered machinery. The court highlighted that if the replacement is to maintain machinery, it may be deductible, but not if it creates a new asset or advantage. The Tribunal's finding was deemed a factual one by the court, and it was observed that evidence regarding the condition and disposal of the petrol engine was lacking. The court concluded that the Tribunal erred in allowing the deduction without sufficient consideration of the facts and provisions of the Income-tax Act, directing a fresh decision by the Tribunal.

Therefore, the court held in favor of the Revenue, indicating that the expenditure on the replacement of the petrol engine with a diesel engine was not allowable as revenue expenditure. The case was remanded to the Tribunal for a reevaluation based on the court's observations.