1989 (7) TMI 4

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..... er? " Shortly stated, the facts are that the Income-tax Officer disallowed a sum of Rs. 89,704 representing the cost of three diesel engines fitted in trucks in place of petrol engines treating it as capital expenditure. On appeal, the Commissioner of Income-tax (Appeals) held that the expenditure for replacement of diesel engines in place of petrol engines of trucks was revenue in nature. He, however, found that the actual expenditure incurred for this purpose amounted to Rs. 59,883. He, therefore, reduced the disallowance to that extent. On further appeal, the Tribunal upheld the order of the Commissioner of Income-tax (Appeals) holding that the expenditure for replacement of petrol engines by diesel engines was of revenue nature. Accor .....

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..... nes by diesel engines is made, what is really being done is to preserve and maintain an already existing asset and the expenditure is not incurred to bring a new asset into existence or fresh advantage to the business of the assessee. In Addl. CIT .v Desai Bros. [1977] 108 ITR 14, the Gujarat High Court has taken a similar view. In CIT v. Polyolefins Industries Ltd. [1988] 169 ITR 538, the Bombay High Court considered the decision of the Supreme Court in Assam Bengal Cement Co. Ltd. v. CIT [1955] 27 ITR 34 and held that, where the assessee had replaced the petrol engines by diesel engines in view of the steep rise in the price of petrol as compared to that of diesel, it must be held that the expenditure was incurred with a view to augme .....

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..... of production over a long period there was need for change in the plant and that the assessee had replaced old parts by introducing the Casablanca conversion system. This expenditure was allowable under section 10(2)(v) of the old Act. The Supreme Court upheld the finding of the Tribunal that by introducing Casablanca conversion system the assessee made current repair to the machinery and plant. It, therefore, appears to us that whether a particular expenditure is revenue expenditure incurred for the purpose of business must be determined on a consideration of all the facts and circumstances, and by the application of the principles of commercial trading. The question must be viewed in the larger context of business necessity or expedienc .....

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