TMI Blog1994 (8) TMI 31X X X X Extracts X X X X X X X X Extracts X X X X ..... apital nature not allowable under section 37 of the Income-tax Act ?" We have heard both sides. The matter arises in relation to the assessment year 1978-79. The respondent-assessee is a firm carrying on the business of manufacture and sale of bidis. The firm had a jeep fitted originally with a petrol engine. During the assessment year, the petrol engine was replaced by a diesel engine at a cost of Rs. 40,930. The assessee had claimed total expenditure of Rs. 1,32,294 together with petrol expenses of Rs. 15,298 as deductible revenue expenditure. The Assessing Officer did not advert to the cost of replacing the petrol engine by the diesel engine, but disallowed Rs. 20,000 on the ground that the expenditure claimed was excessive. The asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at where expenditure is incurred for acquiring or bringing into existence an asset or advantage for the enduring benefit of the business, it is properly attributable to capital and it is in the nature of capital expenditure and if, on the other hand, it is not made for the purpose of bringing into existence any such asset or advantage, but for running the business or working it with a view to augment the profits, it is revenue expenditure. The aim and object of the expenditure would determine the character of the expenditure. (See Assam Bengal Cement Co. Ltd. v. CIT [1955] 27 ITR 34 (SC) and Travancore-Cochin Chemicals Ltd. v. CIT [1977] 106 ITR 900 (SC)). One of the earlier cases relating to replacement of the petrol engine of the vehicl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (v) of the Act. This was affirmed by the High Court and the Supreme Court. In that case, because of wear and tear, certain moving parts of the machinery had to be periodically replaced and it was found that when the parts were not available, the assessee introduced the new system. The Gujarat High Court had occasion to consider this matter in Addl. CIT v. Desai Bros. [1977] 108 ITR 14. In that case, a manufacturer of bidis incurred an expenditure for replacing a petrol engine of a truck used in the business by a diesel engine. The High Court held that repair always involved renovation of a part, i.e., restoration or renewal or replacement of subsidiary parts of a whole. The expenditure did not bring into existence a new asset, nor was the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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