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Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessment year 1968-69 - Whether expenditure incurred for replacing petrol engine by diesel engine in assessee's truck which was being used in its business was an allowable business expenditure - Held, yes FACTS The assessee claimed deduction of expenditure incurred for replacing a petrol engine by a diesel engine in its truck which was being used in the business. The assessee claimed the said replacement cost was in fact expenses for current repairs. The ITO rejected the assessee's claim. The AAC, however, held that the cost of replacement was only cost of repairs to the machinery and hence the claim was allowed under section 31. The Tribunal upheld decision of the AAC. On reference : HELD The very fact that the assessee was required to replace the unserviceable petrol engine was by itself a clear indication as to the nature of expenses. The unserviceable state of the petrol engine could be the result of continuous use of the truck in the business and the necessity for replacing such an unserviceable petrol engine had arisen out of the continuous use of the asset, namely, the truck in question. In that view of the matter, it could not be said that replacement of diesel engine would achieve an advantage of permanent endurance to the business of the assessee-firm in the sense of bringing into existence a capital asset. It is no doubt true that there was no material on the record before the Tribunal as to what would be the price or cost of a new truck. But, none the less, the assessee could not have been able to purchase a new truck from the amount which it spent in replacement. In that view of the matter, it could not be said that the object of the assessee in incurring the expenses in replacement was with a view to bringing into existence a new asset or was with a view to have a substantial replacement or renovation, but it appeared that the assessee was motivated in making the expenses by the object of preserving and maintaining the asset for the purpose of use in the business. Therefore, in the facts and circumstances of the case, the Tribunal was right in holding that the…

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