Law:

Section:

Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessment year 1968-69 - Assessee-company was carrying on business of - Allowability of providing services and facilities such as electricity, water, railway siding, etc., to industrial units - Whether expenditure incurred on replacing overhead electric wires with underground cables was an allowable revenue expenditure - Held, yes FACTS The assessee-company was carrying on the business of providing services and facilities, such as electricity, water, railway siding, etc., to industrial units. For the assessment year 1968-69 the assessee claimed that the expenditure incurred on laying underground electric cables by replacing the overhead electric wires for supplying electricity to some of its clients was allowable business expenditure. The ITO disallowed the assessee's claim and treated it as capital expenditure. However, on appeal, the AAC allowed the assessee's claim by treating it as revenue expenditure. On appeal by the revenue, the Tribunal upheld the order of the AAC. On reference: HELD In the instant case, what the company did by replacing the overhead electric wires with underground cables was that it changed the nature of the capital asset by replacing the old system with a new system. The expenditure, which the assessee-company incurred for this purpose resulted in an enduring advantage, which was to last for a sufficiently long period. However, it is not the law that if an enduring advantage is obtained, the expenditure for securing it must always be treated as capital expenditure, though it is true that if the expenditure is for a substantial replacement of an existing business asset, it would be capital expenditure. Such an expenditure may have to be regarded as current repairs, if the replacement or the expenditure incurred for that purpose is not substantial Whether the cost of substitution or replacement of old with new can be regarded as current repairs or not, is always a question of fact and a question of degree. In the instant case, the assessee had produced a chart and other record to show the extent of replacement. Considering the nature of the business of…

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