Law:

Section:

JUDGMENT Jaganmohan Reddy, CJ.-Two questions have been referred to us under section 66(1) of the Indian Income-tax Act, 1922, by the Income-tax Appellate Tribunal, namely : "(1)Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the expenditure of Rs. 28,027 incurred in replacing petrol engines by diesel engines was of a capital nature not allowable under section 10(2)(xv) of the Act? (2)Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that neither initial depreciation nor development rebate was allowable on the cost of the diesel engine?" The assessee is a private limited company engaged in the business of plying trucks. In the accounting year, it had 23 trucks. In respect of three of these trucks, which were previously running on petrol, the assessee replaced the old petrol engines by new diesel engines which was done at a cost of Rs. 28,027. This expenditure was debited to the profit and loss account and claimed as an admissible deduction in arriving at the income, which according to the profit and loss account was Rs. 1,42,160. The Income-tax Officer disallowed this item of expenditure holding it to be of capital nature, and after making the necessary adjustments such as for depreciation, he arrived at a net income from the business of only Rs. 29,463. On appeal before the Appellate Assistant Commissioner, the assessee's contentions were that the expenditure should have been allowed as revenue expenditure under section 10(2)(xv) of the Act, and that in the alternative, initial depreciation or development rebate should have been allowed. The Appellate Assistant Commissioner did not accept those contentions and confirmed the assessment. In appeal before the Tribunal, the same contentions were raised as before the Appellate Assistant Commissioner, but the Tribunal also rejected them. In so far as the first question is concerned, in our view, it admits of no doubt that the expenditure incurred in replacing petrol engines by diesel engines is a capital expenditure, inasmuch as it was incurred for the creation of an advantage of an enduring benefit and forms part…

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