Replacement of draw frames treated as revenue expenditure where no new enduring asset or capacity increase resulted.

Expenditure on replacing draw frames was treated as revenue expenditure because the replacement did not increase installed capacity, did not create any new asset of an enduring nature, and did not bring about any substantial improvement to the textile unit. On those facts, the cost was characterised as a replacement cost rather than capital outlay. The reference was answered in favour of the assessee and against the Revenue.

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Issues: Whether the expenditure incurred on replacement of draw frames was revenue expenditure.

Analysis: The replacement did not increase the installed capacity, did not bring into existence any new asset of an enduring nature, and did not result in any substantial improvement to the textile unit. On these facts, the expenditure was treated as only a replacement cost and not as capital outlay.

Conclusion: The expenditure on purchase of draw frames was held to be revenue expenditure, and the reference was answered in favour of the assessee and against the Revenue.

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