Factory road resurfacing is revenue expenditure when it repairs an existing facility rather than creates a new capital asset.

Expenditure on asphalting or resurfacing a kaccha road within factory premises was treated as revenue expenditure because the work was only repair and improvement of an existing facility. Converting an existing road into an asphalt road did not by itself create a new capital asset or confer an enduring advantage. Applying its earlier view, the Bombay High Court held that such resurfacing does not change the character of the spend into capital outlay. The question was answered in the negative, in favour of the assessee and against the Revenue.

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Issues: Whether the expenditure incurred on asphalting or resurfacing the kaccha road within the factory premises was capital in nature as bringing into existence a new asset or an advantage of enduring nature, or was allowable as revenue expenditure.

Analysis: The question was covered by the court's earlier view that expenditure on repairs and resurfacing of roads in factory premises does not acquire the character of capital expenditure merely because the existing kaccha road is converted into an asphalt road. The decisive consideration was that the work amounted to repair and resurfacing of an existing facility and did not justify treatment as acquisition of a new capital asset or an enduring advantage.

Conclusion: The expenditure was held to be revenue in nature and not capital expenditure; the question was answered in the negative, in favour of the assessee and against the Revenue.

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