Replacement of railway sleepers treated as revenue repair, not capital renewal, and allowed as business deduction.

Replacement of old and worn railway sleepers was tested against the current repairs principle under the Income-tax Act, 1922. The expenditure was treated as repair because it involved substitution of subsidiary parts of the railway line, not replacement of the whole undertaking or a substantial part of it. On that basis, the outlay was characterised as revenue expenditure and allowed as a deduction in computing business income.

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Issues: Whether the amounts spent on replacing old and worn out railway sleepers with new ones constituted revenue expenditure deductible in computing business income.

Analysis: The expenditure was examined in the light of the test applicable to current repairs under section 10(2)(v) of the Income-tax Act, 1922. Replacement of subsidiary parts of machinery or plant may amount to repair, but replacement of the entire machinery or a substantial part of it would amount to renewal or reconstruction and not repair. Applying that principle, replacement of worn out sleepers on the railway line was treated as restoration of subsidiary parts and not as replacement of the whole undertaking or a substantial part of it.

Conclusion: The expenditure was rightly treated as revenue expenditure and was deductible in the assessee's assessment.

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