Replacement of worn-out machinery part treated as revenue expenditure where no new asset or enduring capital advantage arose.

Expenditure incurred to replace a worn-out projector head of an existing cinema projector was held to be revenue in nature because the replacement merely restored the machinery for continued use in the business and did not create a new asset or enduring capital advantage. The fitting charges for installing the new projector head were also treated as revenue expenditure, as they were incidental to and part of the same repair process. The assessee's claim was therefore upheld on both items, with the expenditure regarded as an allowable business outgoing.

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Issues: (i) Whether expenditure incurred for replacement of the projector head of a cinema projector was revenue expenditure or capital expenditure; (ii) Whether the fitting charges paid for installation of the new projector head were allowable as revenue expenditure.

Issue (i): Whether expenditure incurred for replacement of the projector head of a cinema projector was revenue expenditure or capital expenditure.

Analysis: The projector head was only one part of the cinema projector, and the replacement was made because the old part had become useless during the accounting year. The replacement did not bring into existence a new asset; it merely enabled the existing machinery to function and the business to continue. The advantage obtained was confined to the efficient running of the existing business and did not amount to an enduring benefit in the capital field.

Conclusion: The expenditure on replacement of the projector head was revenue expenditure and was allowable to the assessee.

Issue (ii): Whether the fitting charges paid for installation of the new projector head were allowable as revenue expenditure.

Analysis: The fitting charges were incidental to the replacement of the worn-out part of the existing machinery. Since the principal expenditure itself was held to be revenue in nature, the allied installation charges partook of the same character and were part of the cost of carrying out the repairs.

Conclusion: The fitting charges were also allowable as revenue expenditure.

Final Conclusion: The replacement of the worn-out projector head and the connected fitting charges were treated as revenue outgoings incurred for the running of the existing business, and the assessee's claim was upheld.

Ratio Decidendi: Where expenditure is incurred merely to replace a worn-out part of existing machinery so as to keep the business going, and no new asset or enduring capital advantage is brought into existence, the expenditure is on revenue account.

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