Revenue expenditure on replacement of worn-out engine accepted where repair and renewal did not create a new asset.

Replacement of a worn-out engine in a business van was treated as revenue expenditure because the van remained the same business asset and the engine was only a component of it. The replacement of an old part did not amount to acquisition of a new asset, and current repairs are not limited to petty repairs; renewal can still retain a revenue character. The fact that fitting a diesel engine produced fuel economy and some enduring benefit did not, on these facts, convert the outlay into capital expenditure. The expenditure was therefore allowable as a deduction.

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Issues: Whether the expenditure incurred on replacement of the worn-out petrol engine of a business van by a diesel engine was capital expenditure or revenue expenditure.

Analysis: The van was a business asset and the engine was only a part of it. Replacement of an old and worn-out part did not amount to acquisition of a new asset. Current repairs are not confined to petty repairs, and repair may involve renewal without losing its revenue character. The mere fact that a diesel engine brought fuel economy and some enduring advantage did not, on these facts, convert the expenditure into capital expenditure.

Conclusion: The expenditure was revenue in nature and was allowable as a deduction.

Ratio Decidendi: Replacement of a worn-out part of a business asset does not become capital expenditure merely because the replacement yields an enduring advantage, where it is in substance a repair or renewal of an existing asset.

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