Current repairs and depreciation principles support allowance where expenditure preserves an existing asset rather than creating a new one.

Depreciation was stated to be allowable on the original cost of assets in line with binding Supreme Court authority. The article also explains the test for current repairs: expenditure is revenue in nature when incurred on an existing asset to preserve and maintain it, and not to create a new asset or fresh advantage. Applying that approach, replacement of a motor vehicle body on an old chassis was treated as renovation of an existing asset rather than creation of a new one, so the amount was allowable as current repairs. The stated result is that the deductions were upheld in favour of the assessee.

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Issues: (i) whether depreciation was properly allowed on the original cost of the assets; (ii) whether the expenditure of Rs. 12,091 on replacement of the body of a motor vehicle was revenue expenditure by way of current repairs.

Issue (i): whether depreciation was properly allowed on the original cost of the assets

Analysis: The issue was treated as concluded by binding Supreme Court authority, under which depreciation was allowable on the original cost in the assessee's favour.

Conclusion: The depreciation was properly allowed on the original cost of the assets, in favour of the assessee.

Issue (ii): whether the expenditure of Rs. 12,091 on replacement of the body of a motor vehicle was revenue expenditure by way of current repairs

Analysis: The test applied was whether the expenditure was on an existing asset and whether it resulted in a new asset coming into existence. The Court approved the approach that repair is present when the object is to preserve and maintain an existing asset, and not to create a new asset or obtain a fresh advantage. Replacement of defective parts, even if substantial, may still be repair if it does not amount to substitution of the entirety of the subject-matter. On the facts, the Tribunal had found that the body of the vehicle was renovated by placing a new body on an old chassis, and this was treated as current repairs.

Conclusion: The expenditure was properly treated as revenue in nature and allowable as current repairs, in favour of the assessee.

Final Conclusion: The reference was answered entirely in favour of the assessee, and the deductions claimed were upheld.

Ratio Decidendi: Expenditure is deductible as current repairs when it is incurred on an existing asset to preserve and maintain it, and does not result in the creation of a new asset.

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