JUDGMENT [ENTITY], J.
1. At the instance of the Commissioner of Income-tax, the following question of law has been referred to this court under [SECTION] of the [ACT], for the assessment year 1977-78 :
" Whether, on the facts and in the circumstances of the case, the Tribunal is correct in law in treating the cost of replacement of petrol engines of trucks by diesel engines as revenue expenditure and in that view, deleting the sum of Rs. 59,803 added by the Income-tax Officer ? "
2. Shortly stated, the facts are that the Income-tax Officer disallowed a sum of Rs. 89,704 representing the cost of three diesel engines fitted in trucks in place of petrol engines treating it as capital expenditure. On appeal, the Commissioner of Income-tax (Appeals) held that the expenditure for replacement of diesel engines in place of petrol engines of trucks was revenue in nature. He, however, found that the actual expenditure incurred for this purpose amounted to Rs. 59,883. He, therefore, reduced the disallowance to that extent. On further appeal, the Tribunal upheld the order of the Commissioner of Income-tax (Appeals) holding that the expenditure for replacement of petrol engines by diesel engines was of revenue nature. Accordingly, the expenditure was allowed.
3. At the hearing, it has been urged on behalf of the Revenue that the expenditure incurred by the assessee for replacement of petrol engines by diesel engines of the trucks was attributable to capital account as the same was not only made once and for all but it was incurred with a view to obtaining an advantage of enduring benefit to the assessee. It is also contended that replacement of petrol engines by diesel engines was a substantial replacement and, accordingly, it was of a capital nature.
4. Learned counsel for the assessee contended to the contrary. It was contended that the expenditure in question was in the nature of current repair of the machinery, being the trucks in the present case and, therefore, it was in the nature of revenue expenditure.
5. The aim and object of the expenditure for replacement of petrol engines by diesel engines for the trucks has not been mentioned by the Tribunal or by any of the authorities. The object may be to reduce the running cost of the trucks. In this case, a new asset was not brought into existence by such replacement. The trucks were being run by petrol engines. The diesel engines being part of the trucks cannot be a new asset. No new truck has been brought into existence. It is only a replacement of a part of an existing asset. It cannot be said that any expenditure was incurred for creation of an advantage of enduring benefit. The consistent view of courts is that where replacement of petrol engines by. diesel engines is made, what is really being done is to preserve and maintain an already existing asset and the expenditure is not incurred to bring a new asset into existence or fresh advantage to the business of the assessee.
6. In [PRECEDENT], the Gujarat High Court has taken a similar view.
7. In [PRECEDENT], the Bombay High Court considered the decision of the Supreme Court in [PRECEDENT] and held that, where the assessee had replaced the petrol engines by diesel engines in view of the steep rise in the price of petrol as compared to that of diesel, it must be held that the expenditure was incurred with a view to augment the assessee's profits and accordingly it was a revenue expenditure.
8. The Andhra Pradesh High Court in [PRECEDENT] held that the replacement of an old diesel engine by a new one did not bring any new asset into existence and hence the expenditure incurred therefor fell within the meaning of current repairs and hence was admissible as deduction under [SECTION] of the Act. It was also held that the replacement of the old diesel engine by a new engine was done with a view to preserve and maintain the asset in existence and, as no enduring benefit was derived by the assessee, the expenditure incurred by the assessee would be revenue in nature and hence allowable as revenue expenditure.
9. In [PRECEDENT] conversion system was introduced in the spinning plant of the assessee. This involved replacement of certain roller stands and fluted rollers fitted with rubber aprons to the spinning machinery of ring frames from certain existing parts, introduction, inter alia, of ball-bearing jockey-pulleys for converting the original band-drivers to tape drivers and other additions and alterations in the drafting mechanism. The assessee claimed development rebate on the ground that introduction of the Casablanca conversion system involved installation of new machinery. But the Tribunal rejecting the claim for development rebate and held that as a result of the stress and strain of production over a long period there was need for change in the plant and that the assessee had replaced old parts by introducing the Casablanca conversion system. This expenditure was allowable under [SECTION] of the old Act. The Supreme Court upheld the finding of the Tribunal that by introducing Casablanca conversion system the assessee made current repair to the machinery and plant.
10. It, therefore, appears to us that whether a particular expenditure is revenue expenditure incurred for the purpose of business must be determined on a consideration of all the facts and circumstances, and by the application of the principles of commercial trading. The question must be viewed in the larger context of business necessity or expediency. If the outgoing or expenditure is so related to the carrying on or conduct of the business that it may be regarded as an integral part of the profit-earning process and not for acquisition of an asset or a right of a permanent character, the possession of which is a condition for the carrying on of the business, the expenditure may be regarded as revenue expenditure.
11. Having regard to the facts and circumstances of this case, we are of the view that, in this case, replacement of a part of the truck being the petrol engine by a diesel engine, cannot be considered as bringing into existence any new asset or any new advantage of enduring benefit. It may be that, by such replacement, some advantage may be derived by the assessee as the operating cost may be reduced but, without such engine, a truck cannot be run. It pertains to running of the truck and consequently earning of profit by the assessee in its business. In our view, where a replacement is made of a physically, commercially and functionally inseparable part of an entire asset, the expense incurred in relation to such transaction must be treated as an admissible revenue expenditure.
12. For the reasons aforesaid, we answer the only question which has been referred to us in the affirmative and in favour of the assessee.
13. There will be no order as to costs.
[ENTITY], J.
14. I agree.