Jagannath, In re, 1946 SCC OnLine Lah 71 : (1947) 15 ITR 185 (Lah)], a Full Bench of the Lahore High Court attempted to reconcile all these decisions and deduced the following broad tests for distinguishing capital expenditure from revenue expenditure. The opinion of the Full Bench was delivered by Mahajan, J. as he then was, in the terms following : (ITR pp. 198-99) “… It is not easy to define the term “capital expenditure” in the abstract or to lay down any general and satisfactory test to discriminate between a capital and a revenue expenditure. Nor is it easy to reconcile all the decisions that were cited before us for each case has been decided on its peculiar facts. Some broad principles can, however, be deduced from what the learned Judges have laid down from time to time. They are as follows: (1) Outlay is deemed to be capital when it is made for the initiation of a business, for extension of a business, or for a substantial replacement of equipment : vide Lord Sands in IRC v. Granite City Steamship Co. Ltd. [IRC v. Granite City Steamship Co., 1927 SC 705 : 13 TC 1 at p. 14] at TC p. 14. In City of London Contract Corpn. v. Styles [City of London Contract Corpn. v. Styles, (Surveyor of Taxes), (1887) 2 TC 239 at p. 243 (CA)] at TC p. 243, Bowen L.J. observed as to the capital expenditure as follows:
