TMI Blog1993 (9) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... come-tax Appeal No. 1056/(Ahd.) of 1979. The reference has arisen in the background of the following facts : The assessee, Messrs. Sayaji Iron and Engineering Company, is a private limited company, which manufactures road making machines, quarry equipment and turn-key plants. The assessee entered into two contracts with : (i) Klaus Gerd Hoes of West Germany, and (ii) Aulmnn and Neckscheulte of West Germany, on November 13, 1972, and March 26, 1973, respectively. The assessee received technical know-how for manufacture, construction and assembly of various sizes of jaw crushers, impact breakers, grinding attachments double shifts mixtures and curring and crushing machines under the contract with Aulmnn and Neckscheulte ; whereas it recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted its return of income for the assessment year 1975-76 declaring a total income of Rs. 9,43,826. Before the Income-tax Officer, the assessee claimed deduction of Rs. 70,000 paid to the above-referred two foreign companies as revenue expenditure. The Income-tax Officer took the view that the documents pertaining to designs, blue prints and other information became the sole property of the assessee at the fixed cost of Rs. 2,40,000 payable to Aulmnn and Neckscheulte of West Germany and Rs. 1,10,000 payable to Klaus Gerd Hoes of West Germany and the payment in question of Rs. 70,000 was an expenditure of a capital nature. The Income-tax Officer, therefore, rejected the assessee's claim of deduction of Rs. 70,000 as revenue expenditure. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, is correct in law and sustainable from the material on record?" Reasons : The question, therefore, which requires to be examined and answered is whether the expenditure in question is revenue or Capital ? In determining whether a particular expenditure is revenue or capital, what is relevant is the purpose of the outlay and its intended object and effect, considered in a commonsense way having regard to business realities. There is also no single definitive criterion which, by itself, is determinative whether a particular outlay is capital or revenue. The "once for all payment" test is also inconclusive and in a given case, the test of "enduring benefit" may breakdown. In Alembic Chemical Works Co. Ltd. v. CIT [1989] 177 ITR 377 (S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed business and not to a new product indicates that what was stipulated was an improvement in the operations of the existing business and its efficiency and profitability not removed from the area of the day-to-day business of the assessee's established enterprise. It appears to us that the answer to the questions referred should be on the basis that the financial outlay under the agreement was for the better conduct and improvement of the existing business and should, therefore, be held to be revenue expenditure. Reference may also be made to the observations of this court in CIT v. Ciba of India Ltd. [1968] 69 ITR 692." Therefore, the question to be considered is whether improvisation by acquisition of blue prints, drawings, technical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not to a new product. In our view, the financial outlay under the agreement was for the better conduct and improvement of the existing business and was revenue in nature and was allowable as a deduction in computing the business profits of the assessee. In view of the foregoing discussion, we are of the view that on the facts and in the circumstances of the case, the amounts of Rs. 48,000 and Rs. 22,000, respectively, paid to the German companies known in short as "Aubema" and "Hoes" are allowable as revenue expenditure. Therefore, the finding of the Appellate Tribunal that, on the facts and in the circumstances of the case, the amounts of Rs. 48,000 and Rs. 22,000 paid under the contracts respectively to "Aubema" and "Hoes" are allowab ..... X X X X Extracts X X X X X X X X Extracts X X X X
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