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2007 (5) TMI 554 - AT - Income TaxDeferred revenue expenditure - Expenditure made for use of domestic customer base and transfer of human skills - benefit accrued is of enduring nature - receipt on transfer of employees - Nature Of receipts - ''Capital Or Revenue'' - HELD THAT:- If the Revenue wanted to treat that the consideration paid as per the agreement was for the transfer of the business being undertaken by Tata IBM Ltd. then such receipts should have been held as capital in the hands of the recipient. In the case of Syndicate Bank Ltd. v. Addl. CIT [1985 (3) TMI 48 - KARNATAKA HIGH COURT] has held that the transfer of undertaking is a transfer of capital asset and is liable to capital gain. However, in the case of the recipient, the Revenue has treated the receipts as revenue receipts and included in the income. The matter has travelled up to the Tribunal and the Tribunal has held that the receipts are revenue in nature. The Revenue cannot blow hot and cold once it has taken the stand that the receipts in the hands of the recipient are revenue in nature then such payments cannot be held as capital in the hands of the payer representing the consideration paid for the transfer of business. In the instant case, the recipient has not been taxed under the head " Capital gain" on the transfer of the business. Hence, the action of the Assessing Officer in holding that the receipts represented the receipts on account of transfer of business cannot be upheld. It is also not the case of the Revenue that the payments have been made before the commencement of business. In the instant case, the business was being already carried out by Tata IBM. As per the agreement, it is clear that IBM and Tata have agreed to carry out the activities as mentioned in clause 5 of the agreement through the assessee-company. The issue of commencement of business in respect of purchase of an existing undertaking by an assessee in the case of Vidarbha Irrigation Development Corporation v. Joint CIT [2005 (7) TMI 539 - ITAT MUMBAI]. In that case, the corporation was formed for completion of already existing projects or for further entrusted projects. The business was already in existence and, therefore, the commencement of business is not in dispute. Hence, the expenditure under reference in the instant case cannot be termed as an expenditure incurred before the commencement of the business. Payment which frees an assessee from the liability to make recurring revenue payments is revenue expenditure. This has been held by the apex court in the case of CIT v. Associated Cement Companies Ltd.[1965 (12) TMI 22 - SUPREME COURT]. But such test will fail in case an asset is acquired. If a labour saving machinery is purchased then revenue expenditure is reduced in respect of newly labour bill but the cost of machine cannot be treated as revenue expenditure as it bring into existence of an asset. So far as payment made for getting the domestic customer data base is concerned, it is clear that the assessee has only got right to use that data base. The company which is provided such data base is not precluded from using such data base. Hence, the expenditure incurred is for the use of the data base and not for the acquisition of such data base. This issue has been considered by this Bench in the case of Wipro GE Medical Systems Ltd.[2002 (7) TMI 220 - ITAT BANGALORE]. Keeping in view the decision of this Bench on this issue, it is held that the ld CIT (A) was not justified in not allowing the loss - In the result, the appeal is partly allowed. Depreciation in respect of expended for the use of domestic customer data base - HELD THAT:- While deciding the appeal for the assessment year 1998-99, which has been held that expenditure incurred for acquiring the use of data base and for getting the human skill is revenue in nature and, therefore, there is no question of depreciation to be allowed in that year. In respect of expenditure, which has been considered as not allowable for the assessment year 1998-99, it has already been held that depreciation on such sum will not be allowed. Accordingly, this appeal is disposed of.
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