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2016 (3) TMI 368 - AT - Income TaxDisallowance of royalty payments on account of the same being treated as capital expenditure - Held that:- Royalty payment is based on the percentage of quantum sales and it is an annual charge to be considered as business expenditure in respect of assessment year 2007-08 as held by Co-ordinate Bench in the case of India Nippon Electricals Ltd., [2016 (3) TMI 237 - ITAT CHENNAI]. It is a lump sum payment towards royalty and as such in that circumstance it was held that it is an capital expenditure and depreciation was granted. - Decided in favour of assessee Disallowance of the capital work in progress written off - Held that:- In this case, assessee incurred an expenditure towards setting up a factory at Singur in West Bengal. Due to unrest and protest by the local people, assessee had abandoned the said project , and claimed it as a revenue expenditure as a business expenditure. A perusal of Sec.30 to Sec.38 of the Act shows that neither sections will apply to this case and the assessee will not be able to claim the benefit u/s.28 of the Act. The expenditure incurred by the assessee is not for the purpose of carrying on its business, but on the other hand it is incurred for the purpose of setting up of new business which is in capital filed. Had the expenditure incurred for carrying on business which is an outgoing and assessee could claim as deduction from the profit of the business. The law has evolved considerably as a result of acceptance of the crucial principle that the distinction between capital and revenue expenditure should be determined from the practical and business view point and in accordance with sound accountancy principles, eschewing the legalistic approach. The expenditure incurred to set up a project at Singur in West Bengal is not an expenditure wholly and exclusively incurred for the purpose of carrying on business of the assessee or incidental o the carrying on the business of the assessee and it is an expenditure incurred in the capital field and it also cannot be allowed u/s.37 of the Act. Thus the loss in respect of discarded project had written off by the assessee during the previous year is not allowable expenditure as business deduction and it cannot be allowed. Being so, we are of the opinion that lower authorities are justified in rejecting the claim of the assessee. - Decided against assessee
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