TMI Blog2009 (8) TMI 765X X X X Extracts X X X X X X X X Extracts X X X X ..... ecessary to take stock of relevant facts leading to the formation of the aforesaid question of law. 3. The assessee-company was pursuing the owners of Savitri Cinema at New Delhi for taking over the cinema for conversion into a multiplex and operation and management thereof. In order to carry out technical and financial feasibility, the assessee availed of services of an architect and paid him Rs. 2,05,000 as fee in the preceding year. However, it was found that the project was not financially and technically viable. The assessee, therefore, decided to drop the project and amount spent was claimed as revenue expenditure. Similarly, there was another proposal before the assessee to take over Priya Cinema for the purpose of conversion into a four-screen cinema complex. Detailed technical feasibility was carried out and building plans were prepared by M/s. Consultancy Engineering Group and Morphagenisi Architecture Studio, who were paid remuneration of Rs. 1,69,500 and Rs. 10,69,739 (total Rs. 12,39,239) respectively. On subsequent market research the assessee preferred to retain single-screen cinema and proposal of conversion of the said cinema into a multiplex was shelved. This ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... discriminate between a capital and a revenue expenditure is not straight. An item of expenditure though incurred wholly and exclusively for the purpose of the business may nevertheless be inadmissible as an allowance if it is of a capital nature. The border line between a capital expenditure and a revenue expenditure is a blurred one. Different minds may come to different conclusions and may yet have valid reasons justifying each of the two view points. In the leading case of Atherton v. British Insulated and Helsby Cables Ltd. [1925] 10 TC 155 (HL), it was held that when an expenditure is made not only once and for all but also with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade, there is a very good reason (in the absence of special circumstances leading to an opposite conclusion) for treating such an expenditure as properly attributable not to revenue but to capital. A perusal of the available case law on the point reveals that the test of enduring benefit has been accepted and applied by and large. It has also been held that the expenditure is to be attributed to capital, if it be made with a view to bringing an asset or advantage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etermining the nature of expenditure in the aforequoted portion, the court was of the view that the expenditure was attributable to capital having been incurred with a view to bringing an asset or advantage into existence and having enduring benefit. It was categorically observed that merely because the project did not materialise the nature of the expenditure would not change to revenue. 8. Obviously, heavy reliance is placed on this judgment by the learned counsel for the Revenue on the basis of which it was argued by Mr. Subhash Bansal that merely because the projects were shelved ultimately, is of no consequence. Mr. Aggarwal, learned counsel appearing for the respondent, on the other hand submitted that the entire argument is misconceived inasmuch as the project reports were got prepared with the intention of starting new business. The assessee was already in the business and the study in question was conducted for the same and existing business. He sought to distinguish the judgment of this court in Triveni Engineering Works Ltd. case [1998] 232 ITR 639 by drawing our attention to the fact that in that case the manufacturing of insecticide formulation was not carried out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rly demonstrate that one has to keep in mind the essential purpose for which such an expenditure is incurred. If the expenditure is incurred for starting a new business which was not carried out by the assessee earlier, then such expenditure is held to be of capital nature. In that event it would be irrelevant as to whether project really materialised or not. However, if the expenditure incurred is in respect of the same business which is already carried on by the assessee, even if it is for the expansion of the business, namely, to start new unit which is the same as earlier business and there is unity of control and a common fund, then such an expense is to be treated as business expenditure. In such a case whether new business/asset comes into existence or not would become a relevant factor. If there is no creation of new asset, then the expenditure incurred would be of revenue nature. However, if the new asset comes into existence which is of enduring benefit, then such expenditure would be of capital nature. 11. When we keep in mind the aforesaid fine distinction, the conclusion on the facts of this case becomes obvious. The expenditure was incurred in respect of the same ..... X X X X Extracts X X X X X X X X Extracts X X X X
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