TMI Blog2014 (10) TMI 364X X X X Extracts X X X X X X X X Extracts X X X X ..... components purchased every year - those components are used for manufacturing Printed Circuit Boards - Every year these Circuit Boards undergo modification, changes - the expenses incurred in this regard is in the nature of revenue expenditure. Relying upon EMPIRE JUTE COMPANY LIMITED vs COMMISSIONER OF INCOME TAX [1980 (5) TMI 1 - SUPREME Court] - There is no all-embracing formula which can provide a ready solution to the problem; no touchstone has been devised - Every case has to be decided on its own facts, keeping in mind the broad picture of the whole operation in respect of which the expenditure has been incurred. Further they held that, there may be cases where expenditure, even if incurred for obtaining advantage of enduring benefit, may, none the less, be on revenue account and the test of enduring benefit may break down - The test of enduring benefit is not a certain or conclusive test and it cannot be applied blindly and mechanically – the statement of law equally holds good in the area of telecommunication, may be with more force - the expenditure that is claimed is for upgrading the existing product - the product so upgraded goes on changing as time progresses, kee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conclusion that all these products enable the assessee Company to develop and manufacture a particular product which is the mainstay of the Company s turnover in the future years. Even after the product is successfully developed and marketed, the hardware purchased and the software developed are still used. They are used to solve any problems that may come up with the product when being used by the customer. Therefore, the assessing authority was of the view that the assessee has gained an enduring benefit by means of the product development expenditure. The expenditure is not merely to facilitate the assessee s business but expenses is used for development which earned him substantial revenues in the later years. Therefore, treating it as a capital expenditure, the said expenditure was added back to the income of the assessee, of course he held that the assessee can claim depreciation. 4. Aggrieved by the same, the assessee preferred an appeal to the Commissioner of Income Tax (Appeals). The Appellate Authority proceeded on the basis that as per its own admission, the assessee has derived an enduring benefit from the prototypes so developed as the same have not been scrapped an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure is held to be capital in nature? 7. Similar questions are framed in ITA No.1073/2008 which are as under:- 1. Whether the Tribunal was correct in holding that a sum of ₹ 5,82,21,211/- incurred for developing a product TJ-100 having a utility value for period of 5 years cannot be treated as a capital expenditure and depreciation allowed as held by the Assessing officer and confirmed by the Appellate Commissioner but should be allowed as a revenue expenditure? 2. Whether the Tribunal was correct in holding that the expenditure allowable should be alternatively allowed u/s.35(1)(iv) of the Act, as the same had been incurred on scientific research related to the business carried on by the assessee? 8. We have heard the learned counsel appearing for the parties. 9. Learned counsel for the revenue relying on the statements of the officials as set out in the order of the assessing authority contended that, the components are retained by the Company for use by the Company in Product Development of other products, they are lying in the office, they are not scrapped as contended by the assessee and, therefore, the expenses incurred towards these compo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dvantage consists merely in facilitating the assessee s trading operations or enabling the management and conduct of the assessee s business to be carried on more efficiently or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future. The test of enduring benefit is, therefore, not a certain or conclusive test and it cannot be applied blindly and mechanically without regard to the particular facts and circumstances of a given case. 13. In fact, the Apex Court in the case of ALEMBIC CHEMICAL WORKS CO. LTD., vs COMMISSIONER OF INCOME TAX, GUJARAT [1989 VOL. 177 PAGE 377] held that, it would be unrealistic to ignore the rapid advances in research in antibiotic medical microbiology and to attribute a degree of endurability and permanence to the technical knowhow at any particular stage in this fast-changing area of medical science. The state of the art in some of these areas of high priority research is constantly updated so that the knowhow cannot be said to be the element of the requisite degree of durability and nonephemerality to share the requirements and qualifications ..... X X X X Extracts X X X X X X X X Extracts X X X X
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