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TMI Blog1971 (3) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... d to obtain recognition of the Himachal Pradesh Education Department for some of the text tooks published by it in order to enable the assessee to sell the text books in the territory of Himachal Pradesh. For this purpose, the assessee entered into an agreement with another firm, M/s. Ranbir Brothers, Kanpur, which, according to the assessee, was in a position to use its inflnence for obtaining recognition of the assessee's text books from the Himchal Pradesh Education Department. This agreement was entered into some time in September, 1959. Under this agreement, the assessee agreed to pay 6 1/2% royalty on the net sales of such aporoved books in consideration for the services of M/s. Ranbir Brothers for, obtaining such recognition to the assessee's text books. The assessee did obtain recognition for its text books through the good offices of M/s. Ranbir Brothers and it paid to M/s. Ranbir Brothers a sum of Rs. 5,349 during the accounting period relevant to the assessment year 1961-62. The assessee claimed deduction of the said amount in computing its income for the said year. The assessee's claim was rejected by the Income-tax Officer on the ground that the amount represented capi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. If the expenditure is made for acquiring or bringing into existence an asset or advantage for the enduring benefit of the business it is properly attributable to capital and is of the nature of capital expenditure. If on the other hand it is made not for the purpose of bringing into existence any such asset or advantage but for running the business or working it with a view to produce the profits it is a revenue expenditure. If any such asset or advantage for the enduring benefit of the business is thus acquired or brought into existence it would be immaterial whether the source of the payment was the capital or the income of the concern or whether the payment was made once and for all or was made periodically. The aim and object of the expenditure would determine the character of the expenditure whether it is a capital expenditure or a revenue expenditure. The source or the manner of the payment would then be of no consequence. It is only in those cases where this test is of no avail that one may go to the test of fixed or circulating capital and consider whether the expenditure incurred was part of the fixed capital of the business or part of its circulating capital. If it wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... text books in Himachal Pradesh and it was for the first time during the assessment year under reference that the assessee obtained such recognition. As a result of obtaining such recognition, the assessee was able to sell its text books in the territory of Himachal Pradesh. Without obtaining such recognition, the assessee could not have sold its text books in the said territory. This recognition resulted in the expansion of the assessee's business in a new territory. This recognition, therefore, brought to the assessee an advantage of an enduring nature. What is an advantage of an enduring nature has been explained by Latham C.J. in Sun Newspapers Ltd. and Associated Newspapers Ltd. v. Federal Commissioner of Taxation as under: " When the words permanent or enduring' are used in this connection it is not meant that the advantage which will be obtained will last for ever. The distinction which is drawn is that between more or less recurrent expenses involved in running a business and an expenditure for the benefit of the business as a whole . . . . [e.g.,] . . . . ' enlargement of the goodwill of a company ', and ' permanent improvement in the material or immaterial assets of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the case and assume that the assessee had installed a new printing press for the first time in this year only and that the assessee printed its books in its own printing press. On the basis of these facts, it cannot be seriously dispnted that the business of the assessee is in the nature of an industrial undertaking which manufactures or produces articles, namely, books. It is also not disputed that the assessee satisfies clause (iii) of sub-section (2) of section 15C of the Act inasmuch as it employs 10 or more workers in a manufacturing process carried on with the aid of power. The learned counsel for the revenue, Shri G. C. Sharma, however, contends that the assessee does not satisfy clause (i) of sub-section (2) of this section which reads as follows: " (2) This section applies to any industrial undertaking which (i) is not formed by the splitting up, or the reconstruction of business already in existence or by the transfer to a new business of building, machinery or plant previously used in any other business. " According to the learned counsel, the industrial undertaking of the assessee was formed by the reconstruction of business already in existence. We find considerab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of the activities and business of the same industrial undertaking. The undertaking must continue to carry on the same business though in some altered or varied form. If the alterations and changes are substantial, there would be little scope for describing what emerges as a reconstruction of the business. For instance, if the ownership of a business or an undertaking changes hands not ostensibly but in reality and effectively, that would not be reconstruction. Or, if the very nature of the business is changed, that again would not be reconstruction. On the other hand, reorganization of the business on sounder lines or alterations in the mode or method or scope of the activities of the business or in its personnel or infusion of new blood in the management or control of the business which may even be by some changes in the constitution of persons interested in the undertaking would be no more than reconstruction of the business if it is substantially the same business carried on by substantially the same persons. In these matters, we have to look at the substance of the transaction and not the form. If, looking at the substance of the transaction, it is a sale, then the concep ..... X X X X Extracts X X X X X X X X Extracts X X X X
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