TMI Blog2017 (9) TMI 733X X X X Extracts X X X X X X X X Extracts X X X X ..... e - whether expenses resulted in bringing into production of new types of machines and know how was to become the property of the assessee which clearly amounts to capital expenditure? - Held that:- The Tribunal has found in this case that the Assessing Officer was in error in holding that the expenditure was not a revenue expenditure. - the assessee was already in possession of the technology which required updation. The updated technology was mainly aimed at reduction and control of heat requirement, upgrading of existing equipment and general cost production. - in this age of vast advancing technology, it is difficult to hold that the technology acquired by the assessee would be enduring. No new asset is required by the assessee. - To be allowed as revenue expenditure. Revenue appeal dismissed. - Income Tax Appeal No. 320 of 2001 - - - Dated:- 28-8-2017 - S. C. DHARMADHIKARI SMT. VIBHA KANKANWADI, JJ. Mr. Suresh Kumar a/w Ms. Samiksha Kanani for the Appellant Ms. Arati Vissanji a/w Mr. S. J. Mehta i/b. M/s. S. P. Mehta for the Respondent. P.C. : 1. This Income Tax Appeal was on our board on the earlier occasion, and even today under the caption ' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vice was beneficial to the assessee which has been making profits, whereas M/s. Bombay Dyeing was not likely to have taxable profits due to allowances which would have been allowed on account of it's DMT plant. Since the project cost is ₹ 100 crores, M/s. Bombay Dyeing took only one item out of it, a boiler on lease. It was in a position to bear, all by itself, 98% of the cost of the project. It is in these circumstances, the Assessing Officer questioned the deal, and particularly as to why M/s. Bombay Dyeing, in absence of any financial constraints, undertook such a lease transaction. The Memorandum of Association of the assessee company has been noted and equally, that of the purchaser. Mr. Suresh Kumar, therefore, heavily relied on a judgment of the Hon'ble Supreme Court in the case of Mcdowell and Co. Ltd. Vs Commercial Tax Officer, reported in [1985] 154 ITR 148 (SC). 7. Mr. Suresh Kumar then invites our attention to the facts in relation to the second question as well. He would submit that the Assessing Officer has noted, and with sufficient details, the transaction. It is clear from a perusal of the order of the Assessing Officer that the assessee compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Works Co. Ltd. Vs Commissioner of Income Tax, Gujarat, reported in 1989 (Vol.177) 377, the Hon'ble Supreme Court has clarified that mere improvisation in the process and technology in some areas when supplemental to the existing business, there being no new or fresh ventures, then, the expenditure incurred is revenue in nature. 9. Ms. Vissanji would submit that the assessee was already in the business of manufacturing laminates. In the circumstances, by mere improvising in the technology of manufacturing product, the assessee has not derived such benefit which would enable the Revenue to term this expenditure as capital in nature. She would, therefore, submit that the order of the Tribunal does not call for any interference. 10. Even on the second question, she would submit that the Tribunal, therefore, has not erred in law and the findings in that regard ought to be upheld. She would submit that the boiler was not installed in March, 1984 as was stipulated, but was installed in September, 1984. The initial lease period of 8 years was extended twice for five years on each occasion to show that the asset was not ultimately sold to Bombay Dyeing at reduced price. The le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en completed by March 84 which is also established as per details submitted by M/s. Bombay Dyeing Mfg. Co. Ltd. vide their letter dated 22 3 88. Annex.2 of the letter dated 22 3 88 states that on 16 7 84 there had been an inspection under Indian Boiler Regulation. For the said boiler total payments had been made by M/s. Bombay Dyeing Mfg. Co. Ltd. The total payment is ₹ 1,65,07,738/ 14. The Assessing Officer then noted that there was a special resolution passed by the assessee on 23rd March, 1984, whereby it altered the Memorandum of Association. The amendment of this Memorandum of Association was approved by the Company Law Board by its order dated 25th January, 1985. It is in these circumstances, he concluded that M/s. Bombay Dyeing had completely purchased the boiler which was required for its DMT plant. The correspondence on that issue has been referred. The date of resolution by which the Memorandum of Association was altered (23rd March, 1984) was termed relevant because by this time the commissioning of the boiler had been completed by M/s. Bombay Dyeing. Thus, it was after the boiler was commissioned that the assessee brought out a provision in its Memorandu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apparent dignity. 17. However, in the facts of the present case, it cannot be said that the assessee bought and leased back the asset to M/s. Bombay Dyeing solely for the purpose of avoiding tax. The assessee is earning rental income from the transaction which was subjected to tax. If it was not a bona fide business transaction, the assessee, after claiming benefit of depreciation in one year, could not have subjected itself to tax on the income arising from that very transaction. This was taken by the Tribunal to be an important feature of the transaction and the matter as a whole. It is in these circumstances, and looking at the issue in an overall manner, that the Tribunal held that the transaction cannot be termed as dubious or colourable device, but a genuine business transaction. There are reasons assigned for such a factual conclusion. Paragraphs 15 onwards have been extensively devoted to the discussion on this point and summing up the case at paragraph 21. We do not see that such an exercise and undertaken by the Tribunal so as to have a re look at the whole transaction enables us to interfere with the finding and conclusion essentially on facts. The Tribunal has perfo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rries (limestone quarries) were acquired for the purpose of carrying on business of manufacture of cement. It is in these circumstances and noting the whole deal with the relevant details, the Honb'le Supreme Court laid down the test. 19. However, in another judgment relied upon by the assessee, namely, Alembic Chemical Works Co. Ltd. (supra), the appellant company engaged in the manufacture of antibiotics and pharmaceuticals, was granted a licence for the manufacture of penicillin. It incurred cost of ₹ 66 lakhs for setting up the plant for production of penicillin. In the initial years, the appellant was able to achieve only moderate yields of penicillin. With a view to increasing the yield, the appellant negotiated with the reputed Japanese enterprise and executed an agreement of one time payment for the technical information, know how and description for fermentation of penicillin. It is such an agreement which was subjected to scrutiny by the Income Tax Department. The sum paid under this agreement was claimed as a revenue expenditure. However, the Department and the Tribunal rejected this claim by interpreting the agreement and holding that the assessee had t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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