TMI Blog1998 (7) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... lid materials and sustainable in law ? 3. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right and had valid materials to hold that a sum of Rs. 3,09,500 paid by the assessee to Consolidated Pneumatic Tool Co. (India) Ltd. for developing new proto type of a more efficient compressor to be supplied to the assessee only and not to any other rig manufacturer in India, is allowable as revenue expenditure by treating that expenditure did not confer enduring benefit to the assessee ?" The assessee is a manufacturer of rigs. Compressors are essential parts of rigs, but the compressors are not manufactured by the assessee. The compressors are purchased by it from a company in Bombay, named, Consolidated, Pneumatic Tool Co. (India) Limited. The business of the assessee appears to have been set up some time in the year 1977. In the order of assessment, it has been noted by the Assessing Officer that the company at Bombay is a subsidiary of an American company with which the assessee had entered into a separate agreement for supply of technical know-how, as the assessee wanted to purchase compressors for being used in its rigs and those compressors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an amount paid to obtain an enduring asset in the shape of an exclusive right to fish ; that the payment was not related to the chanks which the assessee might or might not bring to the surface ; that it was not an amount spent for acquiring its stock-in-trade but for acquiring an asset from which it may collect its stock-in-trade. Learned counsel also relied on the judgment of the Rajasthan High Court in the case of Jaswant Trading Co. v. CIT [1995] 212 ITR 293 wherein the court held that the expenditure on the development of the land which had been incurred by the developmental authority and collected from the allottees of the land as also the capital cost for the water treatment plant erected by the authority for the benefit of industries located on the plots allotted by it were expenditure in the capital field, as such expenditure if it had been incurred by the assessee, would have been in the capital field and the fact that it was incurred by an authority for common benefit of several persons did not make a difference. Counsel lastly relied on the decision of the apex court in the case of Jonas Woodhead and Sons (India) Ltd. v. CIT [1997] 224 ITR 342, wherein the court ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be followed by the manufacture of compressors of the type required by the assessee. So far as the manufacturer at Bombay was concerned, when it agreed to create a prototype all that it was doing was to improve the product in the manufacture of which it had already been engaged or at best to manufacture a special type of compressor different from other types which were till then being manufactured by it. The facilities rendered for the manufacture of compressors, it may be reasonably assumed, had been installed and were available to the company at Bombay which agreed to create the prototype. It was not a part of the agreement that a new factory was to be set up by the company at Bombay specially for the purpose of manufacturing and supplying compressors required by the assessee. Apparently, the facilities available in the Bombay company for, the manufacture of compressors were to be utilised for making a kind of compressors which the assessee wanted and for which a prototype had been built. The additional cost which the company at Bombay anticipated was only the cost of the prototype and not the cost of installing machinery for manufacturing the compressors or erecting a new plant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rer at Bombay to manufacture and sell compressors of that type. Had that manufacturer closed down its operation or decided to stop supply of compressors needed by the assessee, the assessee could not possibly be regarded as having acquired enduring benefit. It was equally open to the assessee to stop buying from that manufacturer in which event also it could not be stated that it had acquired any enduring benefit. Moreover, as pointed out by the apex court, the test of enduring benefit is not a rigid test nor is it the sole test to decide whether the expenditure incurred is of capital character or revenue character. With rapid changes in technology, it is difficult to regard the acquisition of the current state of technology as an enduring benefit as the usability of that technology is often for a relatively short period on account of rapid advances in science and technology. The Tribunal, in our opinion, was right in concluding that the expenditure incurred by the assessee to the extent of 50 per cent. of the cost of development of the prototype such development having been made by the prospective supplier of compressors at Bombay was not an expenditure in the capital field. Our ..... X X X X Extracts X X X X X X X X Extracts X X X X
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