TMI Blog1997 (11) TMI 77X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee to deferred revenue expenditure technical know-how payment was expenditure of capital nature? 2. Whether, on the facts and in the circumstances of the case, the Tribunal erred in law in holding that the assessee-company was not entitled to depreciation in respect of the said amount of Rs. 4 lakhs? 3. Whether, on the facts and in the circumstances of the case, the assessee was entitled to the development rebate amounting to Rs. 84,513? 4. Whether, on the facts and circumstances of the case, the payments of Rs. 5,000 to Kreli (India) Pvt. Ltd., Rs. 11,000 to M. M. Bilaney and Co., and Rs. 3,000 to M. M. Consultancy Bureau constituted revenue expenditure?" Assessment year 1972-73 : "1. Whether, on the facts and in the circum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oes not arise. No answer is called for to the questions. Question No. 3 for the assessment year 1971-72 : The assessee claimed development rebate of Rs. 84,513 on the amount of Rs. 2,94,872 being the cost of new plant and machinery. The Income-tax Officer did not allow the development rebate on the ground that the assessee had failed to create the statutory development rebate reserve during the assessment year 1970-71. From a bare reading of section 34(3)(a) along with the Explanation (which has been given retrospective effect) it is clear that before any development rebate can be allowed as a deduction the conditions laid down in section 34 have to be satisfied. One of the conditions is that a reserve has to be created in the previous ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ideration and hence the Income-tax Officer treated these to be capital expenditure. All the three items of expenditure were claimed by the Assessee as business expenditure. The Tribunal held that all the three items of expenditure were incurred with a view to manufacturing new products and utilising by-products of the sugar units and if that was so, the question of allowance of these expenses as business expenses did not arise, as they were definitely of capital nature being expenses preliminary to manufacturing the various products. The Tribunal, therefore, affirmed the disallowance made by the authorities below. The test to discriminate between a capital and a revenue expenditure is not straight. An item of expenditure though incurr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fit may break down. It is not every advantage of enduring nature acquired by an assessee that brings the case within the principle laid down in this test. What is material to consider is the nature of the advantage in a commercial sense and, it is only where the advantage is in the capital field that the expenditure would be disallowable on an application of this test. If the advantage 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 bene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owed the item of Rs. 7,500 as deductible expenditure to the assessee. The Department did not go in appeal. The Tribunal has erroneously assumed the amount of Rs. 7,500 as not constituting revenue expenditure. So far as the amount of Rs. 20,000 paid to S. P. Chopra is concerned that was incurred on account of legal and professional charges in connection with merger of the company. In Godfrey Phillips India Ltd. v. CIT [1994] 206 ITR 23 (Bom), it has been held that legal expenses incurred in connection with the amalgamation of the company are of capital nature. We find overselves in respectful agreement with the view so taken. In CIT v. Bombay Dyeing and Manufacturing Co. Ltd. [1996] 219 ITR 521 (SC), their Lordships have held that an e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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