TMI Blog1993 (3) TMI 21X X X X Extracts X X X X X X X X Extracts X X X X ..... uestion relates only to the assessment year 1972-73. So far as the first question is concerned, it is stated by learned counsel for the parties that this question is covered by a decision of this court in CIT v. Shalt Nanji Nagsi [1979] 116 ITR 292 and in CIT v. S.B. Anwar Begum [1988] 174 ITR 407 (sic) and following the same, it has to be answered in favour of the assessee. Accordingly, we answer the first question in the affirmative, i.e., in favour of the assessee and against the Revenue. The sole question left for our consideration is question No. 2 and, therefore, we shall briefly set out only the facts which are relevant for the purpose of deciding the same. As is evident from the question itself, the controversy in the second question relates to disallowance of the claim for deduction of a sum of Rs. 1,11,067 on the ground that it was capital expenditure. Under an agreement dated June 2, 1970, between the assessee-company and Messrs. Farymann, a non-resident company, it was agreed that the assessee-company shall pay a sum of DM 2,20,000 to Messrs. Farymann for the purchase of export rights. Messrs. Farymann also sold the exclusive right of manufacture in India of singl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that the payments made under the agreement were for two purposes, namely, purchase of manufacturing rights and purchase of export rights. Under the agreement, the purchase of export rights gave free licence to the assessee to sell the product to any other party in India under certain specific terms and conditions. It also gave permission to the assessee to sell the diesel engines with its own trade mark and also to sell the technical know-how or drawings and designs to any other person in India. Thus, according to the Appellate Assistant Commissioner, there was an acquisition of an asset for which the payment determined was payable in five yearly instalments. The payment, according to him, was, undoubtedly, a capital expenditure. He, therefore, upheld the disallowance. The assessee went in second appeal to the Income-tax Appellate Tribunal ("the Tribunal"). It was urged by the assessee before the Tribunal that : (i) it did not acquire any fixed asset.; (ii) the payment was only a fee for licence for manufacturing and selling certain types of engines all over the world ; and that there was a sharing agreement and so the expenditure was of revenue nature. On behalf of the Rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent nature. According to him, it was a revenue expenditure incurred for increasing the profitability of the business. In this connection, reference was also made to the fact that payment on this account was made in five instalments spread over period of five years. Reference was also made in this connection to number of decisions of the Supreme Court and it was pointed out that, while deciding whether the expenditure was revenue expenditure or an expenditure of a capital nature, the approach should be that of a businessman. It should not be examined from the subjective standard of an Income-tax Officer. Learned counsel for the Revenue, on the other hand, submitted that though the question whether a particular expenditure is a revenue expenditure or an expenditure of capital nature has been considered by the Supreme Court in a large number of cases and various tests have been laid down to determine the same, none of the tests is of universal application and each case has to be decided on its own facts and circumstances keeping in mind the nature of the benefit or the right acquired by the assessee for which the payment has been made. Counsel also referred to certain authorities in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of it, did not purport to be of universal application as is evident from the rider added thereto which shows that it would not apply where there are special circumstances leading to contrary conclusion. Dealing with the "enduring benefit test" enunciated by Viscount Cave, it was observed : "..........it has to be remembered that all these phrases, as, for instance, 'enduring benefit' or 'capital structure' are essentially descriptive rather than definitive, and, as each new case arises for adjudication and it is sought to reason by analogy from its facts to those of one previously decided, a court's primary duty is to inquire how far a description that was both relevant and significant in one set of circumstances is either significant or relevant in those which are presently before it. For example, while it is certainly important that in Atherton's case [1926] AC 205 (HL) expenditure that did secure an enduring benefit for a company's business was spoken of as being for that reason a capital expenditure, it would be a misuse of that authority to suppose that it gives any warrant for the idea that securing a benefit for the business is prima facie capital expenditure, so long as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "The well-accepted position as on today, therefore, appears to be that no test of universal application can be laid down to determine the question whether an expenditure made by the assessee was revenue expenditure or capital expenditure. It must depend on the facts and circumstances of each case and on the application of the proper principles of law." One of the guiding factors, however, should be the aim and object of the expenditure. (see CIT v. British India Corporation Ltd. [1987] 165 ITR 51 (SC)). There are a number of decisions of the Supreme Court where, in view of the facts and circumstances of the case, different conclusions had to be arrived at. Reference may be made in this connection to the decisions of the Supreme Court in Lakshmiji Sugar Mills Co. P. Ltd. v. CIT [1971] 82 ITR 376 (SC) and in Travancore-Cochin Chemicals Ltd. v. CIT [1977] 106 ITR 900. In the latter case, the test laid down in the former case was held to be confined to the facts of that case. However, in L. H. Sugar Factory and Oil Mills (P.) Ltd. v. CIT [1980] 125 ITR 293 (SC), the latter case was held to be a case on the facts and the former decision in Lakshmiji Sugar Mills Co. P. Ltd. v. CIT [ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be acquisition of a capital asset and, therefore, the payment of its purchase price a capital expenditure. The Supreme Court, however, made it clear that, where the payment is not for acquisition of goodwill but for use of it, the expenditure will be revenue expenditure which clearly goes to draw a line of distinction between payment for acquisition of an asset and for the user of an asset. In the former, it will be a capital expenditure but in the latter, revenue. Considering the facts of the case before us in the light of the principles set out above, we find that what was acquired by the assessee in pursuance of the agreement for which the payment in question has been made in five instalments under clause 4(b) of the agreement was the export right. These rights, as has already been set out above, were the rights to export the goods to the whole of the world. From a careful reading of the agreement, more particularly clause 4 thereof, it is clear that what the assessee had purchased is the manufacturing rights, drawings, designs, specifications and export rights. For all other items except the export rights, the payment was made in one instalment within 30 days of the receipt of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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