TMI Blog1993 (3) TMI 22X X X X Extracts X X X X X X X X Extracts X X X X ..... : "(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the legal expenses incurred in connection with the amalgamation of Messrs. D. Macropolo and Co. Ltd. with the applicant company abovenamed should be treated as capital expenditure ? (3) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the applicant's liability for the payment of surtax under the Companies (Profits) Surtax Act, 1964, is not deductible in computing the income of the applicant under the Income-tax Act, 1961? (4) Whether, on the facts and in the circumstances of the case, the Tribunal erred in holding that an appeal did not lie on the facts and in the circumstances of the present case and/or that an appeal did not lie in respect of interest under section 214 ?" Assessment year 1974-75: "(5) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the applicant's liability for the payment of surtax under the Companies (Profits) Surtax Act, 1964, is not deductible in computing the income of the applicant under the Incometax Act, 1961 ? (6) Whether, on the facts and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 02 ITR 375). Following the same, we answer it in the negative, i.e., in favour of the assessee and against the Revenue. Question No. 7: This question is covered by the decision of this court in CIT v. Mercantile Bank Limited [1988] 169 ITR 44. Following the same, we answer it in the negative (sic) and in favour of the assessee. Questions Nos. 8 and 9 : These two questions are covered by the decision of this court in CIT v. Indohem P. Ltd. [1981] 132 ITR 125. Following the same, we answer both these questions in the affirmative, i.e., in favour of the assessee and against the Revenue. Question No. 10 : This question is also covered by the decision of this court in Incometax Reference No. 20 of 1978 decided on November 17, 1992 (CIT v. Hico Products Pvt. Ltd. (No. 1) [1993] 201 ITR 567). Following the same, it is answered in the affirmative, i.e., in favour of the assessee and against the Revenue. Having answered the above questions, we are left with only two questions for decision, viz., questions Nos. 2 and 6. Both these questions relate to the controversy in regard to the nature of the expenditure incurred by the assessee in connection with the amalgamation of Messrs. D. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ground that the expenditure in question related to the proceedings for acquiring a capital asset and was capital expenditure. It may be noted that, in the earlier years, similar legal expenses were not claimed by the assessee itself as a deductions When asked by the Income-tax Officer as to why it was not claimed in the past and was claimed for the first time in the years under consideration, the assessee's reply was that it was a mistake on its part not to have claimed the same in the earlier years. The Income-tax Officer, however, did not agree with the contention of the assessee and, accordingly, did not allow the claim for deduction of the above two amounts. The matter was taken up in appeal by the assessee before the Appellate Assistant Commissioner of Income-tax ("the A. A. C. "). The Appellate Assistant Commissioner rejected the contention of the assessee and confirmed the order of the Income-tax Officer on this count. The assessee took this issue to the Tribunal along with some other issues by way of appeal against the order of the Appellate Assistant Commissioner. Before the Tribunal, it was contended that the expenditure was incurred in the course of carrying on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is revenue expenditure or expenditure of capital nature. We have discussed the same at some length in our judgment in Income-tax Reference No. 33 of 1980 (Kirloskar Oil Engines Ltd. v. CIT [1994] 206 ITR 13) delivered today. We do not propose to reiterate the same. It will suffice for the present to state that none of the tests is either exhaustive or universal. Each case depends on its own facts. Even a close similarity between two cases is not enough because, as observed by Hidayatullah J. (as his Lordship then was) in K. T. M. T. M. Abdul Kayoom V. CIT [1962] 44 ITR 689 (SC) at 703, a single significant detail may make a material difference and change the entire aspect. There is, however, no dispute that, if a particular expenditure or payment results in an enduring benefit to the assessee or acquisition of any asset or benefit of a permanent nature (in the absence of special circumstances leading to an opposite conclusion), the expenditure cannot be held to be revenue expenditure but it would be an expenditure of capital nature. Legal expenses per se can neither be revenue nor capital. It will depend on the facts of each case. The purpose for which the expenses have been incurr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orities on the ground that it was capital in nature. The Tribunal held it to be a revenue expenditure. On reference, the finding of the Tribunal was upheld by the High Court as it was of the opinion that the expenditure in question had been incurred by the assessee in their capacity as persons carrying on the business with the object of carrying on their business to their advantage and not for acquiring any capital asset of an enduring nature. This decision was followed by the same court in CIT v. Bush Boake Allen (India) Ltd. [1982] 135 ITR 306, where also legal and court expenses incurred by the assessee were treated as revenue expenditure. The same decision was again followed in Madras Race Club v. CIT [1985] 151 ITR 675 (Mad). We have considered the above decisions of the Madras High Court. These decisions are based on the factual finding arrived at therein that no asset of capital or enduring nature had been acquired by the assessee. The observations in the above cases have to be read in the light of the above finding as also the decisions of the Supreme Court and the principles enunciated therein. The general observations in these decisions should not be read too broadly. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that distribution of the products of the assessee-company was earlier done by the marketing company, Messrs. Macropolo and Co. Ltd., which was an independent business establishment. As a result of the amalgamation, the entire business establishment with its well-established marketing network came into the hands of the assessee which, according to the assessee itself, was the main purpose of the amalgamation. The Tribunal considered all these relevant factors and came to a definite finding that, as a result of the amalgamation, there was a radical alteration in the framework of the business of the assessee-company. In truth and sub- stance, the purpose of the assessee was to acquire the running business of distributorship of the marketing company which was an independent business. The fact that the acquisition was intended to increase the profitability of the assessee cannot convert the capital expenditure into revenue expenditure. That will be stretching the "profitability test" too far. There is a thin line of demarcation between capital and revenue expenditure because the object of every business concern or assessee who is carrying on business is to increase or enhance its profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re was that it obtained an absolution or immunity, under normal conditions, from levy of certain municipal rates and taxes and charges." It was in view of the above observations that it was held by the Supreme Court (at page 263) : "As a result of the expenditure incurred, there was no addition to the capital assets of the assessee-company and no change in its capital structure. The pipelines, etc., which might have been regarded as capital assets and which came into existence as a result of the expenditure incurred did not belong to the assessee-company but to the municipality In these circumstances, applying the principles laid down in Empire jute Co.'s case [1980] 124 ITR 1 (SC), the expenditure is clearly liable to be allowed as deductible from the profits under section 10(2)(xv) of the Indian Income-tax Act. [Section 37(1) of the 1961 Act]." This decision of the Supreme Court apparently has no application to the facts of the present case. In view of the foregoing discussion, we are of the clear opinion that the legal expenses incurred in connection with the amalgamation of Messrs. D. Macropolo and Co. Ltd. with the assessee-company have been rightly held by the Tribuna ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
