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TMI Blog2020 (8) TMI 766X X X X Extracts X X X X X X X X Extracts X X X X ..... was admitted by a bench of this Court vide order dated 29.05.2012 on the following substantial questions of law: (i) Whether the Tribunal was justified in holding that manufacturing and administrative expenses incurred by the appellant for development of a product in the course of its manufacturing activity which was already carried on, was capital expenditure? (ii) Whether the appellant was entitled to claim deduction of the expenditure incurred towards upgrading and development of a product as revenue expenditure under Section 37(1) of the Act and whether the Tribunal was justified in holding that the expenditure incurred towards upgraded and development of a product was to be considered as capital expenditure? (iii) Whether the T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct development expenses relate to development of product 'SUCRALOSE'. It was further held that the assessee itself in the books of account had capitalized the expenses. However, for income tax purposes it was claimed as revenue expenditure. It was further held that in pharmaceutical company, the formula which is developed would be an asset and using the formula different formulations like tablets, capsules etc are produced commercially. It was also held that the expenses incurred for developing the formula, which gives enduring benefits has to be considered as capital in nature. Being aggrieved, the assessee filed appeals. The Commissioner of Income Tax (Appeals) vide order dated 04.10.2010 affirmed the order passed by the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that assessee itself had capitalized the expenditure in developing new product in the Book of accounts. It is further submitted that if an amount is expended to bring into existence a new intangible asset, which has an enduring effect, then the same has to be treated as capital expenditure. It is further submitted that the nature of expenditure will not determine whether it is revenue or capital expenditure, but the nature of expenditure has to be decided with reference to the purpose, for which the expenditure was incurred. In support of aforesaid submissions, reliance has been placed on decisions in 'ARVIND MILLS LTD. V. COMMISSIONER OF INCOME-TAX', (1992) 63 TAXMAN 493 (SC), 'HONDA SIEL CARS INDIA LTD. V. COMMISSIONER OF ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue expenditure. (iii) The aim and object of the expenditure would determine the character of the expenditure whether it is a capital expenditure or a revenue expenditure. 7. The aforesaid principles were quoted with approval in HONDA SIEL CARS INDIA Ltd supra and it was held that primary test, which is to be adopted with reference to acquisition of technical information and know how, remains the same, viz., the enduring nature test. It has further been held that where the expenditure is incurred which gives enduring benefit, it will be treated as capital expenditure and technical information and know how are intangible asset and having regard to their unique characteristic the question that need to be posed for determining such a na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture penicillin in the year 1961 and was producing 5000 Units of Penicillin per milli meter. In 1963, it entered into an agreement with Meiji Japan, which agreed to supply the requisite technical know how so that production could be increased to 10,000 Units and once for all payment was made. It was therefore, held that new venture was brought into existence by purchase of technology and agreement was only to increase the yield of penicillin with a view to enhance profit earning process and therefore, the expenditure was held to be revenue expenditure. The aforesaid decision therefore, has no application to the obtaining factual matrix of the case. Similarly, the decision in the case of Denso India Ltd. Supra is of no assistance to the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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