TMI Blog1989 (9) TMI 56X X X X Extracts X X X X X X X X Extracts X X X X ..... to the assessment year 1970-71, the relevant previous year having ended on June 30, 1969. The assessee manufactures pharmaceuticals. It had entered into an agreement of technical collaboration with its parent company in the United Kingdom, which was due to expire in the beginning of 1967. The assessee applied to the Government of India for permission to enter into a fresh technical collaboration agreement so that it could continue to obtain the benefit of research being carried out by the parent company and also day today advice in respect of the manufacture of existing and new products. It is, according to the statement of the case, common ground that the Government informed the assessee that it would approve of such an agreement only i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rring this expenditure, the Government of India would not have permitted it to enter into a fresh collaboration agreement with the U. K. parent company, which was essential for the company in order to run its business more profitably. The Tribunal was of the opinion that had the company not agreed to the issue of fresh capital, it would have suffered in its business in the absence of the collaboration agreement. It was on the peculiar facts of this case that the Tribunal was of the opinion that the expenditure of Rs. 9,32,946 was in the nature of revenue expenditure, even though it was incurred for the issue of fresh capital." Mr. Jetley, learned counsel for the Revenue, drew our attention to section 37 and pointed out that capital expend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sorted to the acquisition of more working funds by borrowings, it would have been cheaper than issuing Of fresh share capital. Upon these facts, the Tribunal drew the conclusion that the said expenditure was in the nature of revenue expenditure, even though it had been incurred upon the issuance of fresh capital. The findings of fact arrived at by the Tribunal bind us but the inference to be drawn therefrom is subject to review by this court in a reference, it being matter of law. That the court must look to the object and purpose of the expenditure and that from the point of view of the businessman is well-established. It was laid down in Anglo-Persian Oil Co. Ltd. v. Dale [1931] 16 TC 253 (CA), that it was the object of the expenditur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ference to the High Court. The High Court noted the observations in the cases of Anglo-Persian Oil Co. Ltd. v. Dale [1931] 16 TC 253 (CA) and Bombay Steam Navigation Co (1953) P. Ltd. v. CIT [1965] 56 ITR 52 (SC) set out above. It also noted that the Supreme Court in Assam Bengal Cement Co. Ltd. v. CIT [1955] 27 ITR 34, had said that if the expenditure had been made not for the purpose of bringing into existence an asset or advantage for the enduring benefit of the business but for running the business or working it with a view to produce profits, it was a revenue expenditure and that "the aim and object of the expenditure would determine the character of the expenditure whether it is a capital expenditure or a revenue expenditure". Apply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fect the income-earning machinery or structure as such and not only to make the inflow of more funds available, then the expenditure would be on the capital side. It was true that the alteration in the capital structure by raising, the share capital would make more funds available, but that was not decisive. The essential object and purpose for incurring the expenditure and the resultant fact was the fundamental change in the income-earning machinery or structure. It was the resultant advantage obtained by incurring the expenditure, along with the purpose and object of incurring the expenditure, which was the guide to answering the question. Our attention was drawn by Mr. Dastur to the judgment of the Supreme Court in Patnaik and Co. Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iew, in incurring the Said expenditure. It is established, upon the Tribunal's finding, that the assessee had no need for funds. It is established that it had need only of the technical collaboration arrangement to run profitably. What, therefore, motivated the businessman in the assessee was the expediency of ensuring the continuance of the technical collaboration arrangement, The object and purpose of the said expenditure, therefore, seen from the businessman's point of view, must be held to be to obtain the approval of the Government to the continuance of the technical collaboration arrangement. This being the object and purpose, the said expenditure must be held to be revenue expenditure and an allowable deduction. That an advantage of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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