TMI Blog2007 (10) TMI 286X X X X Extracts X X X X X X X X Extracts X X X X ..... DR. S. MURALIDHAR JJ. Santosh K. Aggarwal for the assessee. Mrs. P. L. Bansal for the Commissioner. JUDGMENT The judgment of the court was delivered by Madan B. Lokur J.- At the instance of the assessee, the following questions have been referred for our opinion under section 256(1) of the Income-tax Act, 1961 (for short "the Act"), in respect of the assessment year 1979-80 : "1. Whether, on the facts and in the circumstances of the case and in law, the Tribunal was justified in holding that the preoperative expenditure of fuel injection equipment project amounting to Rs. 20,14,158 was a capital expenditure ? 2. Whether, on the facts and circumstances of the case, the Tribunal was right in deleting the addition of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Consultancy fees to Dev Sons for existing machines Interview charges 457 45 1,050 27,603 Total 20,41,158 5. According to the Inspecting Assistant Commissioner (the Assessing Officer), the above expenditure is in the nature of expenses incurred in connection with the setting up of a new line of business and, therefore, it should have been capitalised. In other words, the Assessing Officer rejected the contention of the assessee that the expenditure incurred was revenue in nature. The view taken by the Assessing Officer was upheld by the Commissioner of Income-tax (Appeals) as well as by the Income-tax Appellate Tribunal (for short "the Tribunal"). 6. During the course of hearing, neit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uestion must be viewed in the larger context of business necessity or expediency. If the outgoing or expenditure is so related to the carrying on or conduct of the business, that it may be regarded as an integral part of the profit-earning process and not for acquisition of an asset or a right of a permanent character, the possession of which is a condition of the carrying on of the business, the expenditure may be regarded as revenue expenditure." 8. Keeping the above conclusions in mind, learned counsel took us through several other decisions rendered by various courts including this court. 9. In Prem Spinning and Weaving Mills Co. Ltd. v. CIT [1975] 98 ITR 20 (All), the assessee was a limited company running a spinning and weavi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ital account. The Gujarat High Court took into consideration the fact that the business organisation, administration and fund of both the units of the assessee are common ; there was, therefore, complete interconnection, interlacing and interdependence between the two units. The fact that the Bangalore unit is many miles away from Baroda was of no consequence since the head office at Baroda controlled the affairs of both the units. 11. CIT v. Expanded Metal Manufacturers [1991] 189 ITR 317 (All) was a case in which the assessee was engaged in the business of expanding of iron metal by a mechanical process and its supply. It started a new business of manufacturing of rubber products. Relying upon Prem Spinning and Weaving Mills Co. Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... answering the question in favour of the assessee, the Supreme Court found that the two businesses were composite in the sense that there was inter-connection, interlacing or interdependence between the jewellery business and the cinema business. 14. On an appreciation of the law laid down by the various decisions referred to above, it is clear that the nature of the new business is not a decisive test for determining whether or not there is an expansion of an existing business. The nature of the business could be as distinct as a jewellery business and a business of cinematographic films ; it could be as different as manufacture of metal alloys and manufacture of rubber products. What is of importance is that the control of both the ve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ject is a revenue expenditure. 17. Learned counsel for the Revenue relied upon Challapalli Sugars Ltd. v. CIT [1975] 98 ITR 167 (SC) to contend that the expenditure incurred by the assessee, as mentioned above, is a part of the actual cost of its assets and, therefore, this amount needs to be capitalised and added to the cost of the fixed assets of the assessee. 18. There can, of course, be no quarrel with the proposition laid down by the Supreme Court in Challapalli Sugars Ltd. v. CIT [1975] 98 ITR 167, but the facts of that case are completely distinguishable inasmuch as that decision did not concern itself with an extension of an existing business but concerned itself with the setting up of a new business altogether. In fact, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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