1996 (9) TMI 59 - HC - Income Tax

Appellate Authority Capital Or Revenue Expenditure Expenditure Incurred Powers Of Tribunal

Summary

Issues Involved:
The judgment involves three main Issues:
1. Interpretation of powers of the Income-tax Appellate Tribunal under rule 27 of the Income-tax (Appellate Tribunal) Rules, 1963.
2. Determination of whether expenditure for acquiring designs and drawings is of revenue or capital nature.
3. Examination of whether the acquired designs and drawings provide an enduring benefit or are short-lived due to rapid technological advancements.

Issue 1 - Interpretation of Tribunal's Powers:
The court considered the powers of the Income-tax Appellate Tribunal under rule 27 of the Income-tax (Appellate Tribunal) Rules, 1963. It was established that the respondent, even if not appealing, has the right to support the order appealed against on any grounds decided against him. The court referred to statutory provisions and ruled that the Tribunal can consider contentions raised by the assessee under rule 27, which was decided against him by the first appellate authority. Thus, question No. 1 was answered in the affirmative, in favor of the assessee.

Issue 2 - Nature of Expenditure for Designs and Drawings:
The assessee claimed deduction for the amount paid towards acquiring designs and drawings for manufacturing electronic equipment. The Income-tax Officer and the first appellate authority did not consider this expenditure as revenue in nature. The first appellate authority, however, allowed the deduction under section 35 of the Income-tax Act, treating it as a capital expenditure for research and development. The Tribunal held that the expenditure was for improving efficiency and profit-earning apparatus, with advantages not being permanent due to rapid technological developments. Relying on precedents, the Tribunal concluded that the expenditure was revenue in character. Therefore, question No. 2 was answered in the affirmative, in favor of the assessee.

Issue 3 - Enduring Benefit of Acquired Designs and Drawings:
The Tribunal examined whether the acquired designs and drawings provided an enduring benefit or were short-lived due to technological advancements. It was found that the advantages were short-lived, not permanent, given the rapid developments in technology. The court endorsed the Tribunal's decision, emphasizing that the acquired assets were for improving efficiency and profit-earning apparatus, with benefits not of a permanent nature. Consequently, question No. 3 was answered in the affirmative, in favor of the assessee.

Separate Judgment:
No separate judgment was delivered by the judges in this case.