1984 (6) TMI 31 - HC - Income Tax

Summary

Issues involved:
The judgment addresses the following Issues:
1. Whether the Tribunal erred in holding that the expenditure on repairs to the extent of Rs. 90,000 was capital in nature?
2. Whether the Tribunal erred in holding that the amount of Rs. 93,100 expended by the assessee in the purchase of know-how relating to the existing line of business was capital in nature?

Issue 1: Expenditure on Repairs
The assessee, a company engaged in manufacturing wood products, incurred an expenditure on repairs and maintenance of buildings. The Income Tax Officer (ITO) disallowed certain sums as capital expenditure, rounding off the disallowance to Rs. 1,00,000. The Tribunal allowed some expenditure but disallowed Rs. 90,000 as capital in nature. The petitioner argued that the repairs were revenue expenditure, not capital, as they were necessary for the business. Citing relevant case law, it was contended that the repairs should be treated as revenue expenditure. The Revenue, however, argued that as the expenditure provided an enduring benefit, it should be considered capital expenditure. The court, applying the test of revenue versus capital nature, held that the repairs should be treated as revenue expenditure based on practical and business viewpoints and accounting principles.

Issue 2: Expenditure on Know-How
The assessee incurred an expenditure on purchasing know-how for manufacturing specific products. The ITO disallowed this expenditure as capital. The petitioner contended that such expenditure should be considered revenue, not capital, based on established case law. The court referred to various decisions that supported treating expenditure on know-how as revenue expenditure. Consequently, the court disagreed with the Tribunal's reasoning and held that the amount spent on acquiring know-how should be treated as revenue expenditure.

In conclusion, the court ruled in favor of the assessee on both issues, stating that the expenditure on repairs and the amount spent on acquiring know-how should be treated as revenue expenditure, not capital.