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TMI Blog2010 (10) TMI 308X X X X Extracts X X X X X X X X Extracts X X X X ..... s an appeal at the behest of the Assessee which has emanated from the order of Learned CIT(Appeals)-III, Baroda dated 18/11/2009 and the substantive ground reads as under:- 1. The Learned Asst. Commissioner of Income Tax has erred in law and on the facts of the appellant's case in making addition of Rs. 16,12,515/- being designing charges on the erroneous plea that it is a capital expenditure. The appellant most humbly submits that on the facts and circumstances of its case and in law the subject expenditure is revenue in nature and prays that the Hon'ble Tribunal be pleased to hold so now and delete the additions made. 2. The only question which has been addressed to us as emerged from the corresponding assessment order passed u/s.143(3) dated 11/12/2008 was that whether the designing charges amounting to Rs. 19,08,576/- were "Revenue" or "Capital" in nature. The assessee's reply as made before the Assessing Officer, is reproduced below to know the factual matrix and the nature of expenditure :- "Regarding its claim as revenue expenses, we have to inform you that our client is engaged in the business of manufacturing of EPBX. With the change in technology and innovations new pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntative Mr.S.N.Soparkar that for Assessment Year 2005-06, Learned CIT(Appeals)-III, Baroda in Appeal No.CAB/III/73/07-08 dated 21/04/2008 has decided this very issue in favour of the assessee and he has also made a statement at bar that the said order of the Learned CIT(Appeals) was not challenged by the Revenue Department before the Tribunal, therefore stood resolved in favour of the assessee. In that year vide paragraph No.5.2, it was held as under:- "5.2. I have considered the submissions of the ld. A.R. and the facts of the case. The Courts have in numerous cases evolved a variety of tests for distinguishing capital expenditure from revenue expenditure. One of the tests is that in the case of capital expenditure some new asset must be brought into existence. Expenditure laid out for improving the existing product would not constitute enduring benefit [CIT Vs. South India Exports Co.Ltd., 242 ITR 150 (Mad.)]. Similarly, payment of technical/engineering services and upgradation expenditure has been held to constitute revenue expenditure - CIT Vs. Mihir Textiles, 287 ITR 232 (Guj), CIT Vs. Southern Roadways Ltd, 282 ITR 379 (Mad). In the instant case, the expenditure has been inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roduct had come into existence. He has emphasized that once a new product had come into existence by incurring the said expenditure, then the expenditure was nothing but a "Capital" expenditure. 6. We have heard both the sides at some length. The only issue is whether designing charges "were in the nature of Capital or Revenue Expenditure". The details of the total amount incurred of Rs. 19,08,576/- is as under:- Date of purchase Particulars Amount 16-4-2005 Design directions 4,40,800 16-5-2005 Tata Elxsi Ltd. 1,12,000 13-9-2005 -do- 1,23,424 13-9-2005 -do- 2,22,604 19-11-2005 Design Directions 1,10,200 10-12-2005 Tata Elaxi Ltd. 2,22,604 10-12-2005 -do- 2,38,032 31-3-2006 -do- 1,00,440 31-3-2006 -do- 1,00,440 Total 19,08,576 6.1. It appears that this controversy shall never set at rest. In the past, number of landmark decisions have been pronounced by the Hon'ble Courts. But even then this controversy seems to be unending. However to resolve this type of dispute it has always been advised to marshal the facts of each case so as to match them with the case laws. As far as the nature of the expenditure is concerned, the payments were made for the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enditure in the case of HEDE Consultancy reported as 258 ITR 380 (Bom.). (h) Engineering Services and Repairs to Plant & Machinery and installation expense by shifting from the existing position to a new position as well as replacement expenditure were held as Revenue expenditure in the case of B.A. Plantations & Industries reported as 251 ITR 455 (Gauhati). (i) The expenditure on improvisation in the process and expenditure on technology in some areas of an enterprise was held as supplemental to the existing business and also held that did not amount to a new or fresh venture. Citation is Alembic Chemical Works reported as 177 ITR 377 (SC). 7. From the side of the Revenue reliance was placed on Scientific Engineering House Pvt.Ltd. reported as 157 ITR 86 (SC). Facts have revealed that the said assessee was manufacturing Scientific Instruments. The said company had entered into two separate collaboration agreements for undertaking the manufacture of microscopes. Under the said agreement, the foreign collaborator was paid a consideration in lieu of supply of technical know-how to assessee required for the manufacture of those instruments. As per the terms the assessee had acquire ..... X X X X Extracts X X X X X X X X Extracts X X X X
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