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TMI Blog2012 (10) TMI 178X X X X Extracts X X X X X X X X Extracts X X X X ..... thout appreciating that such expenditure has not resulted in an enduring benefit? 4. Whether on the facts and circumstances of the case, the Tribunal was right in confirming the disallowance of depreciation claimed under Section 32 by relying on the decision of Supreme Court in the case of M/s. Escorts vs. UOI (199 ITR 43), when the appellant has not claimed doubt deduction under Section 35AB and 32 on technical knowhow? The assessee is on appeal before this Court. The assessee is engaged in the manufacture of abrasives, industrial ceramics and electro minerals. 2. As far as the first and second questions raised before this Court are concerned, both these questions are covered by the decisions of this Court. The first question regarding the includability of scrap sales in total turnover is covered by the decision reported in [2007] 293 ITR 108 (Commissioner of Income Tax vs. Shiva Distilleries Limited) and [2008] 297 ITR 107 (CIT vs. Ashok Leyland Ltd.) in favour of the assessee. Consequently, the question has to be held against the revenue and the order of the Tribunal, to that extent, is incorrect. 3. As far as the second question regarding the includabilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the products held by the said company. In the circumstances, in order that the said Mohanrao's expertise in that field did not, in any manner, prejudice the good prospects of the business of the assessee company in future, the parties agreed that in respect of the products, namely, phenol formaldehyde resin (in liquid and powder forms), saturated polyester resin, unsaturated polyester resin, modified alkalyd and any other resin, all having application in coated and bonded abrasives manufacture, shall not be dealt with by the said U.Mohanrao. In consideration of the same, the said U.Mohanrao would be paid a sum of Rs.50,00,000/- as a non-compete fee. The agreement laid down the restrictive covenants that the said U.Mohanrao shall not manufacture directly or indirectly any of the products mentioned above and shall not deal with the said products in any manner or advise, assist, aid, either directly or indirectly, any competitor or any other person in either establishing, managing, promoting or developing the business of the said products or any product similar thereto; he shall not act as a Consultant or use any knowhow, design or drawings directly or indirectly and refrain from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal field and not as revenue. 8. Aggrieved by this, the assessee went on appeal before the Commissioner of Income Tax (Appeals), who upheld the decision of the Assessing Authority. Aggrieved by this, the assessee went on further appeal before the Income Tax Appellate Tribunal. Referring to the decision reported in [1991] 191 ITR 249 (Chelpark Company Ltd. vs. Commissioner of Income Tax) and [1999] 239 ITR 142 (Tamilnadu Dairy Development Corpn. Ltd. vs. Commissioner of Income-Tax), the Tribunal, by a cryptic order, rejected the assessee's claim. There is hardly any discussion in the order, particularly with reference to the non-compete fee agreements, referred to above. Aggrieved by this, the assessee is on appeal before this Court. 9. Learned counsel appearing for the assessee placed reliance on the decision of the Apex Court reported in [1971] 82 ITR 902 (CIT vs. Coal Shipments P. Ltd (S.C.), [1980] 124 ITR 1 (Empire Jute Co. Ltd. vs. Commissioner of Income Tax (S.C.) and [1989] 177 ITR 377 (Alembic Chemical Works Co. Ltd. and pointed out to the guiding factor in the matter of considering the claim as to whether the expenditure would fall under the capital or revenue head. Maki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business of the assessee, the expenditure made was only a capital expenditure; hence, not entitled to deduction. 13. Heard learned counsel appearing for both sides and perused the materials placed on record. 14. As far as the question as to whether an expenditure could be a capital expenditure or revenue expenditure is concerned, the concept that the expenditure yielding an advantage of an enduring nature would be only a capital expenditure, has been fine-tuned, that even when expenditure was incurred for obtaining advantage of enduring benefit, nonetheless, the same can be taken as one of revenue account. In the decision reported in [1980] 124 ITR 1 (Empire Jute Co. Ltd. vs. Commissioner of Income Tax (S.C.), the Apex Court pointed out that the test of enduring benefit is not a certain or conclusive test and it cannot be applied blindly and mechanically without regard to the particular facts and circumstances of a given case. In a transaction of transfer of allotment of loom hours, on the question as to whether it is a revenue expenditure or a capital expenditure, the Apex Court pointed out that a payment may be a revenue payment from the point of view of the payer and a capita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ove discussion that the payment made by the assessee for purchase of loom hours was expenditure laid out as part of the process of profit earning. It was, to use Lord Sumner's words, an outlay of a business "in order to carry it on and to earn a profit out of this expense as an expense of carrying it on". [John Smith and Son v. Moore [1921] 12 TC 266, 296 (HL)]. It was part of the cost of operating the profit-earning apparatus and was clearly in the nature of revenue expenditure." 16. Thus the question as to whether an expenditure is revenue or not has to be seen from the context of an expenditure forming "part of the cost of the income-earning machine or structure" as opposed to part of "the cost of performing the income-earning operations". - [1971] 82 ITR 902 (CIT vs. Coal Shipments P. Ltd. (S.C.). 17. Thus, the consistent guiding principles in matters of understanding an expenditure as a capital or revenue, as held by the Apex Court, is to find out the aim and object of the expenditure and the commercial necessities of making such an expenditure. The question has to be considered in the background of the facts of each case, that "the idea of "once for all" payment and "enduri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenditure is only on revenue account and not on capital account. In the circumstances, we accept the case of the assessee, set aside the order of the Tribunal and allow the Tax Case. 20. It may be pointed out that in the assessee's own case relating to the assessment years 1998-99, 1999-2000 in T.C.Nos.97 and 98 of 2008, by order dated 06.04.2011, Question Nos.2 and 4 herein were raised before this Court. The first question relating to scrap sales was considered and answered against the assessee, referring to the decision of the Tribunal reported in 97 ITD 306 (JCIT vs. Virudhunagar Textiles Limited). The second question also was answered against the assessee, following the decision of this Court reported in [2006] 282 ITR 389 (Mad.) (CIT vs. Chinnapandi) and the third question was also decided against the assessee following the decision reported in [1993] 199 ITR 43 (Escorts Ltd vs. Union of India). 21. As far as the first question is concerned, we have referred to the decision of the Apex Court to grant relief to the assessee. As far as the second question is concerned, again, we have referred to the decision reported in [2012] 343 ITR 89 (SC) (ACG Associated Capsules Pvt. Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X
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