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TMI Blog2015 (3) TMI 322X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court) is squarely attracted to the facts of the present case, justifying the loss of the assessee as a business loss, as admittedly, the assessee is in the business of marketing bulk drugs, formulations, etc., and one of its ventures has ended in a loss and that loss is attributable to business and it cannot be deemed to be a new enterprise and a capital expenditure. - Decided in favour of the assessee/respondent. - T.C. No. 959 of 2007 - - - Dated:- 24-2-2015 - R. Sudhakar And R. Karuppiah,JJ. For the Appellant : Mr. J. Narayanaswamy For the Respondent : Mr. Vijayaraghavan for M/s. Subbaraya Aiyar Padmanabhan JUDGMENT (Delivered By R. Sudhakar, J.) Aggrieved by the order passed by the Tribunal in allowing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reby the marketing of Ebuprofen was to be done by the assessee company and it has to be paid a commission out of the profits accruing to KMBL on export of this product in the following manner :- 25% of the profits out of this product transaction would be to the share of KMBL and the remaining 75% to the assessee. 4. Further, the agreement also made it clear that any loss in the transaction would be borne by the assessee company. Due to misfortune and unfavourable market conditions, the product could not be manufactured and sold during the period in question and, therefore, the orders came to be extended and in order to cover possible exchange fluctuations, the assessee obtained forward cover through the State Bank of Mysore, however ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rise, as held by the Assessing Officer and the CIT (Appeals), but the activity is the same one the assessee was already carrying on. For better clarity, the relevant portion of the order of the Tribunal is extracted hereinbelow :- 4. The ld. Counsel was able to explain before us that the assessee is already in the same line of business and the company has identified Ebuprofen one of the promising bulk drug and accordingly the company had procured an order for trial execution only as an extension of its business through KMBL, Bangalore and not as a new business. It is settled law that when loss incurred in a business activity it is to be allowed. The assessee was able to explain before us that the loss was incurred only during the year a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f antibiotics and pharmaceuticals. It was granted licence for the manufacture of penicillin. Until 1963, it has already made substantial investment of over ₹ 66 lakhs for setting up plant, etc., for the production of penicillin. Initially, the appellant was able to achieve only moderate yields. With a view to increasing the yield, the appellant negotiated with Meiji, a reputed Japanese enterprise whereunder in consideration of a once for all payment of 50,000 US $, it agreed to supply the assessee a pilot plant, the technical information, know-how and written description of Meiji's process for fermentation of penicillin with a flow sheet of the process in the pilot plant and to arrange for the training of the appellant's repre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 's established enterprise. The financial outlay under the agreement for the better conduct and improvement of the existing business was revenue in nature and was allowable deduction in computing the business profits of the appellant. In coming to this conclusion, the court also noticed the principles which should govern while deciding such issues by the courts. The most important aspects relevant for the present purpose which can be culled out from the above discussion is that where expenses are incurred in areas which supplement the existing business and is not a fresh or new venture and agreement of acquiring technical know-how pertain to product already in the line of the established business which was intended to improve the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as narrated above, it is clear that there is absolutely no justification for the Department to hold that there was a new line of business on which there occurred a loss. The parameters enunciated in the decision in Suhrid Geigy Ltd. Case (supra) is squarely attracted to the facts of the present case, justifying the loss of the assessee as a business loss, as admittedly, the assessee is in the business of marketing bulk drugs, formulations, etc., and one of its ventures has ended in a loss and that loss is attributable to business and it cannot be deemed to be a new enterprise and a capital expenditure. 12. For all the reasons stated above and in the light of the parameters enunciated above for treating a particular expenditure as capital ..... X X X X Extracts X X X X X X X X Extracts X X X X
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