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TMI Blog1993 (5) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... et up was capital expenditure ? (3) Whether, on the facts and in the circumstances, the Tribunal has rightly held that the assessee is not entitled to depreciation with reference to travelling expenses incurred on Shri Sunil Kumar Sah, director, in connection with his visit to Austria ?" Question No.1 has been referred on the application of the Commissioner of Income-tax while questions Nos. 2 and 3 have been referred on the application of the assessee filed under section 256(1) of the Income-tax Act, 1961. No one has appeared on behalf of the assessee in spite of due service of notice. It appears that the assessee is not interested in agitating the grievance raised in questions Nos. 2 and 3 and, therefore, these questions are returned unanswered. So far as question No. 1 is concerned, the relevant facts are that the assessee-company was running a cinema at Kota and wanted to set up a factory for manufacture of costume artificial jewellery. Expenses of Rs. 9,075 were incurred as bank charges which were paid to the bank as commission for guarantee given by it to the Government of India for import of machinery. Rs. 30,787 were incurred as interest paid on money borrowed for the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the payment has to be examined. As a general proposition, there cannot be any rule of thumb to determine as to whether a particular expenditure is capital or revenue. The nature of the business, the nature of expenditure, nature of rights acquired and their relation inter se are to be examined with reference to the particular case. Normally, the word "capital expenditure" connotes an expenditure which is having permanency, securing tangible or intangible corporeal or incorporeal rights having lasting or enduring benefit. In the words. of Viscount Cave L.C. in Atherton v. British Insulated and Helsby Cables Ltd. [1925] 10 TC 155, 192 (HL) "when an expenditure is made, not only once and for all, but with a view to bring into existence an asset or an advantage for the enduring benefit of the trade, there is very good reason (in the absence of special circumstances leading to an opposite conclusion) for treating such an expenditure as properly attributable not to revenue but to capital." The matter has been considered by the apex court in various decisions and the expenditure for acquisition of a capital asset, expenditure incurred once for all (in contrast to recurring expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s only when his plant and machinery went into production. In CIT v. Alembic Glass Industries Ltd. [1976] 103 ITR 715 (Guj), where the business organisation, administration and funds of the two units of the assessee were common and the control and administration of both the units was under one company which supplied the staff to both the units and managed the whole of the business administration of both the units and there was complete inter-connection, interlacing and inter-dependence and unity of both the units, it was held that the two lines of business constituted the same business. The decision of the apex court in Challapalli Sugars Ltd.'s case [1975] 98 ITR 167 referred to above and the decision of India Cements Ltd. v. CIT [1966] 60 ITR 52 (SC) were considered and the following principles were laid down : (1) Where a borrowing is made for the purposes of a business, the interest paid on such a borrowing becomes eligible to deduction contemplated by section 10(2)(iii) of the Act of 1922 or section 36(1)(iii) of the Act of 1961 ; (2) This would be so, even if the capital is invested in order to acquire a revenue asset or a capital asset, because the act of borrowing capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on fund and a common place of business." In Dalmia Jain and Co. Ltd. v. CIT [1971] 81 ITR 754, it was held by the apex court that where the litigation expenses were incurred by the assessee for the purpose of creating, curing or completing the assessee's title to the capital must be considered as capital expenditure. If the litigation expenses are incurred to protect the business of the assessee, they must be considered as revenue expenditure. Since neither the business was in existence nor it could be said that the litigation expenses were to protect the business of the assessee, the expenditure incurred by the assessee cannot be considered to be a revenue expenditure. In Hiralal Kalyanmal, In re [1943] 11 ITR 128 (Bom) 138, Beaumont C.J. has observed : "It is obvious that mere common ownership of the businesses does not mean that they are merely branches of the same business. It is also I think obvious that the mere fact that the two businesses are of a distinct nature does not necessarily mean that they are distinct businesses. You can have two branches of a multiple store, one selling drugs and the other selling cloth. Nobody would suggest that these two departments constitut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n is on the assessee to establish as to whether the different ventures constitute part of the same business. Sufficient evidence is to be produced about the unity of control and management and inter-relation of the business or employment of the same staff to run the business or the possibility of one after being closed affecting the other business. None of the factors have been taken into consideration and the Tribunal has proceeded simply on the basis of the observation of the Supreme Court without going into the facts of the case. In these circumstances, the reference is returned unanswered and the Tribunal is directed to either take into consideration the evidence at its level or send the case back to the assessing authority to take evidence and then record a finding as to whether the business of film exhibition and that of manufacturing of artificial jewellery was the same business. It will also take into consideration whether before establishment of the business of manufacture of artificial jewellery it could be said that any expenditure in relation thereto could be considered as business expenditure allowable under section 37. The reference is returned unanswered. Costs made ..... X X X X Extracts X X X X X X X X Extracts X X X X
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