Case Law Details
M/s. Manipal Health Systems Pvt. Ltd. Vs ACIT (ITAT Bangalore)
It is also an undisputed fact that the project was completed and the appellant has paid services fees of Rs.3,30,90,000/- to Allegro Corporate Finance Advisors Pvt. Ltd. The appellant claimed it to be revenue expenditure under the head legal and professional charges but treated it to be a capital expenditure. The quantum of expenditure incurred by the appellant in obtaining services from Allegro Corporate Finance Advisors Pvt. Ltd., was not disputed by the Revenue. The dispute before us is only with regard to nature of expenditure whether it is a capital expenditure or a revenue expenditure. Before dwelling upon the nature of expenditure, we would like examine the various judicial pronouncements referred to by the parties during the course of hearing. In the case of Alembic Chemical Vs. CIT (supra), the facts of the case are that the business of the assessee from the commencement of its plant was the manufacture of pencillin and after the agreement, the product manufactured continued to be pencillin. The agreement with the foreign firm stipulated the supply of the “most suitable sub-cultures” evolved by the foreign firm for the purpose of augmentation of the unit-yield of pencillin per milli-litre of the culture-medium. In that case, it was held “the improvisation in the process and technology in some areas of the enterprises was supplemental to the existing business and there was no material to hold that it amounted to new or fresh venture. The further circumstance that the agreement pertained to a product already in the line of the assessee’s stipulated business and not a new product indicates that what was stipulated was an improvement in the operations of the existing business and its efficiency and profitability not removed from the area of the day-to-day business of the assessee’s established enterprise. There is also no single definitive criterion which, by itself, is determinative as to whether a particular outlay is capital or revenue. The once for all payment test is also inclusive. What is relevant is the purpose of the outlay and its intended object and effect, considered in a commonsense way having regard to the business realities. Therefore, the payment made for technical know-how fees is allowable as deduction.”
77. In the case of CIT vs. Priya Village Road Shows Ltd., (supra), the Hon’ble Delhi High Court has held that one has to keep in mind the essential purpose for which such expenditure is incurred, if the expenditure incurred for starting new business which was not carried out by the assessee earlier then such expenditure is held to be of capital in nature. If the expenditure incurred is in respect of the same business, which is already carried on by the assessee, even if it is for the expansion of business namely to start new unit which is same as earlier business and there is unity of control and a common fund, then such expenditure is to be treated as business expenditure. A similar view was expressed by the Calcutta High Court in the case of Wood Craft Products Ltd., Vs. CIT (supra) wherein their Lordship has observed that travelling expenses were incurred in connection with the expansion scheme of the assessee company to set up a new plywood factory at Kenya under same management with common administrative control. Therefore, the expenditure has to be accepted as revenue expenditure because the expenditure has direct nexus with the existing business carried on by the assessee. Similarly, in the case of CIT Vs. Aluminium Industries Ltd., (supra) the Hon’ble Kerala High Court has held that there is no merit in the contention raised on behalf of the Revenue that the amount spent by the assessee in connection with the inaugural function of its new project is in the nature of capital expenditure as it was incurred not after the commissioning of the new unit. The assessee was already having manufacturing units, and the “relay” project which is inaugurated in January, 1982, was one in expansion of its existing business. Therefore, merely because the expenditure was incurred not after the commissioning of the new unit would not make it any the less an expenditure coming under s. 37(1) if it satisfies all the other conditions.
Again, in the case of Hindustan Commercial Bank Ltd., way back in 1952, similar observations were made by the Hon’ble High Court of Allahabad.
In the case of CIT Vs. Malwa Vanaspati & Chemical Co. Ltd., 226 ITR 253, Hon’ble Madhya Pradesh High Court has held that where the fact goes to indicate that setting of the new project was only an expansion of the existing business of the assessee company it cannot be created as a new line of business or a distinct business The setting up of unit at a place little away from the business place of the assessee company was held to be of little consequence and the expenditure incurred are to be revenue expenditure.
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