Case Law Details
Advocate Akhilesh Kumar Sah
The issue that a particular expenditure incurred by assessee is a capital expenditure or a revenue one has remained controversial. The facts & circumstances of each case differ. However, the decisions of Hon’ble Supreme Court of India in this respect guide in resolving the issue.
It is between settled that the aim and object of the expenditure would determine the character of the expenditure whether it is a capital expenditure or a revenue expenditure. If an expenditure is incurred for acquiring or bringing into existence an asset or advantage for the enduring benefit of the business it is properly attributable to capital and is of the nature of capital expenditure. If on the other hand it is made not for the purpose of bringing into existence any such asset or advantage but for running the business or working it with a view to produce the profits, it is a revenue expenditure.
Recently, in Honda Siel Cars India Ltd. vs. CIT, Ghaziabad [Civil Appeal No. 4918 of 2017 with Civil Appeal Nos. 4919 to 4922 of 2017, decided on 9.06.2017], in brief, assessee in all these appeals was Honda SIEL Cars Ltd. (hereinafter referred to as the “Assessee”). Question of law that was raised was also identical. Five appeals were filed only because of the reason that same issue had occurred in different AYs, i.e., for the years 1999-2000, 2001-2002, 2002-2003, 2003-2004 and 2005-2006.
Honda Motors Company Limited, Japan (hereinafter referred to as “HMCL, Japan”) had entered into a joint venture dated 12.09.1995 with SEIL Ltd., a company incorporated under the Indian Companies Act. After getting necessary approval from the Government of India, a joint venture company in the name of the assessee was incorporated. After incorporation of the assessee as a joint venture, An agreement dated 21.05.1996 between HMCL, Japan and the assessee was entered into, known as ‘Technical Collaboration Agreement’ (for short, ‘TCA’). As per the TCA, HMCL, Japan which was engaged in the business of development, manufacture and sale of automobiles and their parts agreed to give ‘license’ and ‘technical assistance’ to the assessee. The TCA also stipulated different kinds of technical know-how and technical information which were to be provided by HMCL, Japan (as a licensor) to the assessee (as a licensee). For providing the aforesaid facilities, it was agreed that a consideration/ lump sum fee of 30.5 million US Dollars would be paid by the assessee to the HMCL, Japan in 5 continuous equal installments and payment thereof was to commence from third year after commencement of commercial production. Besides, assessee was also liable to pay royalty of 4%, both on internal and exports, subject to taxes.
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