2017 (3) TMI 876 - HC - Income Tax

Book entries not conclusive; law decides revenue or capital nature-Rs 18.67 crore knowhow expense allowed as deduction

HC held that entries in the books are not conclusive; the legal character of expenditure (revenue or capital) depends on law, not bookkeeping. The ... Expenditure incurred on technical and marketing knowhow - revenue v/s capital - Held that:- Entries in the account books are not conclusive of the nature of expenditure i.e. revenue or capital and whether an assessee is entitled to a deduction or not would entirely depend upon the provisions of law and not treatment given to it in the books of accounts by the assessee. The expenditure incurred on account of technical and marketing knowhow was in the revenue field is not disputed by the Revenue. Consequently the entire expenditure of ₹ 18.67 crores has to be allowed in the subject assessment year. See Kedarnath Jute Mfg. Co. Ltd. v/s. Commissioner of Income Tax (Central) Calcutta [1971 (8) TMI 10 - SUPREME Court ] - Decided in favour of assessee Issues:- Depreciation on goodwill- Expenses incurred on buy back of shares- Premium on redemption of debentures- Expenditure on acquisition of marketing and technical knowhowDepreciation on Goodwill:The Tribunal allowed depreciation on goodwill following the decision in CIT v/s. Smifs Securities Ltd. The Court found no substantial question of law and dismissed the appeal.Expenses on Buy Back of Shares:The Tribunal held that expenses on buy back of shares are revenue expenditure, citing a previous decision. No distinguishing features were found, and the Court dismissed the appeal.Premium on Redemption of Debentures:The Tribunal upheld the allowability of premium paid on pre-redemption of debentures as revenue expenditure, following a previous decision. The Court found no substantial question of law and dismissed the appeal.Expenditure on Marketing and Technical Knowhow:The Tribunal dismissed the Revenue's appeal on allowing expenditure on marketing and technical knowhow as revenue expenditure. The Revenue's argument was based on the treatment in the profit and loss account, but the Tribunal relied on the decision in Kedarnath Jute Mfg. Co. Ltd. The Court found no substantial question of law and dismissed the appeal.In conclusion, the Court dismissed the appeal under Section 260A of the Income Tax Act, 1961, challenging the Tribunal's order for Assessment Year 200001, as no substantial questions of law were found in the issues raised.