Revenue expenditure and section 80J relief upheld for new undertakings, with capital employed computed on the accepted judicial view.

A payment to a foreign collaborator for research and development was treated as revenue expenditure because the same nature of payment had already been accepted in an earlier year, and that view was followed. Relief under section 80J was available for the Ghaziabad and Nagpur units because they were found to be new undertakings formed for the first time, not mere expansions or reorganisations of the existing Madras unit. In computing capital employed for section 80J, liabilities were to be dealt with in accordance with the judicial view accepted by the first appellate authority. The Revenue's appeals failed and the assessee's claims were sustained.

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Issues: (i) Whether the contribution paid to the foreign collaborator towards research and development was allowable as revenue expenditure; (ii) Whether the assessee was entitled to relief under section 80J in respect of the Ghaziabad and Nagpur units; (iii) Whether liabilities were to be taken into account in computing capital employed for the purpose of section 80J.

Issue (i): Whether the contribution paid to the foreign collaborator towards research and development was allowable as revenue expenditure.

Analysis: The payment had already been treated by the Tribunal in an earlier year as revenue expenditure. The same nature of payment was involved in the present appeals, and the earlier view was followed.

Conclusion: The amount was allowable as revenue expenditure, in favour of the assessee.

Issue (ii): Whether the assessee was entitled to relief under section 80J in respect of the Ghaziabad and Nagpur units.

Analysis: The units at Ghaziabad and Nagpur were found to be new undertakings which came into existence for the first time. Mere manufacture of the same product as the Madras unit did not make them an expansion or reorganisation of the existing unit.

Conclusion: The assessee was entitled to relief under section 80J, in favour of the assessee.

Issue (iii): Whether liabilities were to be taken into account in computing capital employed for the purpose of section 80J.

Analysis: The computation of capital employed was governed by the existing judicial view relied upon by the first appellate authority, and no reason was found to differ from that view.

Conclusion: Liabilities were to be dealt with in the computation of capital employed as held by the first appellate authority, in favour of the assessee.

Final Conclusion: The Revenue's appeals failed on all the common issues and the assessee's claims were sustained.

Ratio Decidendi: A newly established unit is entitled to section 80J relief if it is an independent new undertaking and not merely an expansion of an existing unit, and a payment to a foreign collaborator for research and development may be treated as revenue expenditure where its revenue character is established.

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