TaxTMI 
TaxTMI 
2010 (10) TMI 308
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....s. 16,12,515/- being designing charges on the erroneous plea that it is a capital expenditure. The appellant most humbly submits that on the facts and circumstances of its case and in law the subject expenditure is revenue in nature and prays that the Hon'ble Tribunal be pleased to hold so now and delete the additions made. 2. The only question which has been addressed to us as emerged from the corresponding assessment order passed u/s.143(3) dated 11/12/2008 was that whether the designing charges amounting to Rs. 19,08,576/- were "Revenue" or "Capital" in nature. The assessee's reply as made before the Assessing Officer, is reproduced below to know the factual matrix and the nature of expenditure :- "Regarding its claim as revenue ex....
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....wings, designs, charts, plans, processing data, etc. constitute "Capital Expenditure" With the result, the expenditure in question was held as "Capital" in nature, however, the Assessing Officer has allowed depreciation @ 25% on the said amount. The said addition was challenged before the first appellate authority. 3. The Learned CIT(Appeals) was also not convinced by the pleadings of the assessee and he has mentioned that though in assessee's own case for Assessment Year 2005-06, the claim was allowed by his predecessor vide [Learned CIT(Appeals)-III Baroda] order dated 21/04/2008, however, for the year under consideration the designing charges resulted into the acquisition of assets which can be used over a period of time. He has also ....
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.... incurred for improving the existing product. No new product/asset was brought into existence. Following the decision in the above mentioned cases, it is held that the expenditure of Rs. 3,78,000/- did not lie in the capital field. Accordingly the addition of Rs. 3,78,000/- is directed to be deleted and depreciation allowed thereon is directed to be withdrawn." 4.1. Because of the aforementioned background, it is pleaded before us that the Revenue Department kept on changing its stand in respect of the nature of expenditure, therefore, the view in favour of the assessee should be upheld as held by several authorities. Further, the Learned Authorised Representative has also vehemently contested that the assessee has not started producing ....
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....obtained business benefits which the company could even avail for number of years. The assessee himself has admitted that on account of adoption of new technology and new innovations a new product had come into existence. He has emphasized that once a new product had come into existence by incurring the said expenditure, then the expenditure was nothing but a "Capital" expenditure. 6. We have heard both the sides at some length. The only issue is whether designing charges "were in the nature of Capital or Revenue Expenditure". The details of the total amount incurred of Rs. 19,08,576/- is as under:- Date of purchase Particulars Amount 16-4-2005 Design directions 4,40,800 16-5-2005 Tata Elxsi Ltd. 1,12,000 13....
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....yment of technical know-how through which no new asset was acquired is held as a Revenue Expenditure by the Hon'ble Madras HC in the case of CIT vs. South India Exports reported as 242 ITR 150 (Mad.). (b) Payments in the Nature of technical services or use of trademark was held as Revenue expenditure in the case of CIT vs. Mihir Textiles reported as 287 ITR 232 (Guj.). (c) Expenditure on upgrading of existing computer an expenditure for changing of certain parts thereby enhancing configuration of the computer held as Revenue expenditure by the Hon'ble Madras High Court in the case of Southern Roadways Ltd. Reported as 282 ITR 379 (Mad.). (d) Expenditure for improving efficiency without making any structural alterations, rather upgr....
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....l Works reported as 177 ITR 377 (SC). 7. From the side of the Revenue reliance was placed on Scientific Engineering House Pvt.Ltd. reported as 157 ITR 86 (SC). Facts have revealed that the said assessee was manufacturing Scientific Instruments. The said company had entered into two separate collaboration agreements for undertaking the manufacture of microscopes. Under the said agreement, the foreign collaborator was paid a consideration in lieu of supply of technical know-how to assessee required for the manufacture of those instruments. As per the terms the assessee had acquired right to manufacture the instruments in India under its own trade-mark and name. On those facts, the Hon'ble Court has held that a capital asset was acquired, n....