TaxTMI 
TaxTMI 
TaxTMI 
2015 (3) TMI 322
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....es of the case, the Tribunal was right in holding that the loss in non-performance of the contract and expenditure on increase in forward cover for foreign exchange, incurred in respect of a new joint venture, which did not materialise, is revenue expenditure?" 2. The point in issue here is whether loss arising in the course of a new line of business activity is to be allowed as revenue expenditure or as capital expenditure? 3. The facts, in a nutshell, are as follows :- The case is relatable to the assessment year 1996-1997. The respondent/assessee is a company, which is engaged in the business of marketing of bulk drugs and formulations. In order to improve their business activity, they undertook market study of drugs and identifying p....
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....e foreign exchange fluctuations. This transaction resulted in a loss to the assessee company to the tune of Rs. 40,63,503/=, which was paid over to the bank. It is also on record that the bank, viz., State Bank of Mysore, debited to the assessee's account prior to 31.3.1996, consequent to the settlement of foreign exchange cover, which is the subject matter of the loss sustained by the assessee. 5. According to the assessee, the loss had occurred during the previous year relevant to the assessment year 1996-1997 and, therefore, it is a business loss. The Department as well as the CIT (Appeals) took a different view in the matter stating that it is a new enterprise on the part of the assessee and, therefore, the loss is capital in natur....
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....orities below. Since the assessee was able to establish before us the claim that the expenditure in question was incurred wholly and exclusively for its business, we set aside the orders of the authorities below and direct the AO to allow the claim of the assessee as business loss for the Asst. year 1996-97." Aggrieved by the said order of the Tribunal, the appellant/Revenue is before this Court by filing the present appeal. 7. Heard the learned standing counsel appearing for the appellant/Revenue and the learned counsel appearing for the respondent/assessee and also perused the materials available on record. 8. The moot question before this Court is whether the activity of the assessee would be a new enterprise for the purpose of treati....
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....;s claim for deduction of the sum paid to the Japanese company as revenue expenditure was disallowed by the Department holding that the expenses were capital in nature, for the purpose of setting up a new plant and a new process and for complete replacement of the equipment inasmuch as a new process and new type of plant was to be put up in place of the old process and old plant. The High Court also rejected the assessee's claim. Reversing the decision of the High Court, the Supreme Court observed that there was no material before the Tribunal to come to the finding that the appellant had obtained under the agreement a completely new plant with a completely new process and a completely new technical know-how. The business of the appella....
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....stablishing altogether a new or fresh venture, launching of a new enterprise, the same expenditure may be treated as capital and not revenue. In such cases the test of enduring benefit might break down. That is to say, the argument that the knowledge having become once part of the knowledge bank of the acquirer, cannot be taken back in a sense and will always remain with the assessee and is enduring. But looking to the business realities, namely, the purpose for which knowledge has been acquired becomes determining the true character of the expenditure." 10. From the decision as extracted above, it is clear that the main parameters that are necessary for the expense to be treated as revenue expenditure is where expenses are incurred in are....