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1997 (3) TMI 611
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....addition, for the assessment year 1991-92, the assessee had also claimed the expenditure on service line for tube division amounting to ₹ 13,45,000. The Assessing Officer disallowed the said expenditure by observing for the assessment year 1991-92 as under : "The assessee has claimed pre-operative expenses of ₹ 1,65,32,446 as deductible business expenses in respect of its Seamless Tube project at Baramati. The assessee's factory is at Mundhwa and its new project is at Baramati. The assessee claims that though it is at distance of over 100 miles, the new unit is only a part and parcel of the old unit at Mundhwa, as the management is the same, the funds are interwined and as the products of old unit become the raw material for the new unit. These claims are not acceptable. The new project at Baramati is entirely a new unit, with an entirely new product to be manufactured. The pre-operative expenses including those on interest, etc., cannot be allowed as revenue expenditure and I hold that these are properly capitalised by the assessee. The deduction of ₹ 1,65,32,446 claimed is rejected taking into account the Explanation 8 to section 43(1) of the Income-tax A....
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....bsequently used for the new steel division at Hospet. 6. As regards the common management, the CIT(A) admitted that Shri B.N. Kalyani and Shri B.B. Hattarki were whole-time Directors of the assessee-company. She, however, observed that they were also Directors of Kalyani Seamless Tube Ltd. (hereinafter in short referred to as KSTL), after the unit was transferred. She also noted that in 1989-90 and 1990-91, 539 and 555 persons were employed by the assessee-company. This number increased to 987 and 1043 in 1992-93 and 1993-94. When the tube division was transferred 330 employees of the assessee-company were also transferred to KSTL. She also observed that the information under section 217(2A)(b) of the Companies Act printed under the annual accounts for 1993-94 revealed the employment of specialists for the tube project, who were subsequently transferred to KSTL. With these observations, the CIT(A) concluded that the common management is also not established. 7. The CIT(A) further held that the existing steel division has not in any way been affected by the amputation of seamless tube division in 1994-95. She was of the view that the unit was apparently transferred to save the ste....
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....avindranathan Nair [1985] 152 ITR 138 (3)Waterfall Estates Ltd. v. CIT [1981] 131 ITR 207 10. The CIT(A), while deciding the issue has also distinguished the decision of the Pune Bench in the case of Bharat Forge Ltd. v. Dy. CIT [1995] 53 ITD 575 on the ground that in that case the company had undertaken a modernisation-cum-expansion in the existing premises in the same line of business with the idea of shifting to better technology. 11. The CIT(A) also observed that Explanation 8 to section 43(1) is attracted and setting up of the seamless tube division cannot be construed, but as another enduring asset and all interest prior to the operation cannot be held as capital. 12. Aggrieved, the assessee company has come up in appeal before us and has filed paper book No. 1 consisting of 374 pages. The assessee has also filed the additional evidence by way of a separate paper book No. 2 consisting of 85 pages. The learned counsel, Shri S.N. Inamdar submitted that the additional papers are in the nature of elaborating submissions on points made before the revenue authorities. He also submitted that although primary facts were already before the revenue authorities, certain observation....
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....se) was looking after the purchases of both the units. Mr. C.G. Patankar, Vice-President (Corporate Finance) was looking after the finance requirements of both the units. Also Mr. A.V. Inamdar (Associate-Vice-President Stores) looked after the stores department and all excise matters of both the units. Mr. G.R. Warty, Company Secretary was also looking after the secretarial and legal aspects of both the units. The export department of Kalyani Steel Ltd. (hereinafter referred to as KSL) was looking after the export marketing of the tube division as well. He, therefore, submitted that in view of the above, tests of common management, common business organisation and administration were satisfied. 16. As regards the common place of business, he submitted that the common Head Office at Mundhwa which controls affairs of both the units satisfy this test. In this regard, the learned counsel brought to our notice the decision of the Gujarat High Court in the case of CIT v. Alembic Glass Industries Ltd. [1976] 103 ITR 715. He submitted that all relevant tests are satisfied and the steel and the tube units constituted the same business. 17. The learned counsel continued and submitted that ....
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....the Controller of Capital Issues guidelines. Initially, therefore, it was advantageous to take up the project by the assessee company itself. 20. Unfortunately, the project cost escalated substantially due to the devaluation of rupee and went up to ₹ 271 crores. At the same time, due to changes in Government policies and liberalisation, imports of seamless tubes were freely permitted and imports for the domestic suppliers went down due to the removal of benefits from deemed export status etc. At the same time, steel making activity was also facing difficulties due to increase in cost of imported scrap and power and fuel cost. Moreover, entry was allowed for private sector companies in steel making directly from iron ore through blast furnace routes. It was, therefore, necessary for the company to go for steel making directly from iron ore through blast furnace route to survive competition in the steel business. At the same time, tube division was likely to incur substantial losses due to the factors mentioned above. The Management felt that if the tube division was continued in the company, it could have wiped out the net worth of the assessee company in 2/3 year's time. It ....
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....same Personnel Manager had signed the letters for the employees working for steel and tube division. He also referred to the Clause in appointment letters stating that the employees can be transferred to any division of the company. He also referred to the certificates of the Chartered Accountants certifying that proceeds of both 1990-91 and 1992 issues were deposited in common cash credit account and that the profits of the steel division were used for repayment of the tubes division. For this purpose, on our requisition, books of account were produced before us. 23. Finally, the learned counsel fairly pointed out that out of claim of pre-operative expenses of ₹ 61,22,670 for the assessment year 1991-92, an amount of ₹ 18,31,525 was incurred in the earlier previous year and had been debited to project expenses account during the previous year relevant to the assessment year 1991-92. He, therefore, did not press for the allowance of this amount of ₹ 18,31,525 and restricted the claim for deduction of pre-operative interest and pre-operative expenses for both the years under consideration - minus - the sum of ₹ 18,31,525 for assessment year 1991-92. 24. Fin....
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....nce for the financial year 1989-90. (b)Separate finances were raised for the business of seamless tubes. (c)Even before the commercial production was started, tube division was transferred to a separate company. (d)The tube division was located at Baramati which is 100 kms. from Pune. (e)The seamless tube is a different product from steel. (f)Interest is provided on funds of steel (tube business) utilised by the assessee. (g)Separate independent accounts are maintained to the minutest details and separate books of account, journals, ledgers etc. are maintained for tube division. By drawing our attention to page 2, he pointed out that even in 1990 small things were purchased in the name of tube division. On page 3, he has drawn our attention to the fact that cash on hand of tube division has been separately shown. Page 8 of the paper book indicates that separate expenses for tube division have been mentioned. The rent of Bombay Office of tube division has also been separately shown. Even the consultant's fee has also been separately shown in the name of tube division. He also pointed out that premium on shares, debentures etc. was also transferred by the assessee to the ....
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.... of seamless tube division to a separate company was for assessee's benefit and strong business consi-derations. The learned senior departmental representative pointed out that the entire project was transferred only at cost. The project consisted of huge plot of industrial land at Baramati and substantial investments were made in building, plant and machinery. The assessee has not received any appreciation on the value of these assets from KSTL. The assessee would also have incurred huge cost in items of man hours and material for setting up the project. This part of the cost has also not been recovered. The assessee has not charged any interest on the outstanding consideration. In his view, therefore, the transfer was not for simple commercial considerations. He urged that the assessee had the intention of taking of the project into a separate company promoted by the assessee and the entire exercise of setting up of a project was done by the assessee to foster the project for an independent group company which has in fact become a subsidiary of the assessee company. The whole exercise was planned to avoid capital gains tax on transfer of assets and also to claim huge revenue expe....
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.... manufacturing capacity created for catering tube activity rendering it idle, the learned senior departmental representative argued that even during the period before the seamless tube project was transferred, there was a steep decrease in the percen- tage of raw material supplied by the steel division. According to him, this indicates that the seamless tube project was not at all dependent on the assessee even for supply of raw material. 41. As-far-as the additional man power remaining with the assessee, the learned senior departmental representative urged that the entire additional man power was transferred to KSTL. 42. With reference to the argument that the equity base of the assessee company being expanded and the assessee being required to service the same, the learned sr. departmental representative countered the argument by saying that addition to equity base is compensated by the equity acquired by it KSTL. 43. As regards the steep fall in the market price of shares of the company, the learned senior departmental representative was of the view that this was only in line with the general fall in the value of the equity during the last 3-4 years. 44. As regards the asses....
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....e of Manilal Dahyabhai ( supra) and other cases for the proposition that in order to constitute the same business, the separation of one business should affect the texture of the remaining business. He argued that the claim of the assessee on this ground alone requires to be rejected. 49. The learned senior departmental representative also referred to the judicial decisions cited by the assessee company before the CIT(A) and also before us. He attempted to distinguish the Supreme Court decisions in Prithvi General Insurance Co. Ltd.'s case (supra ), Hoogly Trust (P.) Ltd. v. CIT [1969] 73 ITR 685, Produce Exchange Corpn. Ltd. v. CIT [1970] 77 ITR 739 on the ground that the Supreme Court has held that the test of the nature of two lines of business is not relevant in deciding whether they constitute same business. He also brought to our notice the decision of the Supreme Court in the case of Standard Refinery & Distillery Ltd. (supra) in which it is held that the fact that the transactions one activity can be separated from others is not relevant in deciding the issue of sameness of business. 50. Thereafter, the learned senior departmental representative took us through the decisi....
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....im of pre-operative expenses be disallowed. He, therefore, prayed that on this issue, the decision of the learned CIT (A) should be upheld. 54. In reply, the learned counsel of the assessee has filed a detailed rejoinder consisting of 41 pages. Briefly, the learned counsel pointed out that the learned senior departmental representative has placed great reliance on the proposition that the assessee has submitted minutest details of expenses of tube division. He pointed out that the very same argument was advanced before the Supreme Court in the case of Standard Refinery & Distillery Ltd. (supra). In that case, the assessee company was carrying on business of sugar manufacturing and distillery. The assessee claimed loss from trading in shares. The question was whether trading in shares and sugar and distillery constituted the same business. The learned counsel for the department had also argued before the Hon'ble Supreme Court that the transaction of share business can be easily separated from the other business of the assessee and, therefore, there was no inter-connection and equally there was no interlacing because the share transaction business did not dovetail itself into other ....
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....91 to 1994, substantial changes occurred in the business world due to devaluation, liberalisation and reduction in import duties etc. The various decisions had to be taken in the circumstance prevailing then and what is relevant is to see whether the decisions were taken at each stage for proper business and commercial considerations or not. He emphatically stated that the intention of the assessee company was to take up the tube activity as an expansion of the existing steel activity. The assessee itself has obtained all the requisite approvals. It was advantageous to implement the project in assessee company itself due to the following reasons. viz. : (i)Seamless tubes are forward integration of steel produced by the assessee company. It constitutes a value addition. Even the letter of intent issued by the Government of India stipulates that the steel and tube production shall be in an integrated manner. (ii)In view of the Government policies then prevailing the company did not have the option of expanding steel activity by producing steel directly from iron ore through blast furnace route. Tube making was. therefore, and alternative area for growth with value addition for th....
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....the contribution margin on tubes required in petroleum sector reduced substantially and products of the company became uncompetitive especially in comparison with imported tubes. Due to reduction in customs duty, imports became cheaper and hit the prices of indigenous production. 58. The cumulative effect of all these changes was that the tube project became unviable and was bound to make losses. The changed scenario not only affected the profitability of tube activity, but also affected the steel activity of the company. Steel activity was suffering due to heavy competition from cheaper imports on one hand and escalation in cost of imported scrap and power. At the relevant time, the assessee was also exploring proposals for the joint venture. The joint venture was possible only if tube division was separated into a separate company. Through the process of spin off to a separate company and public issue of shares by it, the debt portion of the project was reduced. Consequently, the interest cost could be brought down and thereby the losses could be reduced. It was under these compelling reasons that the company had to take the decision of spinning off of tube division. 59. The le....
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....res as the assessee company does not have much of taxable income for the assessment year 1993-94 and onwards even before considering the claim of pre-operative interest and expenses. 62. As regards the alleged tax saving on land transferred to KSTL, the learned Counsel submitted that the value of the land was only ₹ 2.5 crores which is 1% of the total project cost of ₹ 270 crores. The land is in a rural area at Baramati and there was hardly any appreciation in its value. Moreover, the land is only lease-hold land and belongs to MIDC and is not owned by the assessee company. As against this, there was the fact of loss making potential of the division. The activity was transferred on a going concern basis. Any buyer of the assets has to take into consideration the yield on those assets which, in the present case, is negative. 63. The learned counsel further submitted that the assessee company suffered damage to its image on account of failure of the tube project and its transfer. This is evident from the fall in market price of the shares of the assessee company from ₹ 325 in October 1992 to ₹ 32 in January, 1997. The fall in the share price was to the exten....
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....n and showed the entries regarding these payments. 67. The provident fund trust, gratuity trust and superannuation trust was single and common for both the divisions. The same set of employees were also operating all the bank accounts of the company. From these factors, therefore, the test of commonness of the management is proved beyond any doubt. 68. He further pointed out that the commonness of the funds is also demonstrated by the facts on record. The equity capital raised in 1991, 1992 and 1994 was common. The issue in 1992 was to finance the requirements of both steel and tube divisions. Further following factors also prove the commonness of the fund, namely :- (i)the debenture issue was common, (ii)proceeds of equity and debenture issues were deposited in cash credit account of steel division. The cash credit accounts were produced before us for verification. The assessee also filed certificate of Chartered Accountants, (iii)payment of salary is from cash credit account of steel division, (iv)substantial payment of project expenses were met out of cash credit account of steel division, (v)the payment of interest on debentures was made out of cash credit accounts ....
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.... the company to raise further equity capital. 72. The learned counsel continued and urged that the failure and the transfer of tube division has caused the big set back to the image of the company in business world. This is manifested by the huge fall in the market price of shares of the company from ₹ 325 in 1992 to ₹ 32 in 1997. If, on the other hand, the tube project had succeeded, it would have given a tremendous boost to the company. 73. He also urged that the enhanced capital and servicing from income of only steel activity has resulted in a sizeable fall in Earning Per Share (EPS) and thereby again a fall in the market price of the shares. This has resulted in erosion in market capitalisation of shares in the Stock Exchange. 74. He also pointed out that as a result of the transfer of tube division, there has been a reduction in transfer of steel to tube project. It is true that the initial fall was due to change in product mix by steel division to meet the challenges posed by liberalisation and tube imports. However, subsequent fall in transfer of steel was due to separation of the tube division. 75. Further, the learned counsel referred to certain observatio....
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.... upon by the learned senior departmental representative. With reference to the decision of the Bombay High Court in the case of Manilal Dahyabhai (supra), he pointed out that this decision is not a good law as it is impliedly overruled by the Supreme Court in the case of Hoogly Trust (P.) Ltd. (supra). In this connection, he referred to page 691 of the said decision of the Supreme Court. 82. The learned counsel also dealt with the decision of the Allahabad High Court in the case of Laxmi Rattan Cotton Mills (supra). He pointed out that in this case, the High Court has relied upon the decision of the Calcutta High Court in the case of Standard Refinery & Distillery Ltd. v. CIT [1965] 55 ITR 139 . He brought to our notice that this decision of the Calcutta High Court has been reversed by the Hon'ble Supreme Court in the case of Standard Refinery & Distillery Ltd. (supra). As a consequence, the decision of the Allahabad High Court is also not a good law. 83. Referring to the decision of the Supreme Court in the case of L.M. Chhabda & Sons (supra), he pointed out that mere fact that books of account are single is not relevant. In this decision, the Supreme Court has categorically obs....
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....as High Court in Blue Mountain Estates & Industries Ltd.'s case (supra). However, the Madras High Court itself in S.S.M. Ahmed Hussain's case (supra) and R.M. Maruthai Naidu & Sons' case (supra) observed that the Blue Mountain Estates & Industries Ltd.'s case (supra) decision was on specific facts and did not apply to the above decision. The Supreme Court has merely approved the decision of the High Court which is on specific facts that evidence regarding commonness of funds and management was not on record. The decision is, therefore, not relevant. 86. The learned counsel then brought to our notice the decision of the Madras High Court in the case of R.M. Maruthai Naidu & Sons (supra) and pointed out that this is a case of deduction u/s 36(1)(iii) of the Income-tax Act in respect of loans for transport business which was close, from income from Cigar business was allowed. In this case, two activities, namely, Cigar and transport business were considered as same business on account of the borrowed fund between the Cigar and transport business. In this case, the loans of transport business were also repaid out of funds of Cigar business. 87. Finally, he referred to the decision of....
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.... of each case. The study of the judicial decisions of the Hon'ble Supreme Court and various High Courts shows that the said decisions have laid down that to decide the issue of 'same business', the most important tests are : (i)Unity of control; (ii)Existence of common management; (iii)Common business organisation; (iv)Common administration; (v)Common funds; and (vi)Common place of business. The Supreme Court in the case of Prithvi Insurance Co. Ltd. (sapra) has clearly laid down the tests for deciding this issue. On page Nos. 637 and 638 of the decision, it was held : "We are unable to agree with the Tribunal, that, because in respect of the life insurance business and general insurance business there are special methods of computation of income for the purpose of levying Income-tax, they are not the "same business" within the meaning of sec. 24(2). A fairly adequate test for determining whether the two constitute the same business is furnished by What Rowlatt, J. said in Scales v. George Thompson & Co. Ltd : "Was there any inter-connection, any inter-lacing, any inter-dependence, any unity at all embracing these two businesses ?" " T....
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....est of unity of control were not established. Moreover, the Madras High Court itself as in a later decision in the case of S.S.M. Ahmed Hussain (supra) specifically observed that the decision in the case of Blue Mountain Estates & Industries Ltd. (supra) was on its specific facts, and in no way departed from the tests laid down by the Supreme Court. The relevant observations at pages 532 and 533 are as follows : "Learned counsel appearing for the revenue has, however, argued that from the two decisions, this Court has read the above Supreme Court decisions in a different way. He has relied on a decision of this Court in CIT v. Blue Mountain Estates & Industries Ltd. [1985] 151 ITR 616 . The decision will show that this Court adopted the test which was laid down by the Supreme Court, but on the facts reached a different conclusion. ****** What is, however, important is that even in this decision, this Court has not in any way departed from the test which is laid down by the Supreme Court. This decision must, therefore, be read as merely applying the test to the facts in the case which the Court was called upon to consider. The decision must be treated as one given on its ....
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....ny which is a technical collaborator for the tube project was signed by Shri P.G. Chitale, Managing Director; (6)Copy of the letter signed by Shri P.G. Chitale, Managing Director addressed to the Bank of Baroda, Madras Branch for opening of a current account with them; (7)Copy of the contract between Kalyani Steel Ltd., and M.D.H., Germany, for supply of machinery for tube project was signed by Shri B.B. Hattarki for and on behalf of Kalyani Steel Ltd. (8)Copy of the letter dt. 15-9-1992 addressed to ICICI was signed by Shri B.B. Hattarki, Jt. Managing Director for soliciting disbursement of Bridge Loan of ₹ 200 Million. The Bridge Loan was in respect of the issue made in 1992. 96. We also find from the facts of the case that payment of salaries of all the employees was made through a single salary register and from a common cash credit account. The entire salary was first debited to salaries and wages account and thereafter, pro rata salary attributable to tube division was debited to project expenses account through journal entry. In this regard, we have satisfied ourselves by examining the books of account of the assessee wherein these journal entries were made. Fro....
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.... the Paper Book No. 1 which reads as under : "Clause IV. Particulars of the issue AS : OBJECTS OF THE ISSUE The company is setting up a Seamless Pipe Project at Baramati, Distt. Pune, Maharashtra. The original project cost for the same as appraised by the Industrial Credit & Investment Corporation of India Limited (ICICI), was ₹ 1560 million. The company had come out with a Rights- cum-Public Issue of ₹ 870 million to part finance the said Project in March 1991. The present cost of the Project is ₹ 2098 million, as appraised by ICICI. The cost escalation of ₹ 538 million arose due to the following reasons : (1)Due to devaluation of rupee, the cost of imported equipments went up considerably. With increase in the cost, the import duty burden on these equipments also shot up. (2)General inflationary trend in the Indian economy increased the cost of indigenous equipment and also the pre-operative expenses. (3)The Company, in consultation with the technical collaborators, changed the specifications of certain equipment. This, together with the consequent requirement of additional balancing equipments resulted in additional cost. Further, the....
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....is reproduced below: "The following is the certified extract of the cash credit bank book which was produced before the Tribunal in connection with the appeal for assessment year 1991-92 Voucher/Bank ofCanaraUnited ParticularsCheque No.BarodaBankWesternTotal & DateCash CashBank Ltd. credit A/C creditCash Subhash-A/C. Credit nagar BrLaxmi Rd.A/C. PuneRoad Br. Laxmi Rd. PuneBr. Pune Rs.Rs.Rs.Rs. (1)By salary & 338530/5-2-91423629.42 Wages payable338531/5-2-1991202909.20 (page No.559338532/5-2-199162946.58 of Bank Book)338533/5-2-1991308144.51 338534/5-2-1991262034.16 338535/5-2-1991 43848.481303512.35 (2a)By Tube Dn.Debit Vr.2835645.00 A/c. (ProjectNo.5301 expenses)24-12-199012081335.00 14916980.00 Remittance to Mannesmann Demag, West Germany (page No. 495 of Bank book (2b)By CustomDebit Vr.3697374.00 Duty payableNo.5300 3080.00 by Bank charges 24-12-19903700454.00 Notes :1.The entire salary of ₹ 13,03,512.35 of all employees is disbursed from cash credit account with Canara Bank. The salary & wages attributable to their working for Tube Dn. is debited to Project expenses account and credited to Salary & wages account. A....
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....d clearly shows that there was a large inter-lacing of funds and funds were used by the assessee company without making any distinction between the two divisions. The profits of the steel division have been used to repay the loans of tube division. In view of these, the test of commonness of fund is also satisfied in the case before us. 104. As regards the common place of business, we find that both the divisions have their Head Office located at Mundhwa, Pune. There was no separate office maintained by the divisions at Bombay and Pune, as alleged by the learned senior departmental representative. From the clarification given by the learned counsel, we find that the office at Bombay and Pune was common and only the expenses were apportioned between the steel and tube division. The fact that the Head Office was common at Pune is also clear from clause 20 of the transfer agreement of the tube division to KSTL. The said clause clearly provides that the assessee company shall continue to allow the use of its office at Mundhwa to KSTL as its registered and administrative office. We are, therefore, of the view that the test of common place of business has also not been disproved by the ....
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....tivity cannot be the test for deciding whether the businesses carried on are the same business for the purposes of sec. 72 of the Income-tax Act, 1961" Even assuming that the cessation of one activity should adversely affect the other, we find that the texture of Kalyani Steels Ltd. was in fact adversely affected after the transfer of the tube division to KSTL. This was on account of additional man-power of 174 employees remaining with the company, enhancement of equity base of the company, reduction in earning per share, fall in market prices of shares and also the adverse effect on the image of the company due to the transfer of the tube division. 107. The learned senior departmental representative has laid great emphasis on the intention of the assessee company. According to him, the intention of the assessee company was only to foster the claim and also claim deduction of pre-operative interest and expenses and then transfer the project to a new company. From the totality of circumstances and after hearing both the parties to the dispute in great details, we do not find any such intention. We are of the view that the revenue gathered this impression only because of the e....
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....rned counsel that the share premium could not be and was actually not transferred to KSTL as alleged by the learned senior departmental representative. 109. The learned senior departmental representative also brought to our notice that in respect of the tube division minutest details were maintained by the assessee. This, in our view, is not relevant to decide the issue of 'same business'. The assessee had perhaps maintained separate details of the two divisions to determine the cost of the project. In fact, in the case of Prithvi Insurance Co. Ltd. (supra), it is clear from the decision of the Madras High Court that the assessee company was statutorily required to maintain separate books of account and draw separate profit and loss account and balance sheet for the different lines of insurance business. The Court, however, held that this is not a relevant test to determine the issue of 'same business'. 110. The learned senior departmental representative also raised the issue of different location of the factory of tube division. We find that this issue is covered by the decision of the Bombay High Court in the case of Add. CIT v. Aniline Dyestuff & Pharmaceuticals (P.) Ltd. [198....
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....visions in Finance Bill 1986 reported in 158 ITR - St.116, wherein it is stated : "It has been found that certain tax-payers (backed by some court decisions, the first of which was rendered on May 13, 1974) are resorting to a major change in accounting practice by capitalising the interest paid or payable in connection with the acquisition of an asset relatable to the period after such asset is first put to use. This capitalisation implies inclusion of such interest in the "actual cost" of the asset for the purposes of claiming depreciation, investment allowance, etc. under the Income-tax Act. As this was never the legislative intent nor does it conform to accepted accounting practices, with a view to counteracting tax avoidance through this method and placing the matter beyond doubt, the Bill seeks to provide that any amount paid or payable as interest in connection with the acquisition of an asset and relatable to a period after the asset is first put to use shall not form part and shall be deemed never to have formed part of the actual cost of the asset." 115. From the plain meaning of the words used in Explanation 8, it is clear that the amount of inter....
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....ecisions of the Karnataka High Court squarely applies. As regards the Bombay High Court decisions, we are afraid that it cannot be pressed into service to the advantage of the department in the instant case. In 114 CTR 105 , the expenditure was directed to be treated as capital expenditure on the ground that it was incurred in bringing machinery from New York to Bombay. The machinery was gifted to the assessee resulting in receipt of a capital asset by the assessee. Therefore, it was but natural that the expenditure incurred for transportation of the asset from New York to Bombay should be treated as capital expenditure. The facts of that case are thus materially different from those of the present case. As regards the Bombay High Court decision reported in 161 ITR 516 , there-again, the facts of that case were materially different. The expenditure in dispute was foreign tour expenses undertaken by the officers and Directors of the assessee company. The foreign travel was undertaken for the purpose of acquisition of capital assets. In the case before us the expenditure has indisputably been incurred for expansion of the existing activities of the assessee. Therefore, whole of the e....
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....r the assessment year 1992-93 are fully allowed. The assessee, therefore, succeeds on this ground. 118. We now proceed to deal with the other grounds in these two appeals before us. 119. We first take the issue raised in the appeal for assessment year 1991-92 pertaining to disallowance of claim for amortisation u/s 35AB of ₹ 2,39,807. The assessee had acquired technical know-how during the earlier assessment years the cost of which was as under : Assessment year Amount (Rs.) 1989-90 1,04,34,056 1990-91 1,00,07,372 2,04,41,428 The relevant details of this are placed on page 12 of the assessee's paper book. 120. During the assessment year 1991-92, the liability for the technical know-how increased by ₹ 14,38,842 due to exchange fluctuations. The assessee has claimed amortisation of 1/6th of the amount of the cost of technical know-how of ₹ 2,04,41,428. The assessee further claimed deduction of 1/6th of the amount of ₹ 14,38,842 which was the increase in liability due to exchange fluctuation. The Assessing Officer allowed the claim of 1/6th of ₹ 2,04,41,428, but disallowed the claim for deduction of ₹ 2,39,807, being 1/6th of the exchange....