2008 (5) TMI 668

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....capital expenditure and disallowed the same in computing their total income. The appellants therefore pray that the ACIT be directed to treat the payment of Rs. 5,00,000 as a revenue expenditure and allow deduction for the same in computing their income for the above year. (b)Without prejudice to the above, even assuming but not admitting that the said payment is in the nature of capital expenditure, the ACIT ought to have allowed depreciation under section 32 of the Income-tax Act at the prescribed rate in computing their income for the above year. The appellants therefore pray that the ACIT be given suitable direction in the matter." 2. The facts borne out from the record are that during the year assessee purchased goodwill along with the running business from M/s. Lund & Blockley (Opticians). The assessee has paid a sum of Rs. 5 lakhs as non-compete charges to Mr. Stanley D'Souza a partner in Lund & Blockley (Opticians) for not carrying on the business in opticians and other related fields and treated the said expenditure as deferred revenue expenditure for a period of 5 years for the purpose of Companies Act. In the computation of income, the entire expenditure has been c....

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....] 19 ITR 425 (Cal.); 7.Bikaner Gypsums Ltd. v. CIT [1991] 187 ITR 39 (SC); 8.Taparia Tools Ltd. v. JCIT [2003] 260 ITR 102 (Bom.). 5. The learned Counsel for the assessee further placed a heavy reliance upon the Order of the Tribunal of the Ahmedabad Bench in the case of Smartchem Technologies Ltd. (supra), in which the Tribunal has held that there are no set principles or tests or rules which can be set to be universally applicable to decide as to whether a particular expenditure is capital expenditure or revenue expenditure. Nature of expenditure depends upon the facts of the particular case and the intention of the parties. The learned Counsel for the assessee further contended that nature of expenditure has to be seen from the angle of the business or the businessman and not from the Revenue's attitude. 6. The learned DR on the other hand has placed a heavy reliance upon the Order of the lower authorities. 7. Having given a thoughtful consideration to the rival submissions and from the Orders of the lower authorities and documents placed on record, we find that assessee has purchased the goodwill and other rights for Rs. 10 lakhs which was treated to be capital e....

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.... : "Though there are no set principles or tests or rules which can be set to be universally applicable to decide as to whether a particular expenditure is capital expenditure or revenue expenditure because whatever principles have been laid down by various Courts can be applied only with reference to facts of a particular case, but, still, some of the tests which play a dominant role and should be kept in mind while deciding as to whether the expenditure in question is capital expenditure or revenue expenditure are as under : (i)The question must be viewed in the larger context of business necessity or business expediency; (ii)If a payment is found to have been made for augmenting the productivity of the profit-making structure that payment would be revenue expenditure and not capital expenditure. (iii)If the benefit procured in consequence upon incurring of an expenditure consists merely in facilitating or enabling the management and conduct of assessee's business to be carried on more efficiently or more profitably, the expenditure would be on revenue account, even though the benefit may endure for an indefinite future; (iv)It is the totality or the cumulative effe....

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....to see as to how the incurrence of the impugned expenditure would add to the profit-making apparatus assumed by the assessee through the sale agreement. It may, by incurring this expenditure, ensure, at least insofar as the vendor is concerned, that the profit-making apparatus continues to yield returns, as envisaged, or in other words, continues to be as effective and nothing more, i.e., is akin to a 'maintenance' expenditure. Such expenditure, as would be readily agreed, is incurred only to ensure the operational efficiency of the underlying subject or the income yielding source. In marketing parlance, one may draw comparison (to the extent such comparisons can be validly drawn), to the profit of one's understanding, with the expenditure on advertisement. One would easily recall a decline in the market share of a number of products in the public eye, consequent to a sudden or phased withdrawal of advertisement support. In fact, the advertisement also enables an 'increase' in the market share without doubt a prized capital asset/advantage; though, however, no firm or definite relationship can be established, in the nature of things, between the two; the success (including its leve....