TaxTMI 
TaxTMI 
2022 (12) TMI 190
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....A Nos. 3629/Mum./2015 & 7668/Mum./13 for the assessment years 2006-07 and 2007-08, respectively. 2. In both appeals, the following question of law has been framed, for our consideration : "Whether on the facts and circumstances of the case and in law, the ITAT was right in allowing the capital expenditure in connection with the development of new products as revenue expenditure?" 3. Income Tax Appeal No. 634 of 2018 : The assessee is engaged in the business of software development solution and management. The assessee filed its return of income on 31st October 2007 declaring total income at Rs.3,31,29,870/-. The Assessing Offcer ('AO') completed the original assessment on a total income of Rs.3,78,61,610/-. Later on, the c....
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.... revenue expenditure. The AO accordingly made an addition of Rs.81,82,591/-. 5. Appeals came to be preferred by the assessee before the Commissioner of Income Tax (Appeals) against the orders of assessment dated 19th March 2013 and 31st December 2013, respectively. The appeals were allowed by the Commissioner of Income Tax (Appeals) partly by holding that the expenditure for the development of a new product by the assessee was in the assessee's existing line of business, and therefore, relying upon the decisions of Delhi High Court in the case of Indo Rama Synthetic (I) Ltd. Vs. Vs. Commissioner of Income-tax [2011] 333 ITR 18 (Delhi) and of Mumbai ITAT in the case of IL & FS Education & Technology Services Pvt. Ltd. Vs. ITO ITA No.765, ....
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....ry India Ltd. 257 ITR 253 and Indo Rama Synthetic (I) Ltd. (Supra). 9. Heard learned counsel for the parties. 10. The issue as to whether a particular expenditure incurred was of capital or revenue in nature has been the subject matter of legal debate before various Courts in the Country. As held by the Apex Court in the case of Empire Jute Co. Ltd. (Supra), since there does not exist an all-embracing formula which can provide a ready solution to the problem; no touchstone has been devised and that every case has to be decided on its own facts keeping in mind the broad picture of the whole operation in respect of which the expenditure has been incurred. However, it referred to one celebrated test laid down in the case of British Insul....
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....ssary to bear in mind what Dixon, J. said in Hallstrom's Property Limited v. Federal Commissioner of Taxation 72 CLR 634 "What is an outgoing of capital and what is an outgoing on account of revenue depends on what the expenditure is calculated to effect from a practical and business point of view rather than upon the justice classification of the legal rights, if any, secured, employed or exhausted in the process." The question must be viewed in the larger context of business necessity or expediency. If the outgoing expenditure. is so related to the carrying on or the conduct of the business that it may be regarded as an integral part of the profit-earning process and not for acquisition of an asset or a right of a permanen....