TaxTMI 
TaxTMI 
2007 (10) TMI 286
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....ances of the case and in law, the Tribunal was justified in holding that the preoperative expenditure of fuel injection equipment project amounting to Rs. 20,14,158 was a capital expenditure ? 2. Whether, on the facts and circumstances of the case, the Tribunal was right in deleting the addition of Rs. 41,666 on the ground that the same was not disallowable under section 37(3) read with rule 6B ?" 2. With regard to the second question, the tax effect of the amount in question is quite inconsequential and, therefore, we decline to answer this question and return the reference unanswered. 3. The first question is really the only substantive question that would require our consideration. 4. The assessee is a company which manufactu....
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....of a new line of business and, therefore, it should have been capitalised. In other words, the Assessing Officer rejected the contention of the assessee that the expenditure incurred was revenue in nature. The view taken by the Assessing Officer was upheld by the Commissioner of Income-tax (Appeals) as well as by the Income-tax Appellate Tribunal (for short "the Tribunal"). 6. During the course of hearing, neither learned counsel required us to go into each item of expenditure which aggregate to the sum of Rs. 20,41,158. Indeed, we do not think it necessary to do so because there is broad agreement that the said items of expenditure are preoperative in relation to the project and the only question that is required to be decided is whethe....
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....on of which is a condition of the carrying on of the business, the expenditure may be regarded as revenue expenditure." 8. Keeping the above conclusions in mind, learned counsel took us through several other decisions rendered by various courts including this court. 9. In Prem Spinning and Weaving Mills Co. Ltd. v. CIT [1975] 98 ITR 20 (All), the assessee was a limited company running a spinning and weaving mill as well as a new project of straw-board manufacturing factory. The question before the court was whether the expenditure incurred for the new venture was a revenue expenditure or not. The Allahabad High Court noted that control over the existing spinning mill as well as the new project of straw-board manufacturing factory was ....
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....da was of no consequence since the head office at Baroda controlled the affairs of both the units. 11. CIT v. Expanded Metal Manufacturers [1991] 189 ITR 317 (All) was a case in which the assessee was engaged in the business of expanding of iron metal by a mechanical process and its supply. It started a new business of manufacturing of rubber products. Relying upon Prem Spinning and Weaving Mills Co. Ltd. v. CIT [1975] 98 ITR 20 (All), it was held that the expenditure incurred for setting up a unit for the manufacture of rubber products was a revenue expenditure. 12. In CIT v. Modi Industries Ltd. (No. 3) [1993] 200 ITR 341 (Delhi), the supplementary factors earlier laid down were reiterated, viz., whether the management of the new bu....
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....is clear that the nature of the new business is not a decisive test for determining whether or not there is an expansion of an existing business. The nature of the business could be as distinct as a jewellery business and a business of cinematographic films ; it could be as different as manufacture of metal alloys and manufacture of rubber products. What is of importance is that the control of both the ventures, the existing venture as well as the new venture, must be in the hands of one establishment or management or administration. The place of business of the existing business and the new business may not be in close proximity it could be as far apart as Baroda and Bangalore. However, the funds utilised for the management of both the con....
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....assets of the assessee. 18. There can, of course, be no quarrel with the proposition laid down by the Supreme Court in Challapalli Sugars Ltd. v. CIT [1975] 98 ITR 167, but the facts of that case are completely distinguishable inasmuch as that decision did not concern itself with an extension of an existing business but concerned itself with the setting up of a new business altogether. In fact, the Supreme Court distinguished the decision in India Cements Ltd. v. CIT [1966] 60 ITR 52 by observing that in India Cements Ltd. the assessee at the time when it raised the loan was a running concern. In Challapalli Sugars Ltd. v. CIT [1975] 98 ITR 167 (SC), the case of the assessee was that it had borrowed considerable sums of money for the ins....