Bombay High Court
Commissioner Of Income Tax vs Abbott Laboratories (I.) Pvt. Ltd. on 12 February, 1993
Equivalent citations: [1993]202ITR818(BOM)
JUDGMENT Dr. B.P. Saraf, J.
1. By this reference under section 256(1) of the Income-tax Act, 1961, made at the instance of the Revenue, the Income-tax Appellate Tribunal has referred the following question of law :
"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that a sum of Rs. 3,24,179 paid by it to Messrs. Ralph M. Parsons Co., of Asia was admissible as revenue expenditure ?"
2. Though the assessee did not make any application for reference, he proposed some questions in his reply to the Revenue's reference application, and on such prayer, the Tribunal also referred the following questions at the instance of the assessee :
"Whether, on the facts and in the circumstances of the case, the assessee was entitled to the allowance of legal expenses of Rs. 15,029 incurred for the purpose of the purchase of shares in other companies ?"
3. So far as the questions referred at the instance of the assessee without the same being raised by way of an application for reference under section 256(1) of the Act is concerned, in view of the ratio of the decision of the Supreme Court in CIT v. V. Damodaran [1980] 121 ITR 572, the same need not be answered. In that view of the matter, the only question that remains to be answered is the question referred at the instance of the Revenue.
4. The controversy raised in the above question is in regard to the nature of the expenditure amounting to Rs. 3,24,179 incurred by the assessee-company. The question is whether it is a revenue expenditure or it is an expenditure in the nature of capital expenditure.
5. The facts giving rise of this question, briefly stated, are as follows :
The assessee is a limited company which carried on extensive business in pharmaceuticals. The total income of the assessee during the relevant assessment year 1973-74 was determined at Rs. 95,40,838. In determining the total income, the Income-tax officer, inter alia, disallowed the claim for deduction of Rs. 3,24,178 relating to consultation fees paid by the assessee for engineering services to Messrs. Ralph M. Parsons Co., of Asia. The Income-tax Officer found that the assessee had engaged the services of the said firm for making proposals relating to relocation of plant and equipment and utility service at the existing facilities at Kurla with a view to increase efficiency and output of the plant. The Income-tax Officer also found that the recommendation of the aid firm, for which the payments were made, ultimately did not materialise. The Income-tax Officer, therefore, held that the expenditure was of a capital nature and not an allowable deduction.
6. On appeal, the Appellate Assistant Commissioner perused the report made by the consulting engineers and examined the facts of the case and came to the conclusion that the entire expenditure could neither be treated as capital expenditure nor revenue expenditure. He, therefore, allowed 50 per cent. of the claim of the assessee as revenue deduction. On further appeal, both by the Revenue as well as the assessee, the Income-tax Appellate Tribunal, (for short, "the Tribunal") held that the entire expenditure had been incurred primarily for the purpose of rationalisation of the administrative machinery and relocation of factory, etc. and was thus an allowable deduction.
7. Aggrieved by the decision of the Tribunal, the Revenue has come to this court by way of reference for opinion on the question of law referred by the Tribunal.
8. We have carefully considered the facts of the case. It appears that the object of the exercise for which the services of Messrs. Ralph M. Parsons Co., of Asia were availed of by the assessee was for rationalisation of its administration and modernisation of its machinery with a view to derive maximum benefit out of the existing resources. The object seems to be to improve the productive efficiency. It was not in connection with a new plant or a new project or a new product. It was to improve the production of the existing project with a view to increase its profitability. There is no element of enduring benefit in it. From an overall view of the entire facts and circumstances of the case, we are of the clear opinion that this is not a case where the expenditure incurred by the assessee can be termed to be capital expenditure or an expenditure which has resulted in any enduring benefit to the assessee.
9. The principles in this regard are well-settled by a catena of decisions of the Supreme Court including the latest decision in Alembic Chemical Works Co., Ltd. v. CIT [1989] 177 ITR 377 which need no reiteration.
10. Applying the ratio of the same to the facts of this case, we answer the question referred to us in the affirmative, that is, in favour of the assessee and against the Revenue.
11. Under the facts and circumstances of the case, we make no order as to costs.