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3. Whether expenditure of `92,67,841/- incurred by the Assessee on fully convertible debenture issue is revenue expenditure or capital expenditure?

3. We are concerned with the assessment year 2005-06. The assessee is a company engaged in the manufacture of switch gears, energy meters, cables and wires, electrical fans, compact florescent lamp and related components. It also trades in luminaires, lighting fixtures and exhaust fans.

4. As regards first substantial question of law, the brief facts are as follows. The assessee paid a sum of `14,71,095/- to M/s. CSA International, Chicago, Illinois, USA for the purpose of obtaining witness testing of AC contractor as part of CB report and KEMA certification. The US Company had specialised knowledge and facilities for carrying out the type of testing and the necessary certification, which was required by the assessee. In the course of the assessment proceedings, the Assessing Officer noticed that the assessee had not deducted tax at source under Section 195 of the Act from the amount paid to the US Company. He accordingly proposed to disallow the payment by invoking Section 40(a)(ia) of the Act. The assessee by letter dated 04.10.2007 stated that the amount was paid as testing charges to the US Company, that the testing was carried out by the US Company outside India, that no income arose or accrued to the US Company in India and, therefore, the assessee did not deduct any tax from the amount paid. The assessee, therefore, claimed that the provisions of Section 40(a)(ia) cannot be invoked to disallow the payment on the ground of non-deduction of tax at source.