By Jagdish D. Shah, Jagdish T. Punjabi, Chartered Accountants
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Part B — Unreported Decisions
(Full texts of the following Tribunal decisions are available
at the Society’s office on written request. For members desiring that the
Society mails a copy to them, Rs.30 per decision will be charged for
photocopying and postage.)
33 Unidyne Energy Env System Pvt. Ltd.
v. ITO
ITAT ‘G’ Bench, Mumbai
Before P. Madhavi Devi (JM) and
D. Karunakara Rao (AM)
ITA No. 4007/Mum./2005
A.Y. : 2001-02. Decided on : 10-9-2008
Counsel for assessee/revenue :
Prakash Jhunjhunwala/T. Diwakar Prasad
S. 37(1) of the Income-tax Act, 1961 — Capital or Revenue
expenditure — Expenditure incurred in acquiring new technology to replace the
existing technology — Whether allowable as expenditure — Held, Yes.
Per D. Karunakara Rao :
Facts :
The assessee was engaged in the business of manufacturing and
trading of boilers and installation of thermal engineering systems. During the
year the assessee had claimed expenditure of Rs.41.4 lacs incurred in improving
its existing technology. The expenditure incurred included payments made to IIT
for technology acquired. In its accounts, the as-sessee
had shown the expenditure so incurred as capital work in progress. According to
the assessee, it was done so in order to disclose to IDBI about its fund
involved for seeking grant/reimbursement from USAID. According to the AO as well
as the CIT(A), the expenditure incurred was to develop technology for new
product, which has an enduring benefit hence, they disallowed the assessee’s
claim.
Held :
The Tribunal found that the assessee had incurred expenditure
on development and design of the technology for substituting the existing
technology. According to it, the expenditure was undisputedly spent wholly and
exclusively for business purpose and the same was aimed at the development of
new variant product with enduring benefit. However, relying on the Mumbai High
Court decision in the case of Kirloskar Tractors Ltd., it noted that the
enduring advantage of the expenditure was not the final test and it has
exceptions. Further it also noted that the assessee did not acquire any
exclusive ‘right to use’ the said technology, nor did it acquire the ‘right to
transfer’. In the opinion of the Tribunal, in the absence of such rights, the
said expenditure was in the nature of revenue. Further, it noted that the object
of the expenditure was aimed at meeting the ever changing needs on the
technological frontiers. Therefore, relying on the Supreme Court decision in the
case of Alembic Chemical Works Co. Ltd., it held that the expenditure incurred
was revenue in nature.
Cases referred to :
(1) Kirloskar Tractors Ltd., 98 Taxman 112 (Mum);
(2) Alembic Chemical Works Co. Ltd., 177 ITR 377 (SC)
