Commissioner Of Income Tax (Central), Ludhiana v. M/S Majestic Auto Limited

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH I.T.R. No. 88 of 1998 DATE OF DECISION: 17.8.2009 Commissioner of Income Tax (Central), Ludhiana Versus M/s Majestic Auto Limited ..........Appellant ..........Respondent CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL HON'BLE MRS. JUSTICE DAYA CHAUDHARY Present:-Mr. Krishan Mehta, Advocatefor the appellant. Mr. Animesh Sharma, Advocatefor the respondent. **** ADARSH KUMAR GOEL, J. (Oral) 1.The Income Tax Appellate Tribunal, Chandigarh Bench hasreferred following question of law arising out of its order dated 18.9.1996passed in ITA No. 1769/Chandi/90 for assessment year 1984-85 foropinion of this Court:- “Whether, on the facts and in the circumstances of thecase, the ITAT was right in law in deleting the addition ofRs.4,40,183/- out of travelling expenses, Rs. 1,10,804/-out of salary and Rs.53,543/- out of research anddevelopment expenses claimed by the assesseepertaining to M/s Honda Motor Cycles for which theassessee is a promoter and is separate identity underthe head of Hero Honda Ltd. and came into existence afterwards.” 2.The Assessing Officer made additions referred to in thequestion, which were upheld by the CIT(A). The Tribunal, however, heldthe expenses to be revenue expenses having nexus to the existingbusiness of the assessee. The relevant finding of the Tribunal is as under:-“Grounds No.6,7 and 8 are inter-related – confirmationof additions of Rs. 4,40,183/- out of travelling expenses;Rs.1,10,804/- out of salary; and Rs. 53,543/- out ofresearch and development expenses. The assessee-company had claimed total expenditure of Rs.1,67,973/-under the head 'Research and Development'. Itincluded a sum of Rs. 51,994/- in respect of MotorcycleProject. The rest of the expenditure related to R & D inrespect of Mopeds. Expenditure relating to theMotorcycle Project, which are debited to differentrevenue account, are as under:- The company manufactured Mopeds. In order toexpand its business, it entered into negotiations withHonda Motors Co. Ltd., Japan, who desired that theassessee should first stop production of Mopeds. Thecompany was very much interested in getting the latesttechnical know-how of manufacturing Mopeds fromHonda Motors Co. Ltd., who insisted on equity participation and in the financial management. Theassessee-company, however, did not go ahead with thatexpansion programme, but it subsequently succeeded ingetting the technical know-how from that company onpayment of lesser amount. The assessee had alsoentered into collaboration with another foreign companyfor manufacturing of new series of mopeds. Theassessee placed reliance on the cases of J.K. Industries(P) Ltd. (71 I.T.R. 594 and Karamchand Premchand P.Ltd. (137 I.T.R. 209 (Guj). Reliance was further placedon the cases of Bombay Steam Navigation Co (1953)Pvt. Ltd. (1965) 56 I.T.R. 52 (Bom) and ProduceExchange Corpn. Ltd. (77 ITR 739 – SC). Ld. Counselpleaded that since it is expansion of existing business,all expenses are allowable and ld. Lower authoritieswere not justified in making and confirming theadditions. Ld. D.R., on the other hand, relied on the orders of thelower authorities and submitted that since it is a newventure and expenditure being of capital nature, that ofpromoter, cannot be allowed as revenue expenditure.She submitted that theses expenses being of othercompany, which is not in existence, can not be allowed.She placed reliance on the case of City Mills Distributors(P) Ltd (1996) 219 I.T.R. 1 (S.C.). Ld. Counsel, incounter reply, submitted that this authority is not at allapplicable to the facts of the present case. He relied onthe case of Wood Craft Products Ltd. (1996) 217 I.T.R.862 (Cal), wherein it was held as under:- Ld. D.R., on the other hand, relied on the orders of thelower authorities and submitted that since it is a newventure and expenditure being of capital nature, that ofpromoter, cannot be allowed as revenue expenditure.She submitted that theses expenses being of othercompany, which is not in existence, can not be allowed.She placed reliance on the case of City Mills Distributors(P) Ltd (1996) 219 I.T.R. 1 (S.C.). Ld. Counsel, incounter reply, submitted that this authority is not at allapplicable to the facts of the present case. He relied onthe case of Wood Craft Products Ltd. (1996) 217 I.T.R.862 (Cal), wherein it was held as under:- “.....that the expenditure was of a revenue naturebecause the expenditure had direct nexus with theexisting business carried on by the assessee.May be, the expenditure as abortive but itscharacter as a revenue expenditure incurred forthe purpose of expansion of existing businesswould not change.” We have heard the parties at length, have gone throughthe record as also the case law cited supra. On entiretyof facts and circumstances of the case, we are of theview that the expenses mentioned in grounds Nos. 6 to8 are allowable as of revenue nature. We holdaccordingly. Grounds thus succeed.” 3.We have heard learned counsel for the parties. 4.A reference to the finding of the Tribunal shows that theexpenses had been incurred in the course of the business of the assesseewith a view to get latest technology know-how of mopeds from HondaMotors Company Limited. In such a situation, the expenses incurred hadnexus with the existing business of the assessee. Question referred isbasically of fact. 5.In view of finding of the Tribunal, the question is answeredagainst the revenue and in favour of the assessee. 6.Reference is disposed of accordingly. (ADARSH KUMAR GOEL) JUDGE August 17, 2009pooja (DAYA CHAUDHARY)JUDGE Note:-Whether this case is to be referred to the Reporter .......Yes/No