If expenditure incurred has direct nexus with its income generating apparatus can be claimed as revenue expenditure

Last updated: 18 August 2012

Court :
INCOME TAX APPELLATE TRIBUNAL

Brief :
Brief facts are: The assessee is engaged in the manufacturing of hardware made of brass such as electric switch cover, door handles and lock handles etc. Prior to this year the assessee was into exports of these goods to U.S. market. During the year under consideration, the assessee entered for the first time into European and U.K. market, which is totally different in regard to designs, fittings, mechanism and working. One M/s Builders Hardware Ltd. (“BHL”), an England concern, was supplying such products to major chain store called Home Base in UK and other European countries. The assessee tied up with BHL by way of a renewable agreement for one year. Accordingly, the BHL gave particular designs etc. for manufacture and supply of such goods, marketable in U.K. The agreement was for one year and subsequently it was not renewed by the parties. Assessee claimed the designing charges of Rs. 1,24,64,400/- paid to BHL in P&L A/c. The agreement was not renewed as the assessee was not able to get repeat orders and marketability. Assessing Officer, however, held the design charges paid by the assessee were capital expenditure and not revenue expenditure. They were held to be commercial assets eligible for depreciation @ 25%, which was allowed at Rs. 31,16,100/- disallowing the remainder of Rs. 93,48,300/-.

Citation :
DCIT Cir. 11(1), New Delhi. (Appellant) Vs. M/s India International House Ltd., 4686, Ansari Road, Darya Ganj, New Delhi. PAN/ GIR No.AAACI 2399P (Respondent)