An expenditure is capital in nature if it brings about an enduring benefit to the assessee, while it is revenue expenditure if it is made only for running the business or working it with a view to produce profits.

( 1 ) AT the instance of the Revenue, in respect of assessment year 1972-73, the following question has been referred by the Income Tax Appellate Tribunal. Delhi Bench, under Section 256 (1) of the Income Tax Act, 1961 (for short the Act), for the opinion of this Court:-

"whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the admission fee of Rs. 90,00 ( ). 00 paid by the assessee to M/s. Fractionisation Research Inc. was admissible as a revenue expenditure ?".

( 2 ) THE assessee is a public sector undertaking and derives income for supply of technical know-how to various concerns in India and abroad. It also undertakes turn key projects in India and abroad. During the previous year, ended on 31 March 1972 and relevant to the assessment year 1972-73, the assessee paid Rs. 90,000. 00 to M/s. Fractionisation Research Inc. as initial admission fee for its membership and claimed it as revenue expenditure. The said organisation is a cooperative research organisation and supplies to its members information concerning mathematical models which can be used for rational designing of vapour liquid contracting systems.

( 3 ) WHILE computing total income for the relevant assessment year, the Income Tax Officer disallowed the said claim and treated it as capital expenditure on the ground that this gave the assessee an asset or advantage of an enduring nature. Being aggrieved by the said disallowance, the assessee preferred appeal to the Appellate Assistant Commissioner of Income Tax. The learned Appellate Assistant Commissioner, while observing that the said fee was paid once for all for the advantage that the company derives by becoming a member of that organisation, endorsed the view taken by the Income Tax Officer. The matter was carried by the assessee in further appeal to the Tribunal. The Tribunal was, however, of the view that the initial payment itself did not ensure any lasting benefit to the assessee by way of continuous flow of information regarding research in its field. It would necessarily depend upon the subsequent annual payment of subscription. The Tribunal held that the payment of membership fee by itself did not bring into existence any asset or advantage of enduring nature to the assessee and, therefore, such expenditure could not be treated as capital expenditure. Accordingly, the Tribunal directed the Income Tax Officer to allow the admission fee paid as revenue expenditure. This decision of the Tribunal has given rise to the question referred for opinion.

( 4 ) WE have heard learned counsel for the parlies. The question which arises for consideration is whether the payment of membership fee to the aforenoted organisation is revenue or capital in nature, for it has not been disputed by the Revenue that the payment was for the purposes of assessee s business. The question whether an expenditure is capital or revenue in nature is a vexed question, because the line of demarcation between the two is very thin. It has not been possible to lay down any single or exhaustive, test as infallible or any single criterion as decisive for determination of the question. However, attempts have been made from time to time to outline some broad factors to be taken into consideration to distinguish capital from revenue expenditure. One rough and ready test, which is usually being followed, is to try to ascertain whether a particular expenditure brings about "enduring benefit" to the assessee. In Assam Bengal Cement Company Ltd. Vs. Commissioner of Income Tax (19. 55) 27 ITR 34, the Supreme Court observed that if the expenditure is made for acquiring or bringing into existence an asset or advantage for the enduring benefit of the business, it is properly attributable to capital and is of the nature of capital expenditure. If on the other hand, it is made only for running the business, or working it with a view to produce the profits, it is a revenue expenditure.

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