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High Court Of Delhi
COMMISSIONER OF INCOME TAX - Appellant
Versus
NAYA SAHITYA, DELHI - Respondent
I.T.R. 5 of 1967
Decided On : 03/15/1971
INCOME TAX - Business Expenditure - Capital or Revenue - Printing Press - Newly Established Industrial Undertaking - Exemption under Section 15C of the Income-tax Act, 1922.
Fact of the Case:
The assessee, a publishing firm, paid a sum to another firm for obtaining recognition of its textbooks from the Himachal Pradesh Education Department. The assessee claimed the amount as a business expenditure, but the Income-tax Officer disallowed it on the ground that it was capital expenditure. The Tribunal allowed the assessee's claim, holding that it was a revenue expenditure. The Revenue referred the question to the High Court.
Finding of the Court:
The High Court held that the amount paid to the other firm was capital expenditure and was not allowable under section 10(2)(xv) of the Act. The Court also held that the assessee was not entitled to the tax exemption under section 15C of the Act as the printing press was not a newly established industrial undertaking.
Issues: 1. Whether the amount paid to the other firm was a business expenditure of revenue nature? 2. Whether the assessee's business of printing and publishing books was a newly established industrial undertaking entitled to the exemption from tax under section 15C of the Income-tax Act, 1922?
Ratio Decidendi: 1. The Court held that the amount paid to the other firm was capital expenditure as it was incurred for the purpose of acquiring a valuable right, namely, the recognition of the assessee's textbooks by the Himachal Pradesh Education Department. 2. The Court held that the assessee was not entitled to the tax exemption under section 15C of the Act as the printing press was not a newly established industrial undertaking. The assessee was already carrying on the business of publishing books in the earlier years, and the only change that took place in the present year was that instead of getting its books printed in some other press, it printed its books in its own press.
Final Decision: The Court answered both the questions in the negative, i.e., in favor of the Revenue and against the assessee.
( 1 ) THE Income-tax Tribunal Delhi Bench) (hereinafter referred to as Tribunal has referred the following two questions to this Court, under section 66 (1) of the Indian Income-tax Act, 1922 (hereinafter referred to as the Act):-
"1. Whether on the facts and in the circumstances of the case, the sum of Rs. 5,349. 00 paid by the assessee to M/s. Ranbir Bros. , Kanpur was a business expenditure of revenue nature ? 2. Whether on the facts and in the circumstances of the case, the assessee s business of printing and publishing books was a newly established industrial undertaking entitled to the exemption from tax under section 15c of the Income-tax Act, 1922 ?"
( 2 ) THE facts relevant to the first question may briefly be stated : M/s. Naya Sahitya, Delhi, (hereinafter referred to as the assessee) is a registered firm carrying on business of publishing books. The assessee wanted to obtain recognition of the Himachal Pradesh Education Department for some of the textbooks published by it in order to enable the assessee to sell the text books in the territory of Himachal Pradesh. For this purpose, the assessee entered into an agreement with another firm, M/s. Ranbir Brothers, Kanpur, which, according to the assessee, was in a position to use its influence for obtaining recognition of the assessee s text books from the Himachal Pradesh Education Department. ^ This agreement was entered into sometime in September, 1959. Under this agreement, the assessee agreed to pay 6% royalty on the net sales of such approved books in consideration for the services of M/s. Ranbir Brothers for obtaining such recognition to the assessee s text books. The assessee did obtain recognition for its text books through the good offices of M/s, Ranbir Brothers and it paid to M/s. Ranbir Brothers a sum of 5,349. 00 during the accounting period relevant to the assessment year 1961-62. The assessee claimed deduction of the said amount in computing its income for the said year. The assessee s claim was rejected by the Income-tax Officer on the ground that the amount represented capital expenditure and on the same ground, the disallowance was confirmed by the Appellate Assistant Commissioner. The Tribunal, however, allowed the assessee s claim holding that it was a revenue expenditure and directed the Income-tax Officer to delete the said amount from the income of the assessee. At the instance of the Revenue, the Tribunal has, however, referred the first question to this Court under sections 66 (1) of the Act.
( 3 ) THE question, as framed by the Tribunal, would suggest that the Department did not accept that the amount of Rs. 5,349. 00 was even a business expenditure in the sense that it was laid out wholly and. exclusively for the purpose of the business of the assessee. But Shri G. C. Sharma, learned counsel for the Revenue, conceded that the amount in question was a business expendtiure in the sense that it was laid out wholly and exclusively for the purpose of the assessee s business. He, however, contended that, although the amount represented a business expenditure of the assessee, yet it was of the nature of capital expenditure which was not allowable under section 10 (2) (xv) of the Act.
( 4 ) THE question whether a particular expenditure is of a capital or of a revenue nature is a vexed question. The principles on which such a question has to be determined are very well known, having been laid down by the courts in England as well as in this country. These principles have been summarised by the Supreme Court in the leading case on the subject, namely, Assam Bengal Cement Co. Ltd. v. Commissioner of Income-tax, (1955) 27 I. T. R. 34, (1) in the following terms:-
"in cases where the expenditure is made for the initial outlay or for extension of a business or a substantial replacement of the equipment, there is no doubt that it is capital expenditure. A capital asset of the business is either acquired or extended or substantially replaced
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