ELEGANT CHEMICALS ENTERPRISES PRIVATE LIMITED, HYDERABAD Vs. ASSISTANT COMMISSIONER OF INCOME TAX,CIRCLE 1 (3), HYDERABAD

JUDGEMENT

(1.) AN important question, which of course, was dealt with by the Courts on earlier occasions, arises for consideration in this appeal.

(2.) THE appellant is a manufacturer of pharmaceutical formulations and most of its business is to undertake custom manufacturing of the products, as regards which, orders are placed by the reputed companies. One of its main customers is M/s.Procter and Gamble (I) Limited (for short M/s. P&G). In the ordinary course of business, the appellant has been receiving orders of manufacture of Vicks 500. M/s. P&G intended to get manufactured a different version of that product, namely, Vicks 1000, to be supplied to the Latin American Countries. That, however, needed installation of new machinery. It entered into contract with the appellant in this regard. It has undertaken to meet the expenditure for installation of the new machinery and to place orders for ensuring viable production thereon.

(3.) IN accordance with the contract entered into by it, with M/s. P&G, the appellant acquired the machinery for manufacture of new product, and the test run was also conducted. At that stage, M/s. P&G expressed its inability to continue with the contract and resiled from it. The appellant submitted a claim for Rs.1,08,94,000/ - as compensation for unilateral termination of the contract. After negotiation, M/s.P&G paid a sum of Rs.87,33,056/ - towards sterilization of assets of the company and Rs.21,60,944/ - towards reimbursement of interest and other revenue expenditure.