2. 6. Capital assets belonging to third parties: Even though a expenditure results in the creation of a capital asset, if the capital asset belongs to a third party, such expenses will be treated as revenue expenditure 3 Profit-earning process: Where the outgoing expenditure is so related to the carrying on or the conduct of the business that it may be regarded as an integral part of the profit earning process and not for acquisition of an asset or a night of a permanent character, the possession of which is a condition of the carrying on of the business, the expenditure may be regarded as revenue expenditure 4. Object of the transaction: The object of the transaction which has impact on the business, the nature of trade for which the expenditure is incurred and the purpose thereof, etc. 5. Fixed capital - vs.- Circulating capital: An item of disbursement may be regarded as of a capital nature when it is relatable to a fixed capital, whereas if it is related to circulating capital or stock-in trade it would be treated as revenue expenditure, Expenditure on removing restriction: Where the assessee has an existing right to carry on a business, any expenditure made by it during the course of business for the purpose of removal of any restriction or obstruction or disability would be on revenue account, provided the expenditure does not result in the acquisition of any capital asset. 7. Payment made to rival dealer to ward off competition in business would constitute capital expenditure If the expenditure is a part of the working expenses in ordinary commercial trading. It is not capital but revenue expenditure 9. if the expenditure is incurred for the initial outlay or for extension of business or substantial replacement of equipment, it is capital expenditure but if it is incurred for running the business or is laid out as part of the process of profit making, it is revenue in character 10. If expenditure is incurred for ensuring the regular supply of raw material, maybe for period extending over several years, it is on revenue account 11. When an owner incurs expenditure on additions in a building which enhances its value the expenditure can be of a capital nature. But, if a tenant incurs an expenditure on a rented building for its renovation, he does not acquire any capital asset, because the building does not belong to him and, ordinarily, such an expenditure will be of a revenue nature 8. 12. Acquisition of the goodwill of the business is acquisition of a capital asset, and, therefore, its purchase price would be capital expenditure. It would not make any difference whether it is paid in a lump sum at one time or in instalments distributed over a definite period. Where, however, the transaction is not one for acquisition of the good-will, but for the right to use it. the expenditure would be revenue expenditure 13. Expenses incurred by the assessee for the purpose of creating, curing or completing the title is capital expenditure and on the other hand if such expenses are incurred for the purpose of protecting the same, it is revenue expenditure. f1 ILLUSTRATION 2 Birla Ltd., a cement manufacturing company, entered into an agreement with a supplier for purchase of additional cement plant. One of the conditions in the agreement was that if the supplier failed to supply the machinery within the stipulated time, the company would be compensated at 5% of the price of the respective portion of the machinery without proof of actual loss. The company received 8.50 lakhs from the supplier by way of liquidated damages on account of his failure to supply the machinery within the stipulated time. What is the nature of liquidated damages received by Birla Lid. from the supplier of plant for failure to supply machinery to the company within the stipulated time - a capital receipt or a revenue receipt? (CMA - Inter Dec. 2011)