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2007] 293 ITR 464 [2007] 163 Taxman 556 (Madhya Pradesh) HIGH COURT OF MADHYA PRADESH Commissioner of Income-tax v. Eicher Motors Ltd.* S.K. KULSHRESTHA AND S.K. SETH, JJ. IT APPEAL NO. 28 OF 2003 OCTOBER 18, 2006 Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessment years 1989-90 to 1992-93 - Assessee-company was an automobile manufacturer - It entered into an agreement with company 'M' to secure technical know-how and assistance for manufacture and sale of light commercial vehicles in lieu of periodic payment of royalty - Assessee claimed royalty payment to said company as revenue expenditure - Whether royalty payment made to company 'M' could be regarded as outlay for earning profits in normal course of business rather than an expenditure with object of acquiring an advantage of enduring nature for benefit of trade - Held, yes - Whether, therefore, amount paid to company 'M' as royalty was rightly allowed as revenue expenditure - Held, yes FACTS The assessee-company was an automobile manufacturer. It entered into a technical assistance agreement with a company 'M' for a license to use and utilise the technical know-how and assistance for manufacture and sale of the light commercial vehicles in lieu of the periodic payment of royalty. The assessee claimed the royalty payment to the company 'M' as a revenue expenditure for the assessment years 1988-89 to 1992-93. The Assessing Officer as well as the Commissioner (Appeals) disallowed the claim of the assessee on the ground that it was an expenditure capital in nature. On appeal, the Tribunal, however, allowed the assessee's claim. On appeal : HELD Section 37 provides that any expenditure laid out or expended wholly or exclusively for the purpose of the business or profession shall be allowed in computing the income chargeable under the head 'Profits and gains of business or profession'. Such expenditure, however, should not be in the nature of capital expenditure or personal expenses of the assessee. Any expenditure incurred by the assessee can, therefore, be claimed as an allowable deduction under the head 'Profits and gains of business or profession', if the…

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