Law:

Section:

Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessment year 1962-63 - Under agreement assessee company agreed to manufacture and supply goods to agent company - Agent company in turn agreed to supply assessee company manufacturing information and designs as it might obtain from foreign company - Agreement was for fixed period - Manufacturing information was to be kept confidential and after expiry of agreement was to be returned to foreign company - For manufacturing certain type of motors assessee obtained certain designs from agent company at certain cost - No new machinery was installed or acquired for purpose of manufacturing of said motors - Whether on facts, new type of things manufactured were improvement over existing machinery and, therefore, it could not be said that assessee had any asset or advantage or right of enduring nature - Held, yes - Whether, therefore, expenditure in question did not have capital character and was only of revenue nature - Held, yes FACTS The assessee company was a 100 per cent subsidiary of another company (agent company) which itself was subsidiary of a foreign company. The agent-company had the right to technical and manufacturing information, designs and data emanating from the foreign company. The assessee at the relevant time was carrying on business in the manufacture of various electrical equipments and components like electric motors, etc. Under the agreement between the assessee company and the agent company, it was provided inter alia that the assessee company would manufacture the goods as agreed on between the parties from time to time and supply such goods only to the agents; that the agents would supply to the company all manufacturing information, designs and data which they may obtain from the foreign company and which would be necessary to enable the assessee company successfully to manufacture the goods; that all manufacturing information, etc., supplied by the agents to the assessee company would be confidential to the company and that the company would reimburse the agents any costs incurred by the agents in supplying to the company manufacturing information,…

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