Law:

Section:

I. Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessment year 1965-66 - Under licence agreement assessee-company made payments to foreign collaborator for supply of workshop drawings, manufacturing instructions etc. - Under agreement assessee-company was authorized only to utilize technical know-how for purpose of licence for limited period and not for any other purpose - It could not assign its right in connection with those workshop drawings and manufacturing instructions neither could it at any time deviate from same, nor could it make any alteration and if any deviations were contemplated, prior approval of foreign supplier was necessary - Even after termination of agreement, it was not open to assessee-company to utilise those workshop drawings, manufacturing instructions, etc., for any other purpose whatsoever - Whether on facts it could not be said that property in workshop drawings, manufacturing instructions and other technical information passed from foreign supplier to assessee-company - Held, yes - Whether, therefore, there was no sale of any capital assets viz., workshop drawing, manufacturing instructions, etc. and by incurring expenditure in dispute assessee merely acquired right to use said capital assets for limited period with many restrictions imposed thereon - Held, yes - Whether since amount was laid out to obtain an advantage not sufficiently enduring in nature but with view to earn more profit, expenditure was allowable as revenue expenditure - Held, yes FACTS-I The assessee-company entered into three agreements with their foreign collaborator for manufacture of rotary air-compressors, rotary blowers and vertical diesel engines. Under the agreements the foreign collaborator supplied copiable workshop drawings, manufacturing instructions etc. for which the assessee-company paid selling price to the foreign collaborator. The assessee contended that it was the usual practice of the assessee in their accountancy system that the expenditure incurred by it for paying the price for the supply of workshop drawings, manufacturing instructions, etc., should be spread over a period of five years in…

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