Law: Income Tax Act, 1961

Section: 43

Capital or revenue expenditure-Tests Foregion collaborator taking shares in assessee Company-Share-money to be adjusted against a percentage of profits payable to collaborators over a term of years -Percentage of profits paid, whether allowable as revenue expenditure-Held no-Technical Know-how report Whether "plant" entitled to depreciation and development rebate allowance--Held yes. B. Reference to High Court-Tribunals finding that construction of hospital by the assessee was a part of labour we are measure and allowable as revenue expenditure-Finding, whether gives rise to a question of law Held no. 1. Didier Works A. G., a German company, was one of the collaborators of the assessee, Belpahar Refractories Ltd., which was a public limited-company. The authorised capital of the assessee-company was Rs. 5 crores. The German company had agreed to take shares of not less than Rs. 70 lakhs to be contributed thus : (a) Rs. 30 lakhs by providing an equivalent proportion of the purchase prices of machinery and equipment required for the plants ; (b) the remaining Rs. 40 lakhs by instalments equivalent to the amounts payable to the German company under any of the following heads : (i) engineering fee payable under clause 3 of the agreement set out in schedule 4 ; (ii) percentage of net profits asset out in clause 5 of the agreement; and (iii) any dividends payable on the Shareholding of the German company until the full equivalent of they said Rs. 40 lakhs shall have been appropriated. Clause 8 of a separate agreement provided that by way of remuneration for the rights and technical information and services given and provided or agreed or covenanted to be given and provided under this agreement, the German company shall be paid in rupees the following remuneration, namely, Rs. 6¼ per cent. of the amount representing the net profits of the assessee company for each financial year for a period of 8 years. In terms of this remuneration clause, the German company was paid by the assessee-company certain amounts in each of the assessment years 1962-63 to 1966-67. The assessee-company claimed these as deductible expenses but the Income Tax Officer disallowed the claims in…

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