Law:

Section:

Section 10(2)(xv) of the indian income-tax act, 1922 [Corresponding to section 37(1) of the Income-tax Act, 1961]-Business expenditure-Payments to foreign companies towards royalty in the form of share of profits, technical fees and expenses on training of employees abroad-Whether revenue or capital in nature-Held, on facts, that expenditure in question is revenue in nature Facts The assessee entered into agreements with two foreign companies for obtaining technical knowledge and information, training of Indian employees abroad and for use of trade name. In one case, the assessee was to establish a factory for the manufacture of trucks and other automotive products. For this, the payment was to be a percentage of net sales prices and net profits of the assessee's particular products. In the other case the foreign company's assistance was sought to start the operation of assessee-company's steel foundry for bringing it into effective commission. In the assessment year 1959-60, the assessee had paid towards fees Rs. 29,59,608 as share of profits to one company and Rs. 2,99,158 as lump sum fees to the other company. The assessee also incurred Rs. 1,69,925 as expenses on training its employees abroad by the foreign companies. All the three items were claimed as revenue expenditure but the ITO treated them as capital expenditure. On appeal, the AAC accepted the assessee's claim and allowed the appeal. On Department's appeal, the Tribunal considered the terms of the two agreements and found that, under one agreement, the assessee only got technical assistance and knowledge in regard to truck manufacture and the right to use its trade name for a specific period. It was thus really a case of fees being paid for user of technical know-how and trade name. Under the other agreement, it was the right to trade for purposes of carrying on its business upon the technical knowledge of the foreign company in regard to foundry business. In both the cases, the Tribunal opined that these items of expenditure had not resulted in acquisition or bringing into existence an asset or capital of enduring nature. The Tribunal, therefore, held that the payments were deafly revenue…

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