Law:

Section:

Section 37(1) of the income-tax act, 1961 - capital or revenue expenditure- under technical assistance agreement with foreign company which granted assessee certain exclusive rights, etc., on certain conditions and with restrictions, assessee paid foreign company certain sum over a period of two years-Whether impugned expenditure was capital in nature-Held, on facts, no Facts The assessee-company, engaged in the manufacture of sealed compressors for air-conditioners and refrigerators, entered, on 26-6-1961, into a technical assistance agreement with WE, a company incorporated in America, to obtain patent rights and other information and services necessary to enable it to manufacture, use and sell certain types of electrical and other apparatus and material manufactured by the associated companies of WE in USA. As per the agreement, it was to be for a period of ten years from 25-5-1962 giving the assessee some exclusive and some non-exclusive rights. WE was to continue to provide help and information to the assessee from time to time. WE not only reserved certain rights but placed certain restrictions on the assessee's use of the assistance, information, etc., provided. In consideration of the services and information provided under the agreement, WE was to receive a sum of $50,000 from the assessee in instalments in the first 24 months and there-after royalties, etc., from time to time on an agreed basis. The assessee, even after the termination of the agreement, could continue to operate under information provided by WE but only in accordance with the terms and conditions to be agreed at the time of such termination. As per the agreement, the assessee paid WE a sum of Rs. 2,39,084 between 21-5-1962 and 21-5-1964. The commercial production of the assessee was, however, started only in October 1964. Thereafter, for the assessment year 1966-67, relevant to the accounting period ended 30-9-1965, the assessee relying on a circular of CBDT dated 31-5-1961 (in respect of the write off of expenditure on technical know-how in the nature of copyrights/patents) claimed as a deduction 1/14th of the amount of Rs. 2,39,084 paid by it to WE in instalments on 21-5-1962, 21-6…

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