Law:

Section:

Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessment years 1967-68 to 1969-70 - Assessee entered into collaboration agreement with a foreign company in pursuance of which it made payment of technical aid fee to foreign company for specific purposes of manufacturing brakes and other items for automobiles - Aforesaid payment was, however not for acquisition of any knowledge of permanent nature with which assessee could carry on its business - Moreover, assessee's licence was for a limited period only for making use of technical knowledge of foreign company - whether, in aforesaid circumstances payment in question was to be allowed as revenue expenditure - Held, yes FACTS The assessee carried on business in the manufacture and sale of brake equipments for automobiles including commercial vehicles. For said purpose, it entered into an agreement of collaboration with the U.K. company. By clause 3 of the agreement, the U.K. company granted to the assessee: (i)exclusive right and licence to make use, exercise and vend the licensed devices and parts thereof within the licensed territory, i.e., India, (ii)non-exclusive right to export or sell for export outside India any of the licensed devices fitted as original equipment on vehicles made in India or in replacement of such original equipment, and (iii)non-exclusive right to export or sell for export the licensed devices where such exports did not conflict with the U.K. company's obligations in the particular country. The agreement was to be in force for a period of 10 years. The assessee company, covenanted that during the continuance of the agreement it would observe and perform the covenants and provisions of the agreement. As per clause 7(a) of the agreement, the assessee, was liable to pay to the grantor- (i)in consideration of the technical services rendered, a fee amounting to one and a half per cent of the factory cost of all licensed derives and spare parts for such devices manufactured and sold by the licensee, and (ii)in consideration of the license and other rights granted hereunder in respect of the schedule patents and the grantor's designs a royalty amounting to…

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