Law:

Section:

Section 37(1) of the income-tax act, 1961-Capital or revenue expenditure-Assessee-company had 10-year agreement with A foreign company for obtaining technical know-how and services related to manufacture and marketing of certain goods-Assessee claimed technical services fee paid by it as revenue deduction-ITO disallowed claim, holding impugned expenditure to be of capital nature-Tribunal, inter alia, found assessee had not acquired any asset of enduring advantage for benefit of its business and allowed impugned expenditure as revenue deduction-Whether tribunal justified-Held, on facts, yes Facts The assessee-company entered into a technical collaboration agreement with a foreign company for obtaining technical information, advice and assistance related to raw materials, specifications for manufacture of forgings, castings and components, supply of qualified engineers as well as advice on merchandising, marketing and sales programmes. The agreement, originally made for ten years, was renewable for a period of five years, subject to the approval of the Government of India. The technical information was to be treated as confidential. The fees were payable by the assessee to the foreign company on the basis of actual manufacture and sale of goods by the assessee. In the financial year relevant to the assessment year 1963-64, the assessee paid a certain sum to its foreign collaborator under the agreement and claimed it as revenue expenditure. The ITO rejected the claim, holding the payment to be capital in nature. On appeal, the AAC allowed the assessee's claim. On further appeal by the revenue, the Tribunal's findings, inter alia, were (i) that the fees paid by the assessee were for obtaining technical knowledge and experience of the foreign collaborator as a licensee, and it could not be said that the collaborator had parted with any of its business ; (ii) that the assessee had not acquired any asset or advantage of an enduring nature for the benefit of its business; (iii) that the assessee had not outright purchased any technical information but merely acquired the right to draw upon the technical knowledge of the collaborator for the period of the agreement; and…

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