Law: Income Tax Act, 1961

Section: 256(1)

Income-tax---Foreign company engaged in manufacture and sale of valves ­Assessse acquiring licence under agreement from company to manu­facture valves and sell them by using Company's trade mark-­Company rendering all assistance to assessee in establishing factory ­Royalty paid by assessee to company on net amount of sales every 3 months, held, deductible expenditure. 1982 T L R 1777 ; 123 I T R 773 ; 123 I T R 538 ; 127I T R 746 ; 81 ITR 243;69 ITR 692 and 67 ITR 23 ref. JUDGMENT LEILA SETH, J.--These six income-tux refer,-aces at the instance of the Commissioner of Income-tax, pertain to the assessment years 1965-66 to 1969-70 and 1972-73. The point in issue in each of them pertains to the question of deductibility of royalty. The question posed for our opinion under section 256(1) of the Income-tax Act, 1961 (to referred to in short as "the Act"), in the first of two years is as follows :-- "Whether on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the royalty amounts paid by the assessee to the foreign collaborators for the assessment years 1965-66 and 1966-67 were of revenue nature?" 2. The question posed in the subsequent three years is identical except that the assessment years 1967-68, 1968-69 and 1969-70 have been inserted in place of 11,65-66 and 1966-67. The question posed for the year 1972-73 is substantially the same, though slightly differently worded and set out: "Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that Royalty amounting to Rs. 39,656 paid by the assessee to the foreign collaborators for the assessment year 1972-73 was of revenue nature?" 3. The assessee, Mes3rs Shama Engine Valves Ltd., was engaged in the manufacture of valves. A company known as B. K. Khanna & Co. Pvt. Ltd. tin short "Khanna") -entered into an agreement, dated 25th October, 1961 with a foreign company, Bayariocbee Leichtmetal Work Kommanditgesslieehaft of Munchan (to be referred to its "BLW") to manufacture valves in India. B. L. W. was already engaged in the design, manufacture and sale of valves in Germany and export thereof. Art. 1 of the agreement provided…

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