Law:

Section:

Section 37(1) of the income-tax act, 1961-Capital or revenue expenditure-Whether technical charges paid under a collaboration agreement are fully deductible, and no part can be disallowed as capital expenditure-Held, yes Facts The assessee-company claimed deduction of a certain sum paid to a foreign company as technical charges in terms of the collaboration agreement. The ITO disallowed part of the amount as capital expenditure but the Tribunal allowed full deduction. On reference : Held As held by the Madras High Court in CIT v. Madras Rubber Factory Ltd. [1983] 144 1TR 618 royalty and technical fees paid to the foreign collaborator under the collaboration agreement should be treated as revenue expenditure. The Tribunal was, therefore, justified and the entire amount was deductible. Section 80J of the Income-tax Act, 1961-Deductions-Profits and gains from newly established industrial undertakings-Whether where assessee had set up a new unit for masticating rubber which was mainly used up by existing undertaking, and new unit was set up with new plant and machinery without transferring any assets from existing undertaking, assessee was entitled to relief under section 80J in respect of new unit-Held, yes Facts The assessee-company was a manufacturer of tyres and tubes, and one of the process of manufacture was masticating of rubber, which the assessee was getting done by third parties. The assessee set up a new unit of its own for masticating of rubber and claimed relief under section 80J. The claim was rejected by the ITO on the ground that it was not; a new industrial undertaking, but an ancillary of existing unit. On appeal, the Tribunal allowed the assessee's claim. On reference : Held There was absolutely no evidence to indicate that any asset of the existing undertaking had been transferred to the new unit, which, was a self-contained, independent unit set up with new plant and machinery. Though a substantial portion of masticated rubber was used up by the existing under taking of the assessee, part of the production was sold to outsiders as well and it could not be said that the new unit was established in the process of the reconstruction of the…

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