Law:

Section:

Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Year in which deductible - Assessment year 1971-72 - In connection with commissioning of its six new units, assessee entered into a collaboration agreement with certain parties and paid technical assistance fees during previous year ending on 31-3-1971 - For assessment year 1971-72, assessee claimed deduction of aforesaid technical assistance fees paid by it - ITO disallowed assessee's claim on ground that production had not commenced during relevant previous year - Whether in view of fact that new units were only a continuation of existing business, assessee's claim could not be disallowed on ground that production had not commenced during relevant previous year - Held, yes FACTS In connection with the commissioning of its six new divisions, the assessee entered into a collaboration agreement with certain parties and paid technical assistance fees during the previous year ending on 31-3-1971. For the relevant assessment year 1971-72, the assessee claimed deduction of the aforesaid technical assistance fees paid by it. The ITO disallowed the assessee's claim on the ground that the deduction could be given only from the year in which the production commenced, even though the entire business activity of the assessee was one and the same. On appeal, the AAC allowed the deduction as revenue expenditure. The Tribunal upheld the AAC's order. On reference : HELD The only ground on which the deduction was disallowed by the ITO was that the production had not commenced during the relevant previous year. Once it was held that the new units were only a continuation of the existing business, the said objection no longer subsisted. Accordingly, the technical assistance fees paid by the assessee in connection with the setting up of the six new divisions was deductible. The order of the Tribunal was, therefore, upheld. EDITOR'S NOTE Following the order of the Karnataka High Court in CIT v. Hindustan Machine Tools Mills Ltd. (No. 1) [1989] (1989) 175 ITR 212 the High Court also held that the revenue expenditure incurred by the assessee in connection with its new units was deductible as business expenditure.…

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