Law: Income Tax Act, 1961

Section: 37

Income tax----Capital or revenue expenditure---Technical know-how---Collaboration agreement ---Finding that foreign company had not sold any information, process or invention to Indian company---No advantage of enduring nature had been obtained---Amount paid under collaboration agreement was revenue expenditure---Indian Income Tax Act, 1961, S. 37. On the question whether a sum paid by the respondent-assessee to a foreign company under a collaboration agreement was a permissible deduction under section 37(1) of the Income Tax Act, 1961, the High Court found that the foreign company did not sell any information, processes and inventions to the Indian company, that under clause 22 of the agreement, the Indian company was not entitled to use them after the termination of the agreement, and that though the agreement was for a period of ten years it could be terminated earlier. The High Court held that, therefore, it could not be said that the Indian company had incurred the expenditure for the purposes of bringing into existence any asset or advantage of an enduring nature and that the expenditure in question was revenue. On appeal by the Department to the Supreme Court: Held, dismissing the appeal, that the High Court was right in holding that the amount paid by the assessee- to the foreign company could not be treated as capital expenditure. C.I.T. v. Indian Oxygen Ltd. (1978) 112 ITR 1025 affirmed. ORDER These appeals are preferred against the judgment of the Calcutta High Court (see (1978) 112 ITR 1025) answering the question referred to it in the affirmative, i.e., in favour of the assessee and against the Revenue. This question referred was (at page 1026): "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of Rs.2,97,480 paid by the assessee to the British Oxygen Co.…

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