Law: Income Tax Act, 1961

Section: 37

Income-tax----Capital or Revenue expenditure---Expenditure incurred for acquisition of technical know-how for better production of assessee's product----No asset acquired by payment---Expenditure incurred wholly for purpose of business was Revenue expenditure---Indian Income Tax Act, 1961, S.37. For the assessment year 1968-69, the assessee had paid a lump sum to its foreign collaborator and claimed it as a deduction in computing its business income. The Income-tax Officer disallowed the claim on the ground that the lump sum amount was paid for the acquisition of technical knowledge from its foreign collaborator to enter into a new production and so the amount claimed should be regarded as capital expenditure. On appeal, the Commissioner (Appeals) held that the lump sum payment for technical know-how was Revenue in nature as there was no acquisition of capital assets by the assessee. On further appeal, the Tribunal affirmed the order of the Commissioner (Appeals). On a reference at the instance of the Revenue: Held, that since, there was no asset acquired by the payment, the Tribunal was right in holding that the payment to the foreign company should be allowed as Revenue expenditure incurred wholly for the purpose of the business. JUDGMENT N. V. BALASUBRAMANIAN, J.---The assessee is a non­resident company. The Income-tax Officer completed the assessment for the assessment year 1968-69 and found that the assessee had paid a lump sum of Rs. 10,000 to its foreign collaborator and claimed the same as deduction in computing its business income. The Income-tax Officer disallowed tile claim on the ground that the expenditure was incurred for the acquisition of technical know-how and held that since the lump sum amount was paid for the?` acquisition of technical knowledge from its foreign collaborator to enter into a new production, the amount claimed should be regarded as capital expenditure and accordingly, disallowed the same in the computation of income. The assessee preferred an appeal before the Commissioner of Income-tax (Appeals). The Commissioner (Appeals) held that the lump rum payment for technical know-how was Revenue in nature as there was no acquisition…

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