Law: Income Tax Act, 1961

Section: 32,256(1)

Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessment year 1970-71 - Under collaboration agreement assessee acquired exclusive right for use of patents for manufacture of engineering products of foreign company and claimed deduction of expenditure on purchase of patents as revenue expenditure which was rejected by Tribunal - Board had issued circular to effect that expenditure incurred on purchase of patent rights could be treated as consolidated revenue expenditure by spreading it over a period of 14 years - Whether since collaboration agreement had not been examined in light of said Circular, matter was to be remanded to Tribunal for considering claim in light of that circular - Held, yes Section 32 of the Income-tax Act, 1961 - Depreciation - Rate/allowance of - Assessment year 1970-71 - Whether assessee would be entitled to depreciation on technical know-how purchased from foreign company under collaboration agreement - Held, yes Circulars and notification : Circular No. 16(XI-A) dated 31-5-1961 FACTS Under the collaboration agreement, dated 28-12-1961, the assessee-company had acquired an exclusive right for the use of the patents for manufacture of engineering products of foreign company. Such technical collaboration was for a period of ten years from the date of incorporation of the assessee-company. It was provided in the agreement that, notwithstanding the expiry of the agreement, after the stipulated period of ten years, the assessee-company was to continue to use the patents licensed under the agreement for the unexpired period of the patents for which it was valid under the Indian Patents and Designs Act, 1911, on any Indian Act relating to registration of patents. The assessee claimed that expenditure on purchase of patents was revenue expenditure. The Tribunal rejected the assessee's claim. The Tribunal, however, allowed depreciation on amount paid for technical know-how. On reference: HELD The claim of the assessee-company had not been examined in the light of the circular No. 16(XI-A) dated 31-5-1961 which stated that the expenditure incurred on purchase of patent rights could be treated as consolidated…

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