Law:

Section:

Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessment years 1964-65 to 1967-68 - Prior to November 1960 assessee-company was carrying on business in retreading of old tyres in Goa, which was then a Portuguese colony - On 3-11-1960 it entered into an agreement with a foreign company under which it agreed to pay to foreign company in sterling for licence fee at rate of 4½ pence per pound of tread rubber used by it - After Goa became part of India, Government of India, on assessee's application, vide its letter dated 18-5-1965, sanctioned payment of licence fee/royalty to foreign company at rate of 1½ pence per pound only - Whether for assessment years 1964-65 and 1965-66 assessee was entitled to deduction at rate of 4½ pence per pound of tread rubber used by it as agreed to by parties and for assessment year 1966-67 it was entitled to deduction at rate of 1½ pence per pound of tread rubber used by it as sanctioned by Government - Held, yes Section 41(1) of the Income-tax Act, 1961 - Remission or cessation of liability - Assessment year 1967-68 - Whether in view of facts mentioned under heading 'Business expenditure - Allowability of assessee's liability in respect of royalty in excess of 1½pence written off to the extent it pertained to year 1967-68 was to be treated as assessee's income under section 41(1)-Held, yes FACTS Prior to November 1960 the assessee-company was carrying on business in retreading of old tyres in Goa, which was then a Portuguese colony. On 3-11-1960 it entered into an agreement with a foreign company, under which the assessee agreed to pay to the foreign company in sterling for the licence fee at the rate of 4½ pence per pound of tread rubber, etc., used by the assessee. After Goa became a part of India it became necessary for the assessee to obtain the Government of India's permisison to make the payment of licence fee and the Government of India by its letter dated 18-5-1965 sanctioned payment of licence fee/royalty to the foreign country at the rate of 1½ pence per pound only as against 4½ pence per pound agreed to by the parties. For the assessment years 1964-65 to 1966-67, the assessee had…

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