Law: Income Tax Act, 1961

Section: 43

Income-tax----Capital or revenue expenditure ---Assessee-company engaged in manufacture of steel and wires---Manufacture of wires of different qualities with improved technique by obtaining technical know how---Expenditure incurred for obtaining know-how was for a running concern---No assets of enduring nature acquired--¬Expenditure is revenue in nature. For the assessment year 1975-76, the assessee-company, which manufactured mild steel and hard bright wires, incurred expenditure for acquiring technical know-how for manufacturing different types of wires and also to improve its polishing technique, and claimed deduction for the same as revenue expenditure. The Income-tax Officer disallowed the claim for deduction on the ground that by obtaining the technical know-how, the earning capacity of the assessee's business improved considerably which resulted in benefit of an enduring nature and as such was capital expenditure. The Appellate Assistant Commissioner affirmed the order of the Income-tax Officer. But the Tribunal held that the expenditure was of a revenue nature. On a reference: Held, that the assessee was a manufacturing concern and while their manufacturing process was on, they wanted to diversify the manufacture of wires of different qualities with improved technique and for doing so obtained technical know-how which resulted in increase in production and sales. The expenditure for obtaining know-how for a running concern could never be said to be capital expenditure for acquiring an asset of an enduring nature. Therefore, the amount paid to the consultants for obtaining technical know-how was revenue expenditure. Mysore Kirloskar Ltd. v. C.I.T. (1978) 114 ITR 443 (Kar.); C.I.T. v. B.N. Elias and Co. (P.) Ltd. (1987) 168 ITR 190 (Cal.) and C.I.T. v. Ciba of India Ltd. (1968) 69 ITR 692 (S C) fol. Scientific Engineering House (P.) Ltd. v. C.I.T. (1986) 157 ITR 86 (S C) distinguished. C.I.T. v. Caltex Oil Refining (India) Ltd. (1979) 116 ITR 404 (Bom.) and C.I.T. v. Tata Engineering and Locomotive Co. (Pvt.) Ltd. (1980) 123 ITR 538 (Bom.) ref. JUDGMENT GOKAL CHAND MITAL J.--Super Steels had been manufacturing wires from the assessment year 1973-74…

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