Law:

Section:

Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of - Whether expenditure incurred for grant of licence, which accords 'access' to technical knowledge as against 'absolute' transfer of technical knowledge and information, would be treated as revenue expenditure - Held, yes - Assessee had entered into an agreement with an Italian company 'T' in terms of which 'T' provided assessee technical assistance for manufacture of acrylic fibre - In terms of agreement, assessee paid certain amount to 'T' towards grant of process and know-how licence as well as technical assistance and continuous know-how including training of assessee's personnel in Italy and claimed deduction of same as revenue expenditure - Whether since (i) under agreement assessee had acquired only 'access' to technical information, that is, know-how related to process of manufacture, which was not related to any secret process or patent rights or even right to use a trademark or trade name under agreement; (ii) there was no transfer of ownership with respect to process and know-how in favour of assessee; and (iii) under agreement, 'T' was obliged to give advice only for a period of 7 years, payment made by assessee to 'T' would be treated as revenue expenditure - Held, yes Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of - Whether where expenditure incurred by assessee on know-how during year under consideration is in respect of a business which is already in existence, it is required to be treated as expenditure on revenue account - Held, yes FACTS The assessee had entered into an agreement with an Italian company 'T' for technical assistance for manufacture of acrylic fibre. As per the agreement, 'M' was the owner of know-how and patent rights for the design, erection, operation and production of acrylic fibre, and 'T' which had a licence for use of know-how of the patent rights owned by M, had the right to sub-license the same to other parties. In terms of the agreement, the assessee had paid a sum of 250 million Liras to 'T' towards supply of basic design engineering of the plant and on its own treated the said expenditure as capital…

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