Law:

Section:

I. Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessee-company had entered into a technical collaboration agreement with a Japanese company, 'R' for manufacture of piston rings - Agreement required 'R' to provide comprehensive technical know-how to assessee for a fixed amount - Assessee was entitled to use technical know-how for a period of five years or for a lesser period, in case agreement was terminated before that - Agreement enabled assessee to sub-license technical know-how to another Indian party subject to prior written permission of 'R' - Pursuant to agreement, assessee paid certain amount to 'R' and claimed same as revenue expenditure - Claim was disallowed by lower authorities on ground that it was a case of sale - However, on appeal, Tribunal allowed assessee's claim - Whether on facts, it could be said that what was transferred to assessee was only a right to use technical know-how of 'R' and there was no sale of technical know-how which assessee could exploit - Held, yes - Whether, therefore, Tribunal was justified in considering payment in question as a revenue expenditure - Held, yes II. Section 37(3A) of the Income-tax Act, 1961 - Advertisement/Sales promotion expenses - Whether where assessee was not directly spending any amount on gifts, but gifts were given by dealers of assessee to their customers and assessee was merely reimbursing dealers to extent of value of gifts and, moreover, gifts given by dealers of assessee did not bear logo and name of assessee and, consequently, customer could not have any knowledge that gift was connected or concerned with assessee, Tribunal was right in holding that expenditure on gifts was not in nature of advertisement falling within purview of section 37(3) read with rule 6B of Income-tax Rules, 1962 but was in nature of a trade discount - Held, yes III. Section 37(1), read with section 36(1)(ii), of the Income-tax Act, 1961 - Business Expenditure - Allowability of - Whether where good work reward given by assessee to its employees had no relation to profits that assessee might or might not make and it had relation to only good work that was done by employees…

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