1998 (3) TMI 22 - HC - Income Tax

Summary

Issues:
Whether the sum paid as foreign collaboration fee should be allowed as a revenue expenditure in computing the income of the assessee for the assessment year 1974-75.

Analysis:
The case involved a dispute regarding the treatment of a sum of Rs. 13,75,906 paid as a foreign collaboration fee by the assessee, a crane manufacturer, for the assessment year 1974-75. The assessee had entered into an agreement with a German company to obtain design, drawings, and supervision for the manufacture and erection of a 150-tonne crane for the Cochin shipyard. The agreement specified that the collaboration was limited to the specific crane ordered by the shipyard. The Tribunal examined the correspondence between the parties, which indicated that the shipyard had insisted on involving the foreign collaborator in various stages of the project. The agreement categorized the parties as general contractor and sub-supplier, emphasizing the specific nature of the collaboration for the single crane project.

The Revenue argued that the benefit derived from the collaboration was of lasting nature, allowing the assessee to use the designs for future projects. However, the court noted that the collaboration was intended for the execution of the single order and not for general use. There was no evidence to suggest that the assessee had utilized the designs for other projects post the specific crane order. The court emphasized that revenue expenditure should not be reclassified based on speculative future use of technical data. The Tribunal's decision to treat the expenditure as revenue in nature was upheld, considering the specific circumstances of the case and the limited scope of the collaboration for the single crane project.

In conclusion, the court ruled in favor of the assessee, allowing the foreign collaboration fee as a revenue expenditure for the assessment year 1974-75. The decision was based on the specific terms of the agreement, the purpose of the collaboration, and the absence of evidence supporting enduring benefits beyond the single crane project. The assessee was awarded costs amounting to Rs. 1,000.