2000 (3) TMI 47 - HC - Income Tax

Summary

Issues involved:
The judgment addresses three main issues: 1. Whether the payment made for technical know-how fee was revenue or capital in nature, 2. Whether the excise duty paid on closing stock was deductible, and 3. Whether the written back excise duty liability was covered under section 41(1) of the Income-tax Act.

Issue 1 - Technical Know-How Fee:
The assessee paid a sum to a foreign company for technical know-how to manufacture extra large OTR tyres. The Assessing Officer considered this payment as capital expenditure, but the Tribunal deemed it as revenue expenditure. The Tribunal found that the payment was for the betterment of an existing product, not for a new product, and thus, was an outlay of business to earn profits. The Tribunal concluded that the expenditure was revenue in nature based on the facts and circumstances.

Issue 2 - Excise Duty on Closing Stock:
The Assessing Officer added an amount under section 43B for excise duty embedded in the closing stock valuation. The Tribunal, following a previous decision, allowed the deduction of this amount from the closing stock value. The Tribunal directed the Assessing Officer to reduce the opening stock for the subsequent year by the same figure, accepting the assessee's explanation regarding the change in valuation method.

Issue 3 - Written Back Excise Duty Liability:
The assessee had written back a certain amount of excise duty liability in its books, claiming it was not income for the assessment year as the liability had not ceased. The Assessing Officer, relying on a Supreme Court judgment, brought this amount to tax under section 41(1). The Commissioner and Tribunal held that the liability would cease to exist only when a refund was granted, and thus, deleted the addition. The court found the question on this issue to be of academic interest only and declined to call for a reference.

The court declined to call for reference on the first and third proposed questions but directed the Tribunal to refer the question related to the deduction of excise duty from the closing stock value for the opinion of the court.