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Issues:
1. Whether the amounts paid to foreign companies for technical know-how are allowable as revenue expenditure? 2. Whether the payments made under the contracts with foreign collaborators are revenue deductions? Analysis: The judgment delivered by the High Court of Gujarat involved a case where the assessee, a private limited company engaged in manufacturing road making machines, entered into contracts with two West German companies to obtain technical know-how. The contracts required the assessee to pay sums to the foreign collaborators for the supply of blueprints and plans. The Income-tax Officer initially disallowed the deduction claimed by the assessee, considering the payments as capital expenditure. The Commissioner of Income-tax (Appeals) also ruled against the assessee. However, the Tribunal, following the decision in a similar case, held that the payments were allowable as revenue expenditure. The High Court analyzed the nature of the expenditure in question to determine whether it was revenue or capital in nature. Referring to the purpose of the outlay and its intended effect, the court highlighted that there is no definitive criterion to classify an expenditure as capital or revenue. Citing a Supreme Court case, the court emphasized that the expenditure for better conduct and improvement of the existing business should be considered revenue expenditure. The court noted that the technical know-how acquired by the assessee was supplemental to its existing business and did not amount to a new venture. Consequently, the High Court concluded that the amounts paid to the foreign companies for technical know-how were allowable as revenue expenditure. The court upheld the Tribunal's decision that the payments made under the contracts with the foreign collaborators were revenue deductions. Both questions referred to the court were answered in favor of the assessee, resulting in the disposal of the reference with no order as to costs.
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