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Interpretation of royalty payments as capital or revenue expenditure. Analysis: The case involved a reference under section 256(1) of the Income-tax Act, 1961, regarding the classification of royalty payments made to foreign concerns as capital or revenue expenditure. The Tribunal referred the question of law regarding the justification of holding the royalty payments as not capital expenditure. The assessee-company had made payments to foreign collaborators in the relevant assessment years. The Income-tax Officer disallowed a portion or the entire royalty payment as capital expenditure for each foreign concern. Upon reviewing the facts and relevant collaboration agreements, the High Court analyzed the nature of the payments. The Court considered the case law precedent set by the Supreme Court in Alembic Chemical Works Ltd. v. CIT [1989] 177 ITR 377. The Court concluded that the royalty payments made to the foreign concerns were revenue expenditure, not capital in nature. The judgment emphasized that the principles established by the Supreme Court applied to the present case, leading to the decision that the Tribunal's holding of the payments as revenue expenditure was correct. In light of the analysis, the High Court answered the question in favor of the assessee and against the Revenue. The judgment did not award any costs in this matter. The ruling clarified the classification of royalty payments as revenue expenditure based on the specific circumstances and legal principles applied to the case.
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