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Issues Involved:
1. Correct construction of the agreement dated September 2, 1963, and whether the Tribunal misdirected itself in law. 2. Allowability of the payment of Rs. 10,19,693 as revenue expenditure. Issue-wise Detailed Analysis: 1. Correct Construction of the Agreement Dated September 2, 1963: The Tribunal examined whether the Commissioner of Income-tax's conclusion that the assessee started a new line of production and obtained a benefit of enduring nature was misconceived. The Tribunal found that the assessee had acquired a license for the use of know-how and that the payment in question was made under the licensing agreement. The Tribunal concluded that the expenditure did not result in the acquisition of a capital asset and was allowable as business expenditure. The Tribunal considered several points: the nature of the agreement, the proprietary rights remaining with the foreign company, and the specific provision that technical information would remain the property of the foreign company. 2. Allowability of the Payment of Rs. 10,19,693 as Revenue Expenditure: The Tribunal determined that the payment of Rs. 10,19,693 made by the assessee to the foreign company was allowable as revenue expenditure. The Tribunal considered the following points: - The agreement involved two types of expenditure, with the initial expenditure up to June 1968 treated as capital expenditure, and subsequent royalty payments treated as revenue expenditure. - The assessee was engaged in the manufacture of other types of bearings since 1950, and the royalty payments were related solely to the production and manufacture of tapered bearings. - The proprietary rights and ownership of patents and know-how remained with the foreign company, with the assessee merely having a license to use the patents. - The technical know-how provided by the foreign company was utilized in making new types of bearings, but this did not make the royalty payments capital expenditure. - The agreement specified that the technical information would remain the property of the foreign company, and the assessee did not acquire any asset of enduring advantage. The Tribunal's decision was supported by the Supreme Court's ruling in CIT v. Ciba of India Ltd., which held that payments for the use of technical knowledge and experience were allowable as business expenditure. The Tribunal rejected the Revenue's argument that the expenditure should be treated as capital expenditure because the assessee had started a new line of business. The Tribunal concluded that the royalty payments were for the user of technical know-how and information, not for the acquisition of any asset, and should be treated as revenue expenditure. Conclusion: Both questions were answered in the affirmative and in favor of the assessee. The Tribunal's decision that the expenditure was allowable as business expenditure was upheld, and there was no order as to costs.
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