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Issues:
- Whether payments made by the assessee-company to Grasso, Twin Disc, and the National Research Development Corporation of India are permissible deductions for revenue expenditure. Analysis: The judgment by the High Court of Bombay addresses three main issues concerning the deductibility of payments made by the assessee-company to various entities for technical know-how. The first issue, regarding payments to Grasso, was analyzed in light of previous court decisions. The court referred to a Division Bench ruling in Kirloskar Pneumatic Co. Ltd. v. CIT, emphasizing that technical know-how payments are revenue expenditures, not capital assets. The court concluded that the payments to Grasso were permissible revenue deductions, dismissing the argument that they were of a capital nature based on the dissenting judgment in Fenner Woodroffe & Co. Ltd v. CIT. Moving on to the second issue concerning payments to Twin Disc, the court noted the similarity in clauses between the agreements with Grasso and Twin Disc. Following the reasoning from the first issue, the court held that payments to Twin Disc were also allowable as revenue deductions, affirming in favor of the assessee. The third issue involved payments to the National Research Development Corporation of India. Despite the absence of an executed agreement, the court deemed the draft agreement binding as both parties had acted upon it. The court determined that the payments made under this draft agreement were for the supply of know-how, which aligns with the principles established in previous judgments. Therefore, the payments to the Corporation were considered revenue in nature and eligible for deduction. Consequently, the court ruled in favor of the assessee on all three issues. In conclusion, the High Court of Bombay directed the Commissioner to pay the costs of the references to the assessee, resolving the matter of deductibility of payments for technical know-how in favor of the assessee-company.
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