1984 (2) TMI 8 - HC - Income Tax

Summary

Issues:
1. Whether the annual payment made by the assessee company to a U.K. company was an expenditure of a revenue nature allowable in the computation of income for specific assessment years.
2. Whether a specific sum paid by the assessee to the company under an agreement should be treated as part of the actual cost of plant and machinery qualifying for depreciation for certain assessment years.

Analysis:
The High Court of BOMBAY addressed a reference under section 256(1) of the Income-tax Act, 1961, involving two key questions. The first issue revolved around determining if the annual payment of Rs. 22,725 made by the assessee company to a U.K. company under an agreement was an allowable expenditure of a revenue nature for the assessment years 1968-69 and 1969-70. The second issue focused on whether a sum of Rs. 1,02,852.70 paid by the assessee to the company up to December 31, 1966, should be considered as part of the actual cost of plant and machinery for depreciation purposes for the same assessment years.

The facts revealed that the assessee, a limited company, entered into an agreement with a U.K. company in 1964 to receive technical advice and assistance for manufacturing P.I.V. gears. The payments made under this agreement were disputed by the tax authorities, claiming them to be of a capital nature. However, the Income-tax Appellate Tribunal allowed the deduction of these amounts, considering them as revenue expenditure essential for the profit-earning process.

The court referred to a previous decision involving a similar collaboration agreement and held that the payments were for acquiring technical information and training, closely related to the profit-earning process. Relying on legal precedents, the court concluded that the payments in question were of a revenue nature and thus deductible in the computation of the assessee's income for the relevant assessment years.

Regarding the second issue, the court noted that the assessee's attempt to raise it was not permissible based on a Supreme Court decision. Consequently, the court declined to answer the second question. Since there was no significant dispute, the court ordered that each party would bear its own costs, bringing the matter to a close without further litigation.