1984 (8) TMI 22 - HC - Income Tax

Summary

Issues Involved:
1. Deductibility of income from interest and machining charges u/s 80E.
2. Classification of payment to German collaborators as revenue expenditure.
3. Deductibility of managing director's travel expenses as revenue expenditure.
4. Quantum of deduction allowable for payment to German collaborators.

Summary:

Issue 1: Deductibility of Income from Interest and Machining Charges u/s 80E
The Tribunal held that the income from interest received from customers (Rs. 37,106) and machining charges (Rs. 9,435) should be deducted for the purpose of giving relief u/s 80E of the Income-tax Act, 1961. The Tribunal's decision was based on a precedent set by the same Bench in CIT v. Buckau Wolf New India Engineering Works Ltd. [1984] 150 ITR 180 (Bom), which was in favor of the assessee. Consequently, the High Court affirmed this decision.

Issue 2: Classification of Payment to German Collaborators as Revenue Expenditure
The Tribunal examined the agreement between the assessee and its German collaborators, which involved the sale and transfer of technical know-how and other documents for Rs. 1,00,000, payable in five annual installments. The Tribunal concluded that this payment was for rendering services and not for acquiring an asset of an enduring nature. The High Court agreed, referencing its own decision in Gannon Norton Metal Diamond Dies Ltd. v. CIT, and held that the payment was revenue expenditure and deductible as such.

Issue 3: Deductibility of Managing Director's Travel Expenses as Revenue Expenditure
The Tribunal had linked the deductibility of Rs. 10,578 incurred on the managing director's visit to Germany to the decision on the payment to German collaborators. Since the latter was considered revenue expenditure, the travel expenses were also deemed deductible. The High Court upheld this decision.

Issue 4: Quantum of Deduction Allowable for Payment to German Collaborators
The Tribunal allowed the deduction of the entire Rs. 1,00,000 in the assessment year 1967-68, despite only Rs. 20,000 being paid that year. The High Court agreed, noting that the assessee's liability for the full amount crystallized in that year, and the mercantile system of accounting supported this deduction. The Supreme Court's decision in Kedarnath Jute Mfg. Co. Ltd. v. CIT was cited to emphasize that the existence or absence of entries in the books of account is not decisive.

Conclusion:
All four questions were answered in the affirmative and in favor of the assessee. The Commissioner was ordered to pay the costs of the reference to the assessee.