1982 (7) TMI 6 - HC - Income Tax

Summary

Issues: Whether the payment made by the assessee to a foreign company for technical assistance is an expenditure of a revenue nature and allowable as a deduction in computing the total income of the assessee.

Analysis:
The case involved a reference under section 256(1) of the Income Tax Act, 1961, regarding the nature of a payment made by the assessee to a foreign company for technical assistance. The agreement between the assessee and the foreign company granted the assessee an exclusive license to manufacture certain apparatus and material in India. The payment in question was described as an Engineering Service Fee for training, drawings, specifications, and other necessary information before the start of manufacturing. The assessee claimed this payment as a revenue expenditure, which was initially disallowed by the Income Tax Officer and the Appellate Authority.

Upon appeal, the Tribunal considered the terms of the agreement and determined that the payment was part of the consideration for the right to use information, drawings, and specifications for a limited period. Citing a previous Supreme Court decision, the Tribunal held that the expenditure was of a revenue nature. The Revenue contended that the payment should be treated as a capital asset acquisition, arguing that the payment was for services rendered by the foreign company. However, the court noted that technical know-how and advice cannot be considered capital assets, as they do not provide an enduring benefit. The court referred to a previous case to support the view that payments for technical information do not constitute acquiring a capital asset.

Ultimately, the court agreed with the Tribunal's decision, stating that the payment was of a revenue nature and allowable as a deduction in computing the total income of the assessee. The court emphasized that whether the payment was made before or during manufacturing did not change the nature of the transaction. Therefore, the question was answered in favor of the assessee, with costs awarded to the assessee.