1982 (6) TMI 22 - HC - Income Tax

Summary

Issues:
1. Determination of permissibility of expenditure on drafting and printing of articles of association as a revenue deduction.
2. Allowability of Technical Services Fee paid to a US company as revenue expenditure.

Analysis:

Issue 1:
The court noted that the first question regarding the expenditure on drafting and printing of articles of association was already decided in favor of the assessee by a previous Division Bench decision. Therefore, the court focused on the second question related to the Technical Services Fee paid to the US company.

Issue 2:
Regarding the Technical Services Fee, the court examined the nature of the services provided under the technical collaboration agreement. The Tribunal found that the fees paid were for technical knowledge and experience, and the collaborator did not part with any business asset. The court emphasized that the payment was recurrent and dependent on actual manufacturing and sales by the assessee, not for acquiring an enduring asset. The court referred to a previous decision involving similar agreements, where it was held that technical know-how does not constitute a tangible asset and acquiring technical knowledge is a revenue expenditure. The court concluded that the payment for technical knowledge and license to use the trade name was revenue expenditure, deciding in favor of the assessee on this issue.

In conclusion, the court answered both questions in favor of the assessee, emphasizing that the Technical Services Fee was a revenue expenditure. The Commissioner was directed to pay the costs of the reference.