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Issues involved: Determination of whether a payment made as royalty for acquiring technical know-how and data constitutes revenue expenditure or capital expenditure.
Summary: The High Court of Allahabad considered a case where an assessee, M/s. Kumar Pharmaceutical Works, entered into an agreement with a West German concern to acquire know-how and data for manufacturing saccharine. The assessee paid a royalty for this purpose, which was claimed as a revenue expenditure but was disallowed by the authorities, stating it to be of a capital nature. The Tribunal held that the payment was capital in nature as it was for the acquisition of technical knowledge. The court analyzed the terms of the agreement, emphasizing that the assessee acquired ownership of the know-how and data, making the payment capital in nature for an enduring advantage. The court referred to precedents such as Bombay Steam Navigation Co. (1953) P. Ltd. v. CIT and CIT v. CIBA of India Ltd. to distinguish the present case. It was noted that the expenditure was incurred to obtain a right of an enduring nature, thus constituting a capital asset. The court held that the payment made by the assessee for acquiring the technical know-how and data was indeed a capital expenditure. The Commissioner was awarded costs amounting to Rs. 200. In conclusion, the court determined that the sum paid by the assessee as royalty for acquiring technical know-how and data was classified as a capital expenditure based on the enduring nature of the acquired asset.
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