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Issues Involved:
1. Whether 25% of the royalty paid by the assessee to Messrs. Jonas Woodhead & Sons was capital expenditure and not allowable as revenue expenditure for the assessment years 1967-68 and 1968-69. Summary: Issue 1: Nature of Expenditure (Capital vs. Revenue) The assessee, a limited company incorporated in 1963, entered into an agreement with Jonas Woodhead & Sons Ltd. (English company) for the manufacture of automobile springs using the technical knowledge and experience of the English company. The agreement included several clauses detailing the rights and obligations of both parties, including the provision of technical information, know-how, and assistance in setting up a factory. The Income-tax Officer (ITO) disallowed 25% of the royalty payments made by the assessee to the English company, considering it as capital expenditure. The assessee's appeals to the Appellate Assistant Commissioner (AAC) and the Tribunal were unsuccessful, leading to the referral of the question to the High Court. The High Court examined the terms of the agreement, noting that the English company provided assistance and information for setting up the factory, which constituted an enduring asset for the assessee. The court emphasized that the determination of whether an expenditure is capital or revenue depends on the terms of the agreement and the nature of the benefit acquired. The court concluded that the payment made by the assessee as royalty included an element of capital expenditure, as it was in consideration of the information and services provided by the English company for setting up the factory. The Tribunal's finding that 25% of the payment represented capital expenditure was deemed reasonable. Conclusion: The High Court answered the question in the affirmative, holding that 25% of the royalty paid by the assessee to the English company was capital expenditure and not allowable as revenue expenditure. The court ruled in favor of the revenue and awarded costs to the department.
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