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Issues Involved:
1. Nature of Expenditure: Whether the expenditure incurred by the assessee on obtaining designs and technical information is capital or revenue in nature. 2. Deductibility under Section 37 or Section 35(1)(iv) of the Income-tax Act, 1961. Detailed Analysis: 1. Nature of Expenditure: The primary issue in this case is to determine whether the expenditure of Rs. 22,039 incurred by the assessee for obtaining designs and technical information is capital or revenue in nature. The Tribunal found that the expenditure was not for acquiring any new machinery but for obtaining designs to manufacture a new type of motor using existing machinery. The assessee had been manufacturing similar items, and the new designs were merely an improvement over existing products. The Supreme Court's decision in Commissioner of Income-tax v. Ciba of India Ltd. was cited, where it was held that payments for technical knowledge and assistance were revenue in nature because the assessee did not acquire any asset or advantage of an enduring nature. The Andhra Pradesh High Court in Hylam Ltd. v. Commissioner of Income-tax and this court in Commissioner of Income-tax v. Hindustan General Electrical Corporation Ltd. emphasized that if the expenditure is related to the profit-earning process, it should be considered revenue expenditure. The court concluded that the expenditure incurred by the assessee was for the purpose of carrying on its business and was an integral part of the profit-making process. Therefore, it was revenue in nature. 2. Deductibility under Section 37 or Section 35(1)(iv): The assessee argued that the entire amount of Rs. 22,039 should be allowed as a deduction under Section 37 of the Income-tax Act, 1961. Alternatively, if considered capital expenditure, it should be allowed under Section 35(1)(iv). The Tribunal ruled that the expenditure was not of a capital nature and was only of a revenue nature, making Section 35(1)(iv) inapplicable. The Tribunal held that the assessee was entitled to a deduction under Section 37. The court agreed with the Tribunal's conclusion, noting that the agreement between the parties was for a limited period and the information was to be treated as confidential and returned upon termination. The assessee did not acquire any enduring advantage or asset. Thus, the expenditure was for the profit-earning process and should be allowed as a deduction under Section 37 of the Income-tax Act, 1961. Conclusion: The court held that the sum of Rs. 22,039 should be allowed as a deduction under Section 37 of the Income-tax Act, 1961. Each party was ordered to bear its own costs.
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