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Issues:
1. Whether the payment of Rs. 26 lakhs for technical know-how and collaboration agreement is a revenue expenditure or a capital expenditure. 2. Whether the sum of Rs. 2,000 incurred in connection with the collaboration agreement is a capital expenditure. Detailed Analysis: 1. The appeal concerned the deduction claimed by the assessee of Rs. 26 lakhs payable to a foreign collaborator for technical know-how and collaboration agreement for the manufacture of wrist watches and electronic master clocks. The Income Tax Officer (ITO) treated it as a capital expenditure, considering it as a new business venture. The Appellate Assistant Commissioner (AAC) upheld this decision, noting that the payment resulted in an asset of enduring nature. The assessee contended that the payment should be treated as a revenue expenditure, citing precedents and arguing that it facilitated the existing business. The Appellate Tribunal disagreed with the lower authorities, holding that the payment was a revenue expenditure as it facilitated the existing business of manufacturing clocks and watches. The Tribunal emphasized that the payment was to continue the same business and not for acquiring a capital asset. The Tribunal also allowed the deduction for depreciation and development rebate, stating that the payment was a revenue expenditure. The AAC's decision to disallow Rs. 2,000 as capital expenditure was also overturned by the Tribunal. 2. The Tribunal further emphasized that the payment for technical know-how and collaboration agreement was a revenue expenditure, not a capital expenditure. The Tribunal reasoned that the payment facilitated the existing business of manufacturing clocks and watches, and therefore, should be treated as a revenue expense. The Tribunal also allowed the deduction for depreciation and development rebate, emphasizing that the payment was for facilitating the business and not for acquiring a capital asset. The Tribunal held that the Rs. 2,000 incurred in connection with the collaboration agreement was also a revenue expenditure and should be allowed. In conclusion, the Appellate Tribunal ruled in favor of the assessee, allowing the appeal and modifying the assessment accordingly. The Tribunal held that the payment for technical know-how and collaboration agreement was a revenue expenditure, not a capital expenditure, as it facilitated the existing business of manufacturing clocks and watches. The Tribunal also allowed the deduction for depreciation and development rebate, along with the Rs. 2,000 incurred in connection with the collaboration agreement, all to be treated as revenue expenditures.
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