1979 (3) TMI 109 - AT - Income Tax

Summary

Issues:
1. Deduction claimed for payment to foreign collaborators for technical know-how.
2. Disallowance of deduction for payment to research and development for electricity organization.
3. Claim for depreciation on disallowed expenditure.
4. Claim for deduction under different sections of the Income Tax Act.
5. Admissibility of payment to RDOEI.
6. Capital nature of expenditure.
7. Entitlement to depreciation.
8. Claim admissibility under sections 35 and 37 of the Act.

Analysis:
1. The assessee, a public limited company, claimed deduction for payments made to foreign collaborators for technical know-how and to research and development for electricity organization. The Income Tax Officer (ITO) disallowed the deduction, stating it was of a capital nature. The Appellate Assistant Commissioner (AAC) confirmed the disallowance, holding that the expenditure was not laid out for research in connection with the assessee's business.

2. The AAC observed that the assessee was not entitled to depreciation on the disallowed amount as the plant and machinery were not used in the business. The assessee contended that the expenditure was revenue in nature, citing agreements with foreign collaborators. The counsel referred to various rulings to support the claim for deduction or depreciation. The Tribunal found the expenditure to be capital in nature but restored the issue of depreciation to the AAC for further examination.

3. Regarding the payment to RDOEI, the assessee claimed deduction under different sections of the Act. The Tribunal directed a fresh examination by the AAC to determine the admissibility of the claim under section 37, considering if the loss was incurred during the relevant accounting year. The lower authorities were instructed to reevaluate the claim based on the provisions of the Act and materials presented by the assessee.

4. The Tribunal upheld the capital nature of the expenditure, citing agreements and previous rulings. However, the issue of depreciation was remanded to the AAC for further assessment of the use of drawings and materials obtained from foreign collaborators. The claim for deduction under sections 35 and 37 was directed to be reevaluated by the AAC based on additional evidence and legal provisions presented by the assessee. The appeal was treated as partly allowed for statistical purposes.