1980 (11) TMI 104 - AT - Income Tax

Summary

Issues:
I. Whether the foreign collaboration fee is to be treated as capital or revenue.
II. Whether the provision for gratuity can be allowed as a deduction.
III. Treatment of traveling expenses.
IV. Determination of development rebate at 15% instead of 25%.

I. Foreign Collaboration Fee:
The appeal pertains to the assessment year 1974-75 and revolves around the categorization of the foreign collaboration fee of Rs. 13,75,906 as either capital or revenue expenditure. The collaboration was entered into for the design, manufacture, and supply of a crane for Cochin Shipyard. The collaboration involved the approval and supervision of a foreign collaborator, as per the purchase order condition. The tribunal analyzed the nature of the collaboration, emphasizing that it was a joint venture limited to the specific crane project. The collaboration was deemed essential to secure the contract and was not aimed at acquiring capital assets or enduring benefits. The tribunal concluded that the expenditure had the characteristics of a revenue nature and allowed it as a deductible revenue expenditure, overturning the earlier decision of the IT Authorities.

II. Provision for Gratuity:
The provision for gratuity amounting to Rs. 49,141 was contested under Sec. 40A(7) of the IT Act, 1961 for non-compliance. Consequently, the tribunal rejected the claim for deduction of the gratuity provision.

III. Travelling Expenses:
The claim for traveling expenses of Rs. 2,354 was not pursued by the assessee and hence was not allowed as a deduction.

IV. Development Rebate:
The issue of development rebate at 15% instead of the claimed 25% was referred back to the ITO for further assessment, following the Tribunal's practice in earlier assessment years. The tribunal directed the ITO to reevaluate and determine the appropriate development rebate percentage.

In conclusion, the tribunal allowed the appeal in part, permitting the foreign collaboration fee as a revenue expenditure while rejecting the gratuity provision deduction and the claim for traveling expenses. The matter of development rebate percentage was referred back to the ITO for reconsideration, maintaining consistency with previous assessment years.