1982 (8) TMI 37 - HC - Income Tax

Summary

Issues:
1. Application under s. 256(2) of the I.T. Act, 1961 rejected by the Tribunal.
2. Classification of expenditure as revenue or capital.
3. Interpretation of clauses 22A and 22B of the agreement with Japanese firm.
4. Applicability of principles of law regarding revenue expenditure vs. capital expenditure.
5. Whether questions of law raised were merely academic in nature.

Analysis:
The High Court of Patna dealt with applications under s. 256(2) of the I.T. Act, 1961, which were rejected by the Income-tax Appellate Tribunal, Patna Bench 'B'. The Tribunal dismissed the Revenue's application under s. 256(1) of the Act, stating that the raised question of law was considered academic. The case involved an agreement between the assessee and a Japanese firm, focusing on clauses 22A and 22B. The Tribunal analyzed these clauses, emphasizing the distinction between acquiring knowledge (clause 22A) and using that knowledge in commercial production (clause 22B). It concluded that the second payment under clause 22B was specifically for the use of knowledge during production.

Moreover, the Tribunal applied established principles of law on revenue expenditure versus capital expenditure, referencing the Supreme Court case of CIT v. Ciba of India Ltd. The Tribunal found the questions of law raised by the Revenue to be academic. The Department argued that interpreting the clauses of the agreement was a legal question, justifying a reference under s. 256(2). However, the counsel for the assessee relied on the decisions in CIT v. Indian Mica Supply Co. P. Ltd. and CGT v. Smt. Kusumben D. Mahadevia, asserting that not all questions of law need to be referred if the Supreme Court's principles were correctly applied.

In light of the legal arguments presented, the High Court rejected the applications, aligning with the principles established by previous court decisions. The judgment emphasized that the application of established legal principles, as per Supreme Court rulings, rendered the reference unnecessary under s. 256(2) of the Act. As a result, the applications were dismissed, and no costs were awarded in the matter.