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TMI Blog2000 (11) TMI 106X X X X Extracts X X X X X X X X Extracts X X X X ..... e case, the Tribunal is correct in allowing the assessee's claim to the extent of Rs. 75,500 for technical know-how in terms of article 7 of the agreement dated December 28, 1971, for the assessment year 1974-75 ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal is correct in rejecting the claim of the assessee for deduction of the full amount of Rs. 1,51,500 for the assessment year 1974-75 ?" The dispute relates to the assessment year 1974-75 and relates to a claim of deduction of Rs. 1,51,500 against the business profits on account of fee paid for technical know-how. The Assessing Officer disallowed the claim on the ground that though the assessee had paid this amount to its foreign collaborator, the payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted in two equal instalments. The first instalment was to be remitted within 60 days of the approval of the agreement and the second instalment was to be remitted within a period of 12 months from the date of the remittance of the first instalment. The agreement was to be operative for a period of five years from its effective date, i.e., the date from which the drawings, etc., were submitted to the assessee. The Appellate Assistant Commissioner, therefore, concluded that the entire payment of Rs. 1,51,500 was required to be made for a use of the drawings, etc., and patents of the company for a period of five years. This, according to him, indicated that the assessee was entitled to expenditure for a period of one year during the relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re is no appearance on behalf of the assessee in spite of notice. It is submitted by learned counsel for the Revenue that the true import of the agreement was not considered by the Tribunal in its proper perspective. The Assessing Officer took note of the fact that the amount paid was in the nature of an advance and therefore could not be treated as revenue expenditure. It was noted that during the relevant assessment year neither technical know-how has been obtained nor any production was carried out. The nature of payment clearly indicated that it was an advance for acquisition at a later date of an asset of enduring benefit to the business and therefore purely an expenditure of capital nature. She, however, fairly accepted that the Appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, allowing the entire expenditure in one year might give a very distorted picture of the financial position of the particular year. Section 37(1) of the Act requires that the expenditure should not be of a capital nature. The question whether a particular expenditure is revenue expenditure incurred for the purpose of business must be determined on a consideration of the factual position and by the application of principles of commercial trading. The question must be viewed in the larger context of business necessity or expediency. If the outgoing or expenditure is so related to the carrying on or conduct of the business, then it may be regarded as an integral part of the profit-making process and not for acquisition of an asset or a right ..... X X X X Extracts X X X X X X X X Extracts X X X X
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