COMMISSIONER OF INCOME-TAX VS INDIAN OXYGEN LTD.
1997 P T D 219
[218 ITR 337]
[Supreme Court of India]
Present: B. P. Jeevan Reddy and G. T. Nanavati, JJ
COMMISSIONER OF INCOME-TAX
Versus
INDIAN OXYGEN LTD.
Civil Appeals Nos. 2740 to 2742 of 1977, decided on 29/03/1995.
(Appeal from the judgment and order dated April 6, 1976, of the Calcutta High Court in Income-tax Reference No.78 of 1970).
Income tax---
----Capital or revenue expenditure---Technical know-how---Collaboration agreement ---Finding that foreign company had not sold any information, process or invention to Indian company---No advantage of enduring nature had been obtained---Amount paid under collaboration agreement was revenue expenditure---Indian Income Tax Act, 1961, S. 37.
On the question whether a sum paid by the respondent-assessee to a foreign company under a collaboration agreement was a permissible deduction under section 37(1) of the Income Tax Act, 1961, the High Court found that the foreign company did not sell any information, processes and inventions to the Indian company, that under clause 22 of the agreement, the Indian company was not entitled to use them after the termination of the agreement, and that though the agreement was for a period of ten years it could be terminated earlier. The High Court held that, therefore, it could not be said that the Indian company had incurred the expenditure for the purposes of bringing into existence any asset or advantage of an enduring nature and that the expenditure in question was revenue. On appeal by the Department to the Supreme Court:
Held, dismissing the appeal, that the High Court was right in holding that the amount paid by the assessee- to the foreign company could not be treated as capital expenditure.
C.I.T. v. Indian Oxygen Ltd. (1978) 112 ITR 1025 affirmed.
A. Raghuvir, Senior Advocate (Ms. A. Subhashini, Advocate with him) for Appellant.
Amit Dhupar, Rahul Dave and D.N. Gupta for Respondents
ORDER
These appeals are preferred against the judgment of the Calcutta High Court (see (1978) 112 ITR 1025) answering the question referred to it in the affirmative, i.e., in favour of the assessee and against the Revenue. This question referred was (at page 1026):
"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of Rs.2,97,480 paid by the assessee to the British Oxygen Co. Ltd., London, in pursuance of the agreement dated October, 1, 1959, was a permissible deduction under section, 37(1) of the Income Tax Act, 1961?"
After examining the various clauses in the agreement between the assessee and the British Oxygen Co. Ltd., the High Court found as follows (at page 1029):
"The English company did not sell any information, processes and inventions to the Indian company. Under clause 22 of the agreement, the Indian company is not entitled to use them after the termination of this agreement. This Indian company is prohibited from disclosing these informations, processes and inventions during the currency and also after the determination of this agreement in view of its clause 11. Though this agreement is for a period of ten years, it can be terminated earlier as provided in clause 23. Therefore, it cannot be said that the Indian company has incurred the expenditure for the purposes of bringing into existence any asset or advantage of an enduring nature. It must also be held that this expenditure is not a capital but a Revenue expenditure, for it was incurred by the Indian company for running its business or working it with a view to produce profits."
We are of the opinion that the said understanding of the agreement is correct. Once it is so, the amount paid by the assessee to the British company cannot be treated as capital expenditure. It is nothing but revenue expenditure and has been rightly held so by the High Court.
The appeals accordingly fail and are dismissed. No costs.
M.B.A./112/F.T ????????????????????????????????????????????????????????????????????????????????? Appeals dismissed