Income-tax---

----Capital or Revenue expenditure---Expenditure incurred for acquisition of technical know-how for better production of assessee's product----No asset acquired by payment---Expenditure incurred wholly for purpose of business was Revenue expenditure---Indian Income Tax Act, 1961, S.37.

For the assessment year 1968-69, the assessee had paid a lump sum to its foreign collaborator and claimed it as a deduction in computing its business income. The Income-tax Officer disallowed the claim on the ground that the lump sum amount was paid for the acquisition of technical knowledge from its foreign collaborator to enter into a new production and so the amount claimed should be regarded as capital expenditure. On appeal, the Commissioner (Appeals) held that the lump sum payment for technical know-how was Revenue in nature as there was no acquisition of capital assets by the assessee. On further appeal, the Tribunal affirmed the order of the Commissioner (Appeals). On a reference at the instance of the Revenue:

Held, that since, there was no asset acquired by the payment, the Tribunal was right in holding that the payment to the foreign company should be allowed as Revenue expenditure incurred wholly for the purpose of the business.

C. V. Rajan for the Commissioner.

P. P. S. Janarthana Raja for Messrs Subbaraya Aiyar, Padmanabhan and Ramamani for the Assessee.

JUDGMENT

N. V. BALASUBRAMANIAN, J.---The assessee is a non resident company. The Income-tax Officer completed the assessment for the assessment year 1968-69 and found that the assessee had paid a lump sum of Rs. 10,000 to its foreign collaborator and claimed the same as deduction in computing its business income. The Income-tax Officer disallowed tile claim on the ground that the expenditure was incurred for the acquisition of technical know-how and held that since the lump sum amount was paid for the?` acquisition of technical knowledge from its foreign collaborator to enter into a new production, the amount claimed should be regarded as capital expenditure and accordingly, disallowed the same in the computation of income. The assessee preferred an appeal before the Commissioner of Income-tax (Appeals). The Commissioner (Appeals) held that the lump rum payment for technical know-how was Revenue in nature as there was no acquisition of capital assets by the assessee. The above view of the Commissioner was confirmed by the Appellate Tribunal by its order, dated June 5, 1975. Against the order, of the Appellate Tribunal, at the instance of the Department, the following question of law came up for consideration before this Court in Tax Case No.624 of 1977.

"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the assessee's payment of Rs. 36,179 to the foreign company Leslie Hartridge Limited of U.K. should be allowed as a Revenue expenditure incurred wholly for the purpose of the business?"

This Court in Tax Case No.624 of 1977, by judgment, dated October 14, 1981, directed the Tribunal to re-hear the matter in the light of the directions of this Court in Tax Case No.53 of 1975, dated March 8, 1978, and in Tax Cases Nos. 164 and 462 of 1979, dated January 18, 1979. The Tribunal on the basis of the directions of this Court in Tax Case No.624 of 1977 heard the matter once again and following its earlier orders for the assessment year 1975-76 in I.T.A. No.794 (Mad.) of 1971-72, dated March 13, 1978, and for the assessment years 1966-67 and 1967-68, came to the conclusion that the amount paid is an admissible Revenue expenditure. Aggrieved by the order of the Tribunal, the Revenue sought for a reference and the following question of law has been referred for our consideration.

"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the payment of Rs. 36,179 to the foreign company Leslie Hartridge Ltd. U.K., should be allowed as Revenue expenditure incurred wholly for the purpose of the business?"

The Tribunal proceeded on the basis that there was no acquisition of capital assets and the amount paid was for carrying on the business and for better production of the assessee's product. We are of the opinion, since there was no asset acquired by the payment of the said sum, the Tribunal has come to the correct conclusion that the amount paid is Revenue expenditure. We find no infirmity in the order of the Appellate Tribunal in holding that the amount paid should be allowed as Revenue expenditure.

Accordingly, we answer the question of law referred to us in the affirmative and against the Revenue. However, in the circumstances of the case, there will be no order as to costs.

M.B.A./684/FC

Reference answered.