AI Structured Summary
Not yet generated for this judgment
Judgment
Dr. B.P. Saraf , J.—By this reference u/s 256(1) of the income tax Act, 1961 (''the Act'') made at the instance of the revenue, the Tribunal has referred the following question of law for opinion: Whether, on the facts and in the circumstances of the case, and in law the Tribunal was justified in holding that the royalty payments to the three foreign concerns were not capital expenditure and in deleting the additions on that account?
We have heard the learned counsel for the revenue, Mr. G.S. Jetley, at length. We have also gone through the statement of the case as well as the relevant collaboration agreement. The assessment years involved in this case are 1971-72 and 1972-73. The assessee-company was incorporated in the year 1939 as a private limited company and subsequently converted into a public limited company in 1960-61. It had made payments in both these years to Trutzschler of West Germany under the collaboration agreements dated 1-10-1965 and 19-6-1967, to B. and S. Massey Ltd. of U.K. under agreements dated 1-10-1959 and 28-11-1964, and to Joshua Heap & Co. Ltd. of England under agreement dated 2-3-1962 and 11-3-1964.
The amounts paid to these foreign collaborators in the two years are as hereunder:
In the accounting period relevant to the assessment year 1971-72:
Name of the foreign concern
Amount paid during the year
Payment under agreement dated
Amount disallowed by the ITO
(1)
(2)
(3)
(4)
Rs.
Rs.
Trutzschler Machine of West Germany (termed shortly as Trutzschler)[
4,43,026
1-10-1965
3,32,270
879
10-6-1967
660
B. and S. Massey Ltd. of U.K. (shortly termed as Massey)
1,69,614
1-10-1959
1,69,614
6,742
28-11-1964
6,742
Joshua Heap & Co. Ltd. of England (shortly termed as Joshua Heap)
read with agreement
supplemental dated
6,30,951
5,19,976
In the accounting period relevant to the assessment year 1972-73:
Name of the foreign concern
Date of agreement
Paid
Disallowed by the ITO
(1)
(2)
(3)
(4)
Rs.
Rs.
Trutzschler and Co.
1-10-1965
4,43,100
3,32,325
19-6-1967
-
-
B. and S. Massey Ltd. (100 per cent disallowed by the income tax Officer)
1-10-1959
2,31,187
2,31,187
28-11-1964
4,546
4,546
Joshua Heap & Co. Ltd. (100 per cent disallowed by the income tax Officer)
2-3-1962
-
-
11-3-1964
11,059
11,059
6,89,892
6,79,117
It may be seen from the above figures that in regard to Trutzschler & Co., the ITO held 25 per cent of the royalty payment as in the nature of revenue expenditure and the balance 75 per cent as capital expenditure. In the case of the other two foreign concerns, the entire royalty payment was disallowed by him as capital expenditure.
On a careful consideration of the facts of the case, we find that the payments made in this case by way of royalty cannot be held to be capital in nature. Applying the principles laid down by the Supreme Court in the case of Alembic Chemical Works Co. Ltd. Vs. Commissioner of Income Tax, Gujarat, to the facts of the present case, we are of the clear opinion that the royalty payments made by the company to foreign concerns during the relevant years were rightly held by the Tribunal to be revenue expenditure.
In that view of the matter, we answer the question referred to us in the affirmative, i.e., in favour of the assessee and against the revenue. No order as to costs.