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Judgment
Dr. B.P. Saraf, J.—By this reference under s. 256(1) of the IT Act, 1961, 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. Jetly at length. We have also gone through the statement of the case as well as relevant collaboration agreement. The assessment years involved in this case are 1971-72, 1972-73. Assessee-company was incorporated in the year 1939 as a private limited company and subsequently converted into public limited company in 1960-61. It had made payments in both these years, to M/s. Trutzschler of West Germany under collaboration agreements dt. 1st October, 1965 and 19th June, 1967, to M/s. B. & S. Massey Ltd. of U.K. under agreements dt. 1st October, 1959 and 28th November, 1964 and to M/s. Joshua Heap & Co. Ltd. of England under agreements dt. 2nd March, 1962 and 11th March, 1964.
The amounts paid to these foreign collaborators in the two years are as here under :
In the accounting period relevant to the
In the accounting period relevant to the :
It may be been from the above figures that in regard to Trutzschler & Co., the ITO held 25% of the royalty payment as in the nature of revenue expenditure and the balance 75% as capital expenditure. In the case of the other two foreign concerns, the entire royalty payment was disallowed by him as capital expenditure.
On 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 Ltd. vs . CIT : [1989]177ITR377(SC) , to the facts of the present case we are of the clear opinion that the royalty made by the company to foreign concerns during the relevant years were rightly held by the Tribunal to be the 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.