1. The assessee before us is Kirloskar Brothers Ltd. They carry on business in manufacturing air compressors, centrifugal pumps and agricultural implements. We are concerned in this reference with the assessment hears 1963-64 and 1965-66. For these two years, the assessee had respectively paid Rs. 17,231 and Rs. 5,765 to Sulzer-Freres, Winterthur (hereinafter referred to as 'the Swiss Company') for drawings obtained from them. Similarly, for the assessment year 1965-66, the assessee paid Rs. 1,19,500 to Tecumseh Products Company (hereinafter referred to as the 'American company') for drawings obtained from the said company. The assessee claimed the aforesaid three amounts as deduction of revenue nature but the Income-tax Officer disallowed the claim. The assessee appealed to the Appellate Assistant Commissioner and the Appellate Assistant Commissioner upheld the disallowance. According to the Appellate Assistant Commissioner, the drawings constituted assets for which a certain price had been by the Indian company. In this view of the matter the Appellate Assistant Commissioner observed that the Income-tax Officer was justified in disallowing the expenditure.
2. The assessee carried the matter to the Income-tax Appellate Tribunal. It was urged before the Tribunal that the agreements had been entered into with the Swiss company and the American company with a view to obtaining technical know-how for the manufacture of centrifugal pumps. It was contend that there were a number of ways in which technical know-how could be obtained and that parting with the drawings was one of the ways. Reference was made to agreements with the Swiss company and the Amercian company had parted with any capital asset (sic).
3. After considering the rival contentions and after reading the respective agreements, the Tribunal upheld the submissions advanced on behalf of the assessee and held that it was a clear case of a licence and not a sale in so far as the drawings were concerned. According to the Tribunal, by parting with the drawings, the rights of the Swiss company and the Amercian company were not diminished in any manner. The Tribunal thus upheld the claim of the assessee and directed the Income-tax Officer to allow the amounts given to the two companies as revenue expenditure.
4. Aggrieved by the decision of the Tribunal, the Commissioner sought a reference and the following two questions have been referred to us :
'(1) Whether, on the facts and in the circumstances of the case, the payment of Rs. 17,231 for the assessment year 1963-64 and Rs. 5,765 for the assessment year 1965-66 made by the assessee to Sulzer-Freres, Winterthur, Switzerland, in pursuance of the collaboration agreement between them, were expenditure capital in nature and not revenue expenditure ?
(2) Whether, on the facts and in the circumstances of the case, the payment of Rs. 1,19,500 made by the assessee to Tecumseh Products Co., U.S.A., for the payment for the assessment year 1965-66 in pursuance of the collaboration agreement between them was an expenditure capital in nature and not revenue expenditure ?'
5. The Bombay High Court had dad occasions to consider similar agreements in several matters and we shall rest content with referring to the latest of the three judgments which were cited at the Bar. This is the decision in Kirloskar Pneumatic Co. Ltd. v. CIT : 136ITR746(Bom) . In this decision, the earlier judgment in ACC-Vickers Babcock Ltd. v. CIT : 103ITR321(Bom) , and CIT v. Tata Engineering and Locomotive Co. Ltd. : 123ITR538(Bom) , have been referred to and applied as also the Supreme Court decision in CIT v. Ciba of India Ltd. : 69ITR692(SC) . It may also be mentioned in passing that earlier, the Revenue had been relying upon the decision of the Karnataka High Court in Mysore Kirloskar Ltd. v. CIT : 67ITR23(KAR) , which had been later on overruled by a Full Bench decision of that very High Court. This decision of the Full Bench is reported in Mysore Kirloskar Ltd. v. CIT : 114ITR443(KAR) . We need not, however, advert to that decision in greater detail since we have decisions of our High Court which fully support the view taken by the Tribunal.
6. In this matter, it would appear to us unnecessary to enter into a fuller discussion or analyse the agreements in depth. They have been properly analysed by the Tribunal and we agree with the approach as well as the ultimate conclusion of the Tribunal. Accordingly, following our earlier decision, we answer the questions referred to us as follows :
Question No. 1 : The payment of the two amounts for the respective assessment years to the Swiss company were revenue expenditure and not capital expenditure.
Question No. 2 : The payment of Rs. 1,19,500 made by the assessee to the Amercian company for the assessment year 1965-66 was revenue expenditure and not capital expenditure.
7. The Commissioner to pay the costs of the reference to the assessee.