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Commissioner of Income-tax Vs. Sundaram Clayton Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberTax Case Nos. 94 and 95 of 1978, (Reference Nos. 67 and 68 of 1978)
Judge
Reported in(1982)31CTR(Mad)3; [1985]152ITR487(Mad)
ActsIncome Tax Act, 1961 - Sections 37(1)
AppellantCommissioner of Income-tax
RespondentSundaram Clayton Ltd.
Appellant AdvocateJ. Jayaraman, Adv.
Respondent AdvocateP.P.S. Janarthana Raja, Adv.
Excerpt:
- .....of the case, the appellate tribunal was right in holding that the entire technical aid fees paid by the assessee to m/s. clayton dewandre company ltd., under the collaboration agreement, should be allowed as a deduction 2. identical question were considered by this court in the assessee's own case for the earlier year in cit v. sundaram clayton ltd. : [1982]136itr315(mad) . in that case the court has held that the know-how agreements entered into by the assessee with m/s. clayton dewandre company ltd., u.k., and with bendix westig house automotive air brake company, u.s.a., were purely for the purpose of obtaning the relevant know-how for manufacturing and selling the materials manufactured, that it was for the purpose of running the business, that merely because the.....
Judgment:

Ramanujam, J.

1. The following two questions have been referred to this court for its opinion under s. 256(1) of the I.T. Act, 1961 :

'1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the entire technical aid fees paid by the assessee to M/s. Clayton Dewandre Company Ltd., U.K., and the royalty paid to M/s. Bendix collaboration agreements should be allowed as a deduction

2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the entire technical aid fees paid by the assessee to M/s. Clayton Dewandre Company Ltd., under the collaboration agreement, should be allowed as a deduction

2. Identical question were considered by this court in the assessee's own case for the earlier year in CIT v. Sundaram Clayton Ltd. : [1982]136ITR315(Mad) . In that case the court has held that the know-how agreements entered into by the assessee with M/s. Clayton Dewandre Company Ltd., U.K., and with Bendix Westig house Automotive Air Brake Company, U.S.A., were purely for the purpose of obtaning the relevant know-how for manufacturing and selling the materials manufactured, that it was for the purpose of running the business, that merely because the agreement had been entered into soon after the formation of the company, it can not be stated that the payments under the agreement were liable to be treated as capital expenditure, that the nature of the expenditure is not dependent upon the time at which the relevant agreement came into existence and that the quality of the expenditure will have to be tested with reference to the object for which it was incurred. The court, ultimately, held that there was no element of capital expenditure involved in the payments made to the said two foreign companies. In view of the said decision, it has to be held that the entire technical aid fees and the royalty paid by the assessee to the two foreign companies should be held to be revenue or business expenditure and not capital expenditure as has been urged by the Revenue. Both the question are, therefore, answered in the affirmative and against the Revenue. There will be no order as to costs.


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