1995-VIL-42-SC-DT

Equivalent Citation: [1996] 218 ITR 337 (SC)

Supreme Court of India

Date: 29.03.1995

COMMISSIONER OF INCOME-TAX

Vs

INDIAN OXYGEN LIMITED

BENCH

B. P. JEEVAN REDDY. and G. T. NANAVATI.

JUDGMENT

These appeals are preferred against the judgment of the Calcutta High Court (see [1978] 112 ITR 1025) Answering the question referred to it in the affirmative, i.e., in favour of the assessee and against the Revenue. The question referred was (at page 1026) :

" Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of Rs. 2,97,480 paid by the assessee to the British Oxygen Co. Ltd., London, in pursuance of the agreement dated October 1, 1959, was a permissible deduction under section 37(1) of the Income-tax Act, 1961 ? "

After examining the various clauses in the agreement between the assessee and the British Oxygen Co. Ltd., the High Court found as follows (at page 1029) :

" The English company did not sell any information, processes and inventions to the Indian company. Under clause 22 of the agreement, the Indian company is not entitled to use them after the termination of this agreement. The Indian company is prohibited from disclosing these information, processes and inventions during the currency and also after the determination of this agreement in view of its clause 11. Though this agreement is for a period of ten years, it can be terminated earlier as provided in clause 23. Therefore, it cannot be said that the Indian company has incurred the expenditure for the purposes Of bringing into existence any asset or advantage of an enduring nature. It must also be held that this expenditure is not a capital but a revenue expenditure, for it was incurred by the Indian company for running its business or working it with a view to produce profits."

We are of the opinion that the said understanding of the agreement is correct. Once it is so, the amount paid by the assessee to the British company cannot be treated as capital expenditure. It is nothing but revenue expenditure and has been rightly held so by the High Court.

The appeals accordingly fail and are dismissed. No costs.

 

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