COMMISSIONER OF INCOME TAX Vs. SUHRID GEIGY LIMITED

JUDGEMENT

(1.) THESE four references have been submitted by the Tribunal in respect of the same assessee raising identical issues arising out of the same facts relating to asst. yrs. 1967 68, 1968 69, 1969 70 and 1970 71.

(2.) THE relevant facts appearing from the statement of the case in IT Ref. No. 336 of 1982 are that the assessee had entered into an agreement with J.R. Geigy Basle w.e.f. 1st Jan., 1956 onwards and was getting assistance in the manufacture of wide range of products listed in the agreement as well as vide supplementary agreement from time to time. Tinopal was one such product the assessee was licensed to manufacture under the provisions of this agreement. In the manufacture of Tinopal cyanuric chloride is one of the raw materials and was being consumed in large quantities. Until the assessee decided to manufacture the said raw material by himself, the same was bought from the market. The assessee entered in another supplementary agreement on 14th July, 1965 for manufacturing cyanuric chloride. Under this agreement the assessee had to pay certain amounts in five equal instalments to J.R. Geigy for acquiring technical know how. The first instalment was payable on the commission of the cyanuric plant on 31st March, 1966. The second instalment was payable in the financial year 1966 67 and each subsequent instalment was payable in the following financial years. Towards payment of these instalments in each year, which was paid in foreign currency and its rupee value was claimed as a deduction for the asst. year 1967 68, and subsequent assessment years. The first payment in respect of which was made in financial year 1966 67. The rupee value of these instalments was Rs. 1,51,500. The assessee claimed deduction thereof as business expenditure of manufacturing cyanuric chloride commencing from financial year 1966 67 as a revenue expenditure. The ITO rejected the contention of the assessee by taking the view that because the payments were made for getting sub licence to manufacture cyanuric chloride for a period not less than 10 years, it could not be claimed as a revenue expenditure. The CIT(A) held that the payment in question represented normal revenue expenditure which should have been allowed as a deduction by the ITO. The Tribunal confirmed the order. It held that the agreement dt. 14th July, 1965 was entered into for manufacture of raw material for the purpose of production of Tinopal. It is also held that on termination of agreement there would be no useful knowledge left which would help the assessee in manufacturing cyanuric chloride. It also noticed that under cl. 22 of agreement dt. 1st Jan., 1956 the assessee had to refrain from using any of the Geigy's patents.

(3.) WE have heard the learned counsel for the parties.