COMMISSIONER OF INCOME TAX Vs. CARBURETTORS LIMITED

JUDGEMENT

(1.) AT the instance of the Department, the Tribunal referred the following question of law said to arise out of the order of the Tribunal for the assessment year 1976-77 for our opinion under section 256(1) of the Income-tax Act, 1961 :

(2.) THE assessee is a company which manufactures carburettors. While completing the assessment for the assessment year 1976-77, the Income-tax Officer made an addition of Rs. 71,657 consisting of two items as relating to capital expenditure. THE first item is with regard to the technical charges of Rs. 56,657 paid to Zenith Carburettors Limited, U. K., for obtaining drawings for manufacturing carburettors required by the Defence Ministry of the Government of India. THE second item is with reference to a sum of Rs. 15,000 being the travelling expenses for procuring the drawings. THE assessee claimed these two items of expenditure as revenue expenditure in this assessment year. But, the Income-tax Officer disallowed the same.

(3.) A similar question came up for consideration before the Supreme Court in the case of Scientific Engineering House P. Ltd. v. CIT as reported in [1986] 157 ITR 86. According to the facts arising in that case, under clause 6(a) of an agreement, the assessee was to make a lump sum payment of Rs. 80,000 for giving the documentation service. There were also provisions in the agreement enjoining the foreign collaborator to render training and imparting of knowledge of the know-how techniques of manufacturing these instruments. The agreement was to remain in force for five years. Pursuant to the agreement, the assessee mad full payment of Rs. 1,60,000 which includes Rs. 80,000 debiting the amount in its account book under the head "Library", and the foreign collaborator rendered "documentation service" by supplying complete sets of all the documents including designs, drawings, charts, plans and other literature in accordance with clause 3. According to the assessee, the expenditure incurred for the outright purchase of documentation would be revenue in nature. While deciding this question, the Supreme Court held under :