COMMISSIONER OF INCOME TAX Vs. BAJAJ ELECTRICALS LIMITED

JUDGEMENT

(1.) THE question referred to us in this reference under S. 256(1) of the IT Act, 1961 ("the Act"), at the instance of the Revenue is as follows :

(2.) THE assessee company entered into a licence and technical assistance agreement with the Westinghouse Electric International Co. The agreement refers to the fact that the licensee, i.e., the assessee company, "desires to obtain patent rights and rights under technical, manufacturing and other information and services necessary to enable it to manufacture, use and sell certain types of electrical and other apparatus and material manufactured by the Associated Companies in the United States of America". The agreement is for a period of 10 years. The licence granted is an exclusive licence to manufacture in India the apparatus and the material described in exhibit A to the agreement. The technical and manufacturing information was to consist of any or all of the following :

(3.) IN the asst. year 1965 66, a payment of $ 25,000 equal to approximately Rs. 1,20,250 was claimed as revenue expenditure by the assessee. This claim was disallowed by the ITO. His order was upheld by the AAC. In appeal filed by the assessee, on a consideration of the terms of the agreement, the Tribunal took the view that what the assessee company had obtained was the right to use of information, drawings, specifications, etc., for a limited period of 10 years and the payment was a part and parcel of the mode of payment in respect of use of information, rights, etc. Following the decision in CIT vs. Ciba of India Ltd. (1968) 69 ITR 692 (SC), the orders of the ITO and the AAC were set aside and the expenditure was held to be of revenue nature. The correctness of this view is put in issue in the question referred and reproduced earlier.