COMMISSIONER OF INCOME TAX Vs. KIRLOSKAR BROTHERS LIMITED

JUDGEMENT

(1.) THE assessee before us is Kirloskar Brothers Ltd. They carry on business in manufacturing air compressors, centrifugal pumps and agricultural implements. We are concerned in this reference with the asst. yrs. 1963 64 and 1965 66. For these two years, the assessee had respectively paid Rs. 17,231 and Rs. 5,765 to Sulzer Freres, Winterthur (hereinafter referred to as "the Swiss company") for drawings obtained from them. Similarly, for the asst. year 1965 66, the assessee paid Rs. 1,19,500 to Tecumseh Products Company (hereinafter referred to as the "American company") for drawings obtained from the said company. The assessee claimed the aforesaid three amounts as deduction of revenue nature but the ITO disallowed the claim. The assessee appealed to the AAC and the AAC upheld the disallowance. According to the AAC, the drawings constituted assets for which a certain price had been paid by the Indian company. In this view of the matter, the AAC observed that the ITO was justified in disallowing the expenditure.

(2.) THE assessee carried the matter to the Tribunal. It was urged before the Tribunal that the agreements had been entered into with the Swiss company and the American company with a view to obtaining technical know how for the manufacture of centrifugal pumps. It was contended that there were a number of ways in which technical know how could be obtained and that parting with the drawings was one of the ways. Reference was made to the agreements with the Swiss company and the American company had parted with any capital asset (sic).

(3.) AGGRIEVED by the decision of the Tribunal, the CIT sought a reference and the following two questions have been referred to us :