COMMISSIONER OF INCOME TAX Vs. REPUBLIC FORGE CO

JUDGEMENT

(1.) THIS court by order dated June 2, 1986, passed an order in I.T.C. No. 20 of 1985, directing the Tribunal to refer the following question for its opinion :

(2.) NOW the question is referred to this court. The facts leading to this can be briefly stated as follows : The assessee is a public limited company. The assessments involved are for 1976-77 and 1977-78 for which the previous years ended on March 31, 1976 and March 31, 1977, respectively. In order to establish the forging plant at Hyderabad, the company entered into an agreement with Societe D' Etudes et de Realisations Industrielies Renault Engineering, France (hereinafter referred to as "company" for the sake of brevity), to supply the entire machinery and the technical know-how relating thereto. The total price of engineering, imported machinery and equipment and technical assistance has to be paid in transferable NF in 20 half yearly instalments along with yearly interest at 6 per cent, on all amounts remaining due from the date of last shipment as shown in article 5(B) of the agreement. The assessee-company accordingly paid the instalments including interest and the interest debited to the profit and loss account for the assessment year 1976-77 was Rs. 3,97,477 and for the assessment year 1977-78 it was Rs. 1,04,474. The Income-tax Officer disallowed the amounts holding that the payment was not for the purpose of business and it was for the acquisition of assets before the commencement of business and hence it is capital in nature. Appeals were filed against the said orders before the Commissioner of Appeals and the Commissioner of Appeals allowed the appeals. Then aggrieved by the said orders, appeals were filed before the Income-tax Appellate Tribunal, Hyderabad, bearing ITA Nos. 975 and 976/H of 1981. The appeals were dismissed confirming the orders of the Commissioner of Income-tax (Appeals). Thereafter, the present reference has come for our consideration.

(3.) WITH this observation the reference is answered in the affirmative and against the Revenue.