Court allows payment towards royalty as revenue expenditure for company manufacturing motors and weighing machines.

The High Court of Gujarat ruled in favor of the assessee, a company manufacturing motors and weighing machines, allowing the payment made towards royalty to collaborators as revenue expenditure. The court considered the agreements with foreign collaborators, emphasizing changes in obligations and entitlements. Despite the absence of a renewal clause in the original agreement, the court noted that the assessee retained technical know-how without additional payment under the amended agreement, indicating no enduring advantage. Citing relevant precedents, the court concluded that the expenditure qualified as revenue expenditure, ultimately supporting the assessee's position.

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Issues involved: Interpretation of revenue expenditure for payment made towards royalty to collaborators.

Summary:
The High Court of Gujarat addressed the issue raised by the Commissioner of Income-tax regarding the allowability of payment made towards royalty to collaborators as revenue expenditure for the assessee, a company engaged in manufacturing motors and weighing machines. The court examined the original and amended agreements between the assessee and the foreign collaborators, noting the changes in obligations and entitlements regarding technical know-how and documentation. The Assessing Officer initially disallowed the amount as revenue expenditure due to the absence of a renewal clause in the original agreement. However, the Tribunal found that under the later agreement, the assessee was allowed to retain the technical know-how without additional payment, indicating potential value in the retention. The Tribunal concluded that the assessee did not gain an enduring advantage and that the expenditure should be treated as revenue expenditure, citing relevant court decisions. Ultimately, the court ruled in favor of the assessee, affirming that the payment towards royalty to collaborators was allowable as revenue expenditure based on the facts and legal precedents presented.

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