Assessee wins: sales incentive under expired scheme allowed; agreement treated as technical know-how right, disallowance reversed

The HC held for the assessee, allowing the sales incentive claimed under the expired incentive scheme. The court found the taxpayer made a prima facie case, relying on precedent that treated the agreement as one conferring a right to use technical know-how rather than generating a taxable disallowance. The question was answered in the affirmative in favor of the assessee and against the revenue, reversing the disallowance.

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Issues:
1. Disallowance of sales incentive claimed by the assessee under an expired scheme.
2. Allowance of payment of royalty to foreign collaborators as revenue expenditure.

Issue 1: The High Court addressed the disallowance of sales incentive claimed by the assessee under an expired scheme. The court noted that the question framed for opinion was incorrect and reformulated it. The dispute centered around the liability for sales incentives under a scheme that expired on 30-4-1981 but was extended till 30-6-1981. The assessee argued that the liability crystallized only on 30-6-1981 when actual sales figures were known. The revenue contended that since accounts were maintained on a mercantile basis, the liability accrued earlier. The court analyzed previous judgments, including one from the Gujarat High Court, to determine that the liability crystallized on a future date relates back to the earlier period, supporting the assessee's case. The court distinguished this case from a Supreme Court ruling where the liability had accrued on an earlier date. Ultimately, the court held in favor of the assessee, emphasizing that the liability crystallized on 30-6-1981, allowing the deduction for the assessment year 1983-84.

Issue 2: The court also considered the allowance of royalty payment to foreign collaborators as revenue expenditure. Referring to a similar agreement with Riken and Karl Smidth of West Germany, the court noted that the Assessing Officer had previously ruled in favor of the assessee on a similar agreement with Riken. Based on a previous decision and the Assessing Officer's stance, the court answered the question in the affirmative, supporting the assessee's claim for revenue expenditure on royalty payment to foreign collaborators. The court disposed of the reference, concluding in favor of the assessee on both issues.

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