1992 (10) TMI 19 - HC - Income Tax

Payment for technical documentation deemed revenue expenditure, not capital. No development rebate or depreciation allowed.

The court held that the payment of Rs. 48,312 made by the assessee for technical documentation was revenue expenditure, not capital expenditure. The court ... Firm, HUF Issues Involved:1. Whether the payment of Rs. 48,312 was in the nature of capital expenditure.2. Whether the capital expenditure of Rs. 48,312 was entitled to development rebate and depreciation.Summary of Judgment:Issue 1: Nature of Payment as Capital ExpenditureThe court examined whether the payment of Rs. 48,312 made by the assessee to the German company for obtaining technical documentation was capital expenditure. The Income-tax Officer, Appellate Assistant Commissioner, and Income-tax Appellate Tribunal had all previously determined that this payment was capital expenditure. The Tribunal noted that the payment was for a new line of manufacture and that the technical information became a permanent asset for the assessee, thus enduring for an indefinite period of time.The court reviewed several precedents, including the Supreme Court's judgment in CIT v. Ciba of India Ltd. [1968] 69 ITR 692, which held that payments for technical know-how that did not result in the acquisition of an asset of enduring nature were revenue expenditure. The court also considered other cases like CIT v. Tata Engineering and Locomotive Co. Pvt. Ltd. [1980] 123 ITR 538 and Alembic Chemical Works Co. Ltd. v. CIT [1989] 177 ITR 377, which supported the view that technical know-how payments, even if used beyond the agreement period, did not constitute capital expenditure.Despite the Revenue's argument that the payment was for acquiring technical documentation, the court found that the primary purpose of the agreement was the transfer of technical know-how, not merely documentation. The court concluded that the payment did not result in the creation of an enduring asset and was, therefore, revenue expenditure.Issue 2: Entitlement to Development Rebate and DepreciationGiven the court's determination on Issue 1 that the payment was revenue expenditure, there was no need to address whether the capital expenditure was entitled to development rebate and depreciation.Conclusion:1. The payment of Rs. 48,312 was not in the nature of capital expenditure and was considered revenue expenditure.2. The second question did not require an answer due to the resolution of the first issue in favor of the assessee.There was no order as to costs.