Allowability of royalty for technical assistance upheld where business necessity and benefit were proved; disallowance deleted.

Royalty paid for technical assistance was held to be an allowable business expense where the assessee produced sufficient material to show that the agreements were necessary for its business and that the payment yielded business benefit. The Tribunal followed its coordinate Bench decision in the assessee's own earlier years, noting that the facts were identical. Revenue's allegation that the payment was a colourable device or a diversion of profits failed for want of concrete evidence, and mere suspicion or comparison with profits could not justify disallowance. The disallowance under section 37(1) was therefore deleted in favour of the assessee.

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Issues: Whether the disallowance of royalty paid for technical assistance was justified.

Analysis: The Tribunal found the facts to be identical to earlier years in the assessee's own case and followed its coordinate Bench decision. It held that the assessee had discharged the burden under section 37(1) by producing sufficient material to show that the technical assistance agreements were necessary for its business and that the royalty payment yielded business benefit. The Revenue failed to produce concrete material to prove that the payment was a colourable device or a diversion of profits, and mere suspicion or comparison with profits could not sustain the disallowance.

Conclusion: The disallowance of royalty payment was not justified and was deleted, in favour of the assessee.

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