Technical aid fees and royalty for know-how were revenue expenditure, not capital outlay, where paid for business operations.

Technical aid fees and royalty paid under foreign collaboration agreements were treated as revenue expenditure because the agreements were entered into to obtain know-how for manufacturing, selling products and carrying on the business. The timing of the agreements, even if close to the company's formation, was not decisive; the character of the outlay had to be determined by its object. On that basis, the payments did not secure a capital asset or a capital advantage of enduring nature, so they were allowable as business expenditure rather than capital expenditure.

---

---

Issues: Whether technical aid fees and royalty paid under foreign collaboration agreements were allowable as revenue or business expenditure, or were to be treated as capital expenditure.

Analysis: The agreements were entered into for obtaining know-how required for manufacturing and selling the products and for running the business. The timing of the agreements, even if close to the formation of the company, was held not to be ative of the character of the expenditure. The nature of the outlay had to be tested by the object for which it was incurred, and on that basis the payments did not involve acquisition of capital assets or any capital advantage of the kind that would convert them into capital expenditure.

Conclusion: The technical aid fees and royalty were allowable as revenue or business expenditure and not capital expenditure, and the answer was in favour of the assessee and against the Revenue.

---