Court Allows Deduction for Business Expenses; Revenue Expenditure Criteria Met

Premier Automobiles Limited Versus Commissioner Of Income-Tax, Bombay

Premier Automobiles Limited Versus Commissioner Of Income-Tax, Bombay - [1984] 150 ITR 28, 41 CTR 184, 16 TAXMANN 202 Issues involved:

1. Deduction of Rs. 24 lakhs paid to Automobile Products of India Ltd. as revenue expenditure.
2. Assessment year for deduction of Rs. 24 lakhs.
3. Nature of Rs. 1 lakh out of Rs. 2.5 lakhs paid to Automobile Products of India Ltd.
4. Deduction of pound 50,000 paid to Henry Meadows Ltd. as revenue expenditure.

Summary:

Issue 1: Deduction of Rs. 24 lakhs paid to Automobile Products of India Ltd. as revenue expenditure

The court reframed the question to determine if the assessee is entitled to claim a deduction of Rs. 24 lakhs paid to Automobile Products of India Ltd. under the agreement dated April 29, 1961, as a revenue expenditure. The Tribunal had earlier rejected this claim, treating the amount as capital expenditure for acquiring the right to manufacture Meadows engines. However, the court found that the payment was intended to remove an obstruction in the way of the assessee's business and did not bring into existence any enduring advantage. Therefore, the court held that the sum of Rs. 24 lakhs was deductible as revenue expenditure.

Issue 2: Assessment year for deduction of Rs. 24 lakhs

The court reframed the question to determine if the assessee is entitled to the deduction in the assessment year 1962-63 or in the relevant assessment years when the amounts were paid. Given the affirmative answer to Issue 1, the court found it unnecessary to answer this question separately, as the assessee is entitled to claim the deduction in the assessment year 1962-63.

Issue 3: Nature of Rs. 1 lakh out of Rs. 2.5 lakhs paid to Automobile Products of India Ltd.

The learned counsel for the assessee stated that this question was not being pressed, and therefore, the court did not answer it.

Issue 4: Deduction of pound 50,000 paid to Henry Meadows Ltd. as revenue expenditure

The court examined whether the sum of pound 50,000 paid to Henry Meadows Ltd. under the agreement dated October 5, 1962, was capital expenditure. The Tribunal had disallowed the deduction, treating it as capital expenditure. However, the court found that the payment was for securing technical know-how and not for acquiring any tangible asset or enduring advantage. Referring to previous decisions, the court held that such payments for technical know-how are of a revenue nature. Consequently, the court answered the first part of the question in the affirmative, allowing the deduction as revenue expenditure. The second part of the question, regarding the write-off of one-tenth of the amount, was not pressed by the assessee and thus not answered.

Conclusion:

- Question No. 1: Answered in the affirmative and in favor of the assessee.
- Question No. 2: Not necessary to be answered.
- Question No. 3: Not answered as it was not pressed by the assessee.
- Question No. 4: Answered in the affirmative and in favor of the assessee on the first part; the second part was not answered as it was not pressed.

The assessee-company was awarded the costs of this reference.