Revenue expenditure and new industrial undertaking relief confirmed for collaboration fees and a separate manufacturing unit.

Technical aid fees and royalty paid under a collaboration agreement were treated as revenue expenditure and held fully deductible, following an earlier binding view of the same court. The Kottayam unit was also accepted as a new industrial undertaking for section 80J relief because it was a separate, self-contained venture with new plant and machinery, and no transfer of assets from the existing business was shown. Its use of the output in the assessee's own business did not by itself amount to reconstruction or expansion of the old undertaking. The Revenue's challenge failed on both issues.

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Issues: (i) Whether the technical aid fees and royalty paid under the collaboration agreement were wholly allowable as revenue expenditure. (ii) Whether the Kottayam unit was a new industrial undertaking entitled to relief under section 80J.

Issue (i): Whether the technical aid fees and royalty paid under the collaboration agreement were wholly allowable as revenue expenditure.

Analysis: The question stood covered by an earlier decision of the same court holding that royalty and technical aid fees paid under the collaboration agreement were revenue expenditure and not capital expenditure. Following that binding view, the entire payment was held deductible.

Conclusion: The issue was answered in the affirmative and against the Revenue.

Issue (ii): Whether the Kottayam unit was a new industrial undertaking entitled to relief under section 80J.

Analysis: The unit was found to be a separate and self-contained venture established with new plant and machinery for masticating rubber. There was no transfer of assets from the existing undertaking, and the mere fact that the product was used substantially in the assessee's own business did not make the unit a reconstruction or expansion of the old business. The rule applied was that a new undertaking is eligible unless it is formed by reconstruction of the existing business, which was not shown on these facts.

Conclusion: The issue was answered in the affirmative and against the Revenue.

Final Conclusion: The court upheld the assessee's entitlement on both questions and rejected the Revenue's challenge in full.

Ratio Decidendi: An undertaking newly set up with independent plant and machinery is a new industrial undertaking for section 80J purposes unless it is formed by reconstruction of the existing business through transfer of assets; similarly, technical aid fees and royalty paid under a collaboration agreement are deductible as revenue expenditure where so previously determined.

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