High Court rules payment to Westinghouse as revenue expenditure, allowing full deduction in specific assessment year.

The High Court determined that the payment of Rs. 2,39,084 to Westinghouse constituted revenue expenditure rather than capital expenditure. As a result, the entire amount was allowed as a deduction in the assessment year 1966-67, with no portion being deductible in 1967-68. The Tribunal's initial decision was overturned, and the assessee was granted the deduction for the expenditure in the specified assessment year. The issue of apportioning the expenditure over multiple years was deemed unnecessary following this ruling.

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Issues Involved:

1. Nature of the expenditure (capital or revenue).
2. Allowability of the expenditure in the assessment years 1966-67 and 1967-68.

Issue 1: Nature of the Expenditure (Capital or Revenue)

The primary issue revolves around whether the payment of Rs. 2,39,084 made by the assessee to Westinghouse under the technical assistance agreement constitutes capital or revenue expenditure. The Tribunal initially ruled that the payment was capital in nature, distinguishing it from the Supreme Court's decision in CIT v. Ciba of India Ltd. [1968] 69 ITR 692 (SC). The Tribunal highlighted several factors: the payment was a lump sum, not recurrent or dependent on sales, the agreement was for ten years with a possible extension, and the objective was to obtain technical assistance for starting the business.

However, the High Court disagreed with the Tribunal's interpretation. It emphasized that the Supreme Court's decision in Ciba's case is applicable, where the agreement merely conferred a right to draw upon technical knowledge for a limited period without an absolute transfer of such knowledge or patent rights. The High Court noted that the agreement did not grant the assessee any permanent or lasting advantage but merely facilitated access to technical knowledge necessary for running the business. The payment, therefore, was considered revenue expenditure, as it was made to obtain technical assistance and not to acquire a capital asset.

Issue 2: Allowability of the Expenditure in the Assessment Years 1966-67 and 1967-68

The second issue concerns the allowability of the expenditure in the relevant assessment years. The Tribunal had held that if the expenditure were considered revenue, it would be deductible in the assessment year 1966-67. The High Court affirmed this view, stating that the entire amount of Rs. 2,39,084 should be allowed as revenue expenditure in the assessment year 1966-67. Consequently, no portion of this amount is allowable in the assessment year 1967-68, and the question of apportioning it over a series of years does not arise.

Conclusion

The High Court concluded that the payment of Rs. 2,39,084 made by the assessee to Westinghouse represents revenue expenditure and is fully deductible in the assessment year 1966-67. The Tribunal's decision was overturned, and the assessee was entitled to the deduction. The second question regarding the apportionment of the expenditure over multiple years was rendered moot by this conclusion.

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