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AI Drafter - (New and Powerful) ✕ Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter.
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Issues: Whether the 3% contribution paid to the Swiss company under the licensing agreement was an admissible deduction under section 10(2)(xv) of the Indian Income-tax Act, 1922, and whether it could be disallowed as capital expenditure or treated as expenditure on scientific research under section 10(2)(xii) or section 10(2)(xiv).
Analysis: The payment described as a 3% contribution was read, in the light of the agreement and the correspondence between the parties, as consideration for continuing assistance, advice, and problem-solving connected with the assessee's day-to-day manufacturing needs and market requirements. It was not a payment for acquiring an asset of an enduring nature, and it was not shown to be expenditure on scientific research carried on for or on behalf of the assessee. The arrangement was therefore viewed as one for business support in the course of operations rather than capital acquisition.
Conclusion: The 3% contribution was allowable as revenue expenditure under section 10(2)(xv) and was an admissible deduction; the disallowance was not justified.
Ratio Decidendi: A recurring payment made for business consultancy or advisory assistance, incurred wholly and exclusively for the assessee's business and not resulting in acquisition of an enduring capital asset, is deductible as revenue expenditure under the residuary provision.
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