Technical know-how payment treated as revenue expenditure where only a limited licence to use was granted, not ownership.

A payment made to a foreign collaborator for technical know-how was treated as revenue expenditure because the agreement conferred only a limited licence to use patents and designs in India for a fixed term, subject to renewal approval. The arrangement did not transfer ownership of any capital asset; it gave the assessee a restricted right to use the collaborator's technical knowledge and related facilities. Applying the enduring benefit test, the Court found that the payment was referable to use of the licence rather than acquisition of an enduring asset. The expenditure was therefore revenue in nature and not capital expenditure.

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Issues: Whether the amount paid by the assessee to the foreign collaborator for technical know-how constituted capital expenditure or revenue expenditure.

Analysis: The payment was made under an agreement that granted only a licence to use patents and designs exclusively in India for a limited period, with provision for renewal subject to approval. The arrangement did not transfer ownership of any capital asset. The assessee obtained a restricted right to use the collaborator's technical knowledge and related facilities, and the payment was therefore referable to the use of the licence rather than the acquisition of an enduring asset. On the terms of the agreement, the relevant test was whether the assessee acquired an enduring benefit amounting to acquisition of a capital asset.

Conclusion: The payment was revenue expenditure and not capital expenditure.

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