Tax Tribunal Decision: License fee treated as revenue, not capital expenditure.

The Department's appeal for the assessment year 1978-79 was partially allowed, while the appeal for the assessment year 1979-80 was rejected. The Tribunal upheld most of the CIT(A)'s findings, except for the treatment of license fee as a capital expenditure for the assessment year 1978-79. Ultimately, the license fee was allowed as a revenue expenditure based on the Vice President's decision.

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Issues Involved:
1. Disallowance of license fee as capital expenditure.
2. Disallowance of payment to foreign collaborators for engineering services.
3. Disallowance of royalty paid to foreign collaborators.
4. Mistake in figures mentioned by CIT(A).
5. Calculation of deduction under section 80MM.
6. Depreciation on the cost of documents.
7. Reliance on Tribunal's orders sub judice before the High Court.

Detailed Analysis:

1. Disallowance of License Fee as Capital Expenditure:
The primary issue for the assessment year 1978-79 was whether the license fee of Rs. 8,20,347 paid to foreign collaborators should be considered a capital expenditure or a revenue expenditure. The Tribunal noted that in the assessment years 1974-75, 1975-76, and 1976-77, the license fee was held to be a capital expense. In the assessment year 1977-78, the Tribunal allowed the license fee as a revenue expense due to a misunderstanding. The Tribunal reverted to its earlier stance, reversing the CIT(A)'s order and restoring the disallowance as a capital expense. However, the Judicial Member dissented, arguing that the license fee should be treated as a revenue expenditure. The matter was referred to the Vice President, who upheld the Judicial Member's view, stating that the license fee was for the use of technical know-how for a limited period, making it a revenue expenditure.

2. Disallowance of Payment to Foreign Collaborators for Engineering Services:
For both assessment years 1978-79 and 1979-80, the issue was the disallowance of payments made to foreign collaborators for engineering services, amounting to Rs. 92,42,836 and Rs. 5,40,012 respectively. The Standing Counsel argued that similar disallowances were confirmed by the Tribunal in earlier years. However, the Tribunal found no evidence of such disallowances in the past and concluded that these payments were revenue expenses. Consequently, the CIT(A)'s deletion of these disallowances was upheld.

3. Disallowance of Royalty Paid to Foreign Collaborators:
The issue involved the deletion of royalty payments of Rs. 5,61,431 for 1978-79 and Rs. 5,36,349 for 1979-80. The Standing Counsel contended that the Tribunal had deleted similar disallowances in the past under a misunderstanding. The Tribunal, however, found that according to the latest case laws and the decision of the Patna High Court in CIT vs. Tata Yadogwa Ltd., royalty is a business expense of revenue nature. Thus, the contention of the Department was rejected, and the royalty payments were allowed as revenue expenses.

4. Mistake in Figures Mentioned by CIT(A):
The Department raised an issue regarding a mistake in the figures mentioned by the CIT(A), where Rs. 64,360 was added instead of Rs. 6,436. The Tribunal directed the CIT(A) to rectify the mistake if it had not been done already.

5. Calculation of Deduction under Section 80MM:
The issue was whether the deduction under section 80MM should be calculated with reference to gross receipts. The Tribunal noted that this contention was covered by its orders in earlier years, and thus, the Department's contention was rejected.

6. Depreciation on the Cost of Documents:
The issue was whether depreciation was admissible on Rs. 30,06,196 representing the cost of documents. The Tribunal found that this issue was covered by its orders in earlier years, and thus, the Department's contention was rejected.

7. Reliance on Tribunal's Orders Sub Judice Before the High Court:
The Department contended that the CIT(A) should not rely on the Tribunal's orders for earlier years as they were sub judice before the High Court. The Tribunal held that as long as the orders of the Tribunal for earlier years stand and have not been overruled, they must be followed in later years if the facts remain the same.

Conclusion:
The appeal of the Department for the assessment year 1978-79 was allowed in part, while the appeal for the assessment year 1979-80 was rejected. The Tribunal upheld the CIT(A)'s findings on most issues, except for the license fee for the assessment year 1978-79, which was eventually allowed as a revenue expenditure following the Vice President's decision.

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