2005 (3) TMI 61

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....yalty charges as revenue expenditure. There was an agreement dated January 18, 1985, of the assessee/respondent with M/s. GTC Industries Limited according to which the assessee/respondent was required to pay royalty charges of Re. 1 per thousand cigarettes manufactured for acquiring GTC's know-how and technical assistance as well as for the use of their trade mark. The GTC company as per the terms of the agreement agreed to provide the services of its technical personnel as and when required, but the marketing of the cigarettes was left, to the assessee/respondent. The said agreement was valid for a period of five years with the condition that after the expiry of five years, the assessee/respondent would continue to manufacture the cigarett....

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....ly and exclusively for the purpose of the business or profession, as the case may be. The fact that an item of expenditure is wholly and exclusively laid out for purposes of the business, by itself, is not sufficient to entitle its allowance in computing the income chargeable to tax. The expenditure should not be in the nature of capital expenditure. A distinction between the revenue expenditure and capital expenditure has been drawn by a catena of decisions. It is almost impossible to formulate any general rule with sufficient accuracy and reasonable comprehension in clear line of demarcation in between the capital expenditure and revenue expenditure. It has been held in a catena of decisions that an expenditure which is of enduring nature....

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....btained, but the assessee could manufacture the product in the factory that has been set up with the collaboration of the foreign firm; the cumulative effect on a construction of the various terms and conditions of the agreement; whether the assessee derived benefits coming to its capital for which the payment was made. In this case the Supreme Court has considered its earlier judgment given in the case of Alembic Chemical Works Co. Ltd. v. CIT [1989] 177 ITR 377. In a recent case the Supreme Court in CIT v. I. A. E. C. (Pumps) Ltd. [1998] 232 ITR 316 has held that where under the agreement with the foreign company the assessee was granted a licence to use its patents and designs exclusively in India and the agreement was for a duration ....