The Court answered a reference under Section 256(1) of the Income Tax Act, 1961 regarding the deductibility of expenditure for technical know-how. Following a prior decision in R.C.No.58 of 1993, the Court held the expenditure allowable as revenue expenditure.
The reference was answered in favour of the assessee and against the Revenue.
This page shows the compact analysis of this judgement. The full analysis — procedural history, issue-by-issue holdings with ratio and obiter, advocates, and paragraph-level evidence for every claim — is being added to the record in batches and will appear here when this judgement has been through it.
THE HON’BLE SRI JUSTICE V.V.S.RAO AND
THE HON’BLE SRI JUSTICE B.N.RAO NALLA
REFERENCE CASE No.147 of 1996
Dated:28.11.2011
Between:
Commissioner of Income Tax, AP.I, Hyderabad.
…Applicant
and
Kadevi Engineering Co.(P) Ltd., Hyderabad.
…Respondent
THE HON’BLE SRI JUSTICE V.V.S.RAO AND
THE HON’BLE SRI JUSTICE B.N.RAO NALLA
REFERENCE CASE No.147 of 1996
ORDER: (Per Hon’ble Sri Justice V.V.S.Rao)
This is a reference under Section 256(1) of the Income Tax Act, 1961. The question referred by the Income Tax Appellate Tribunal for the decision of this Court is as follows.
Whether on the facts and in the circumstances of the case, the ITAT was justified in law in holding that the expenditure of Rs.1,55,583/- (being final payment of 1/3rd consideration) incurred towards technical know-how (including drawings and documentations) was an allowable revenue expenditure?
To the extent necessary for disposal of the reference the
brief fact of the matter is as follows. The respondent (assessee) is in the business of electronic items like antenna, amplifiers etc.,
and is engaged in the manufacture of telescopic serial masts used in the Telecommunications and the Defence Departments. So as to incorporate latest technical developments in its products, the assessee obtained technical know-how from M/s.Hillo Mast Limited, U.K., duly paying the first instalment of consideration of Rs.1,51,396/- for the assessment year 1981-1982. During that assessment year, the assessee claimed it as revenue expenditure, but it was not allowed by the Income Tax Officer, which was confirmed by the Commissioner of Income Tax (Appeals). In their appeal, before the Tribunal, placing reliance on the decision of the Supreme Court in Empire Jute Co. Ltd. v Commissioner of Income Ta x[1] and a Full Bench decision of this Court in Praga Tools Ltd. v Commissioner of Income Ta x[2] , the Tribunal held that the amounts paid towards technical know-how are allowable as revenue expenditure.
The second instalment of consideration to technical know-how was paid during 1982-1983 and the third instalment of Rs.1,55,583/- was paid during 1984-1985. Even for this year also, the Income Tax Officer rejected the deduction as revenue expenditure. But the Commissioner of Income Tax (Appeals) allowed the appeal and directed the Income Tax Officer to treat the expenditure towards technical know-how as revenue expenditure. Aggrieved thereby, an appeal was preferred before the Tribunal, which was dismissed. Therefore, the Revenue sought the reference.
I n Commissioner of Income Tax v M/s.Kadevi Engineering Company (P) Ltd., (unreported order in R.C.No.58 of 1993, dated 30.11.2004), involving the same assessee, a Division Bench of this Court considered a similar question and
answered the question in favour of the assessee and against the Revenue.
Following the decision in R.C.No.58 of 1993, the question referred is answered in the affirmative in favour of the assessee and against the Revenue.
The Reference Case shall stand disposed of accordingly without any order as to costs.
_______________ (V.V.S.RAO, J)
____________________ (B.N.RAO NALLA, J)
28.11.2011 vs
[1] (1980) 124 ITR 1 [2] (1980) 123 ITR 773
1 issue framed by the court
Whether the expenditure of Rs.1,55,583/- towards technical know-how was an allowable revenue expenditure?
Colour shows how this judgement treated each authority
Empire Jute Co. Ltd. v Commissioner of Income TaxReferred¶19
(1980) 124 ITR 1
Praga Tools Ltd. v Commissioner of Income TaxReferred¶19
(1980) 123 ITR 773
1 provisions across 1 enactments
Commissioner of Income Tax, AP.I, Hyderabad
Kadevi Engineering Co.(P) Ltd., Hyderabad
V.V.S.RAO
B.N.RAO NALLA
As recorded by the court registry
Judgements on the same questions, provisions and authorities, from every court
V.V.S.RAO and B.N.RAO NALLA
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