2001 (1) TMI 976 - HC - Income Tax

Summary

Issues:
1. Allowance of technical know-how fees paid to WCW, West Germany.
2. Allowance of payment as technical design fees to foreign collaborators.

Analysis:
1. The assessee made payments for technical know-how to WCW, West Germany, and claimed it as revenue expenditure. The agreement for technical know-how was approved by the Government of India, and the total consideration was paid in three installments. The Tribunal, after considering the facts and relevant legal precedents, referred the question of allowance of these fees to the High Court. The High Court, relying on previous decisions, held that the acquisition of technical know-how was supplemental to the existing business and not a new venture. Therefore, the Court allowed the technical know-how fees as revenue expenditure in favor of the assessee against the revenue.

2. The assessee also paid technical design fees to foreign collaborators, claiming it as a deduction because the know-how was acquired on behalf of another company, Negveli Lignite Corpn. The High Court noted that the know-how was never utilized by the assessee and was paid on behalf of another entity. Considering these facts, the Court allowed the payment of technical design fees as a deduction in favor of the assessee against the revenue. The High Court disposed of the reference with no order as to costs after answering both questions in favor of the assessee.