TMI Blog2005 (3) TMI 61X X X X Extracts X X X X X X X X Extracts X X X X ..... -3-2005 - Judge(s) : R. K. AGRAWAL., PRAKASH KRISHNA. JUDGMENT The assessee/respondent is a company manufacturing cigarettes under the franchise agreement with M/s. GTC Industries Ltd., Bombay. The assessment year 1986-87 was the first year of the business of the assessee-company and it has paid a sum of Rs. 3,26,520 as royalty charges to M/s. GTC Industries Ltd. during the assessment year 1986-87 and claimed payment of the said royalty 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 techn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that payment of royalty by the assessee-company to M/s. GTC Industries Ltd. is a revenue expenditure?" We have heard Sri A. N. Mahajan, learned standing counsel for the Department and none appeared on behalf of the respondent/assessee. For computing the income chargeable under the head "Profits and gains of business or profession", section 37 of the Income-tax Act enables the deduction of any expenditure laid out or expended wholly 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duct or the payment was made for the technical know-how which was for the betterment of the product in question which was already being produced; whether the improvisation made is part and parcel of the existing business or a new business was set up with the so called technical know how for which payments were made; whether on expiry of the period of agreement the assessee is required to give back the plans and designs which were obtained, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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