TMI Blog1982 (4) TMI 18X X X X Extracts X X X X X X X X Extracts X X X X ..... rages and that the French company had developed the use of post-tensioned pre-stressed concrete structures and/or products incorporating cone anchorages, and it became possessed of valuable data, information and experience in the application of the aforesaid patents and processes in relation to the use of cone anchorages. Under the agreement the French company granted to the assessee the right to prospect for and exploit in India, excluding certain parts thereof, the aforesaid patents in respect of post-tensioned pre-stressed concrete structures and/or products constructed or manufactured under or in conjunction with or embodying the said patents and processes and embodying Freyssinet cone anchorages which have been referred to in the said agreement as " the structures and products ". The assessee was also granted the right to grant sub-licences to construct, manufacture, use and sell under the said patents structures and products as aforesaid. It may be mentioned that the assessee had been referred to in the said agreement as " the agent ". Subclause (c) of cl. 7 of the said agreement provides that the assessee shall keep all necessary and proper books of account relating to the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alance of forty per cent. thereof to the agent. The agent shall remit with each account the amount shown to be due to S.T.U.P. (v) Apportionment of royalties under the above sub-clause :-- (i) on direct royalty basis at 5% rate : S.T.U.P. 48% The agent 40% The Pre-Stressed Concrete Company Ltd. London 12% (ii) On cone anchorage basis rate : (a) On 12.5 cone anchorage (b) On 12.7 cone anchorage S.T.U.P. 4/9 S.T.U.P. 9/6 The agent 4/0 The agent 8/0 The Pre- The Pre- Stressed Stressed Concrete Concrete Co. Ltd. 1/3 Co. Ltd. 2/6 Provided always that when and as soon as the cone anchorages shall be manufactured in the territory by the agent, then the abovementioned proportions of royalties of four shillings and nine pence and nine shillings and six pence payable to S.T.U.P. shall be increased to five shillings and three pence and ten shillings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le to the French company by the assessee were payable in French francs in Paris calculated at the official legal rate of exchange applicable at the time when the payment was due and the excess payment arising out of devaluation was not a permissible deduction as it did not form part of the contract dues payable to the French company by the assessee. The appeal preferred by the assessee to the AAC was dismissed by the AAC. The assessee then went by way of a second appeal to the Income-tax Appellate Tribunal. The Tribunal held that the payment of royalty had to be determined in terms of French francs alone and that the said liability became final and conclusive only at the time when the remittance of the amount was made to Paris and by that time since the assessee had incurred additional expenditure to discharge the said liability in terms of French francs on account of devaluation of the Indian rupee, the assessee was entitled to claim the amount of the said liability by way of a business expenditure. It is from this decision of the Tribunal that the follow question has been referred to us in this reference Whether, on the facts and in the circumstances of the case, the expend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e on the basis of the official legal rate of exchange between the Indian rupee and the French franc at the time when the payment of the liability is due. Under sub-cl. (iv) of cl. 11(a), the assessee had to pay all royalties received by it from sub-licensees together with all other royalties payable by it under the agreement into a separate bank account. No specific time was, however provided as to when such royalties were to be paid into the separate bank account, and, for a good reason. A particular sub-licensee might not remit to the assessee the royalty payable by that sub-licensee as soon as the liability accrues. Moreover, looking to the terms of the agreement, it would even take some time for the assessee to determine what was the amount payable by it on account of royalty to the French company after closing the accounts as at the end of any particular calendar month. Further, the provisions of sub-cl. (iv) of cl. 11 (a) show that the assessee had to render to the French company an account within 30 days after the 30th day of June and 31st day of December of every year, during the continuance of the agreement, of all royalties received and payable by the assessee and paid in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hether the assessee had failed to make any remittance, as it was bound to as per such statements in time. It is not open to the Revenue to raise a contention of this type which would entail further factual investigation at this stage. Moreover, even assuming that there was delay on the part of the assessee in making some remittances and the remittances were made later than stipulated under the said agreement, it would only amount to this, that the additional liability was to some extent incurred by the assessee by reason of a breach of the terms of the said agreement by the assessee. There is no suggestion that such breach of contract was, in any manner, mala fide or deliberate; and one fails to see how, even assuming that the additional liability became due by way of damages for breach of contract, it could ever be said that it should not be allowed as a business expenditure. It is the undisputable position that the aforesaid agreement was entered into by the assessee in the course of its business. The remittances made were also in the course of its business, and the additional liability also accrued to the assessee in the course of, its business. It is a liability which the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X
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