TMI Blog1982 (3) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... s an expenditure laid out or expended wholly and exclusively for the purposes of the assessee's business and was accordingly allowable in computing the profits of the said business?" The assessee is a non-resident company and carries on the business of rendering technical services to oil industries engaged in prospecting and searching oil wells. The assessment years are 1964-65 to 1969-70 and the relevant accounting years are the 12 months period ending on 31st March, 1963, and 30th April, 1964, respectively, for the first two assessment years and the calendar years 1964 to 1968, respectively, for the other assessment years. The assessee is one of the subsidiaries of Schlumberger Seaco (Overseas) which is one of the five subsidiaries of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tly engaged in developing and improving the design, testing and preparation for production of highly sophisticated and specialised sensitive electronic, radioactive and other tools and equipments. These tools and equipments were designed for particular purposes and were handled only by trained Schlumberger engineers working in the field operation and were not marketed as such. In order to rationalise and avoid duplication of research and development activities, the aforesaid five subsidiaries as well as SL entered into an agreement dated 15th December, 1958, under which SURENCO, OVER. SEAS and SOC agreed to bear development and engineering expenses incurred by SWSC and SPE on pro rata basis. As the total operating revenue of these companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed under section 35 of the Act. (ii) As the assessee was only giving expert advice to the OIL and ONGC, there is no connection between the services rendered by the assessee and the expenses incurred by SWSC and SPE. (iii) As the assessee (Indian branch) was paying substantial royalty to its principal company for use of machinery and equipment brought into India, there was no question of allowing any expenditure in respect of research and development expenses against the Indian income. (iv) No details were brought on record to show how much expenses were charged against Indian income. There was an appeal before the AAC. The AAC dealt with the points in great detail but relying on the decision of the Supreme Court in the case of CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fective from 1st January, 1963, which recited definition of "income " and after reciting the facts it provided, inter alia, as follows : " I. The agreement dated January 1, 1959, herebefore mentioned is unquestionably intended to include in its coverage SEACO and is hereby deemed so to do as, SEACO is a wholly owned subsidiary of SOSA and the pro rata share of engineering expenses borne by SOSA thereunder is determined on a basis which includes SEACO income. SEACO, not having been made a formal party to the aforementioned agreement, is desirous of receiving the benefits thereof and is willing to contribute its pro rata share of engineering expenses in the same manner as SOSA, and SEACO, therefore, hereby undertakes to pay this share on a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as a kind of consultancy service, does not, in our opinion, make any difference in principle for an application of the principle to be applied. The expenses were jointly incurred and were proportionately divided on certain rational basis and such expenses, if as a result of incurring such expenses, the carrying on of the business or earning of the profits of the assessee was facilitated, would be allowed as revenue expenses. The knowledge that was gathered by incurring these expenses was necessary for the use of sophisticated equipment having regard to the nature and type of business the assessee was carring on. Certain decisions were referred to us but these do not in fact apply to this case though the principles of these decisions do not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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