High Court Of Bombay
CIT vs. Kirloskar Bros. Ltd.
Sections 37, 37(1)
Asst. Year1963-64, 1965-66
S.K. Desai & S.P. Bharucha, JJ.
IT Ref. No. 108 of 1974
31st August, 1983
R.J. Joshi & N.K. Sajnani for the Revenue : Y.P. Pandit for the Assessee
The assessee before us is Kirloskar Brothers Ltd. They carry on business in manufacturing air compressors, centrifugal pumps and agricultural implements. We are concerned in this reference with the asst. yrs. 1963-64 and 1965-66. For these two years, the assessee had respectively paid Rs. 17,231 and Rs. 5,765 to Sulzer-Freres, Winterthur (hereinafter referred to as “the Swiss company”) for drawings obtained from them. Similarly, for the asst. yr. 1965-66, the assessee paid Rs. 1,19,500 to Tecumseh Products Company (hereinafter referred to as the “American company”) for drawings obtained from the said company. The assessee claimed the aforesaid three amounts as deduction of revenue nature but the ITO disallowed the claim. The assessee appealed to the AAC and the AAC upheld the disallowance. According to the AAC, the drawings constituted assets for which a certain price had been paid by the Indian company. In this view of the matter, the AAC observed that the ITO was justified in disallowing the expenditure.
The assessee carried the matter to the Tribunal. It was urged before the Tribunal that the agreements had been entered into with the Swiss company and the American company with a view to obtaining technical know-how for the manufacture of centrifugal pumps. It was contended that there were a number of ways in which technical know how could be obtained and that parting with the drawings was one of the ways. Reference was made to the agreements with the Swiss company and the American company had parted with any capital asset (sic).
After considering the rival contentions and after reading the respective agreements, the Tribunal upheld the submissions advanced on behalf of the assessee and held that it was a clear case of a licence and not a sale in so far as the drawings were concerned. According to the Tribunal, by parting with the drawings, the rights of the Swiss company and the American company were not diminished in any manner. The Tribunal thus upheld the claim of the assessee and directed the ITO to allow the amounts given to the two companies as revenue expenditure.
Aggrieved by the decision of the Tribunal, the CIT sought a reference and the following two questions have been referred to us : “(1) Whether, on the facts and in the circumstances of the case, the payment of Rs. 17,231 for the asst. yr. 1963-64 and Rs. 5,765 for the asst. yr. 1965-66 made by the assessee to Sulzer-Freres, Winterthur, Switzerland, in pursuance of the collaboration agreement between them, were expenditure capital in nature and not revenue expenditure ? (2) Whether, on the facts and in the circumstances of the case, the payment of Rs. 1,19,500 made by the assessee to Tecumseh Products Co., U. S. A., for the asst. yr. 1965-66 in pursuance of the collaboration agreement between them was an expenditure capital in nature and not revenue expenditure
5. The Bombay High Court has had occasions to consider similar agreements in several matters and we shall rest content with referring to the latest of the three, judgments which were cited at the Bar. This is the decision in Kirloskar Pneumatic Co. Ltd. vs. CIT (1982) 23 CTR (Bom) 92 : (1982) 136 ITR 746 (Bom). In this decision, the earlier judgment in ACC Vickers Babcock Ltd. vs. CIT (1976) 103 ITR 321 (Bom), and CIT vs. Tata Engineering and Locomotive Co. Ltd. (1979) 13 CTR (Bom) 209 : (1980) 123 ITR 538 (Bom), have been referred to and applied as also the Supreme Court decision in CIT vs. Ciba of India Ltd. 1978 CTR (Kar) 198 (FB) : (1968) 69 ITR 692. It may also be mentioned in passing that earlier, the Revenue had been relying upon the decision of the Karnataka High Court in Mysore Kirloskar Ltd. vs. CIT (1968) 67 ITR 23, which had been later on overruled by a Full Bench decision of that very High Court. This decision of the Full Bench is reported in Mysore Kirloskar Ltd. vs. CIT (1978) 114 ITR 443. We need not, however, advert to that decision in greater detail since we have decisions of our own High Court which fully support the view taken by the Tribunal.
6. In this matter, it would appear to us unnecessary to enter into a fuller discussion or analyse the agreements in depth. They have been properly analysed by the Tribunal and we agree with the approach as well as the ultimate conclusion of the Tribunal. Accordingly, following our earlier decision, we answer the questions referred to us as follows
Question No. 1 : The payment of the two amounts for the respective assessment years to the Swiss company were revenue expenditure and not capital expenditure.
Question No. 2 : The payment of Rs. 1,19,500 made by the assessee to the American company for the asst. yr. 1965-66 was revenue expenditure and not capital expenditure.
7. The CIT to pay the costs of the reference to the assessee.
[Citation :181 ITR 527]