RAMANUJAM J.


The following two questions have been referred to this court for its opinion under s. 256(1) of the I.T. Act, 1961 " 1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the entire technical aid fees paid by the assessee to M/s. Clayton Dewandre Company Ltd., U.K., and the royalty paid to M/s. Bendix Westinghouse Automotive Air Brake Company, U.S.A., under the collaboration agreements should be allowed as a deduction ?


2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the entire technical aid fees paid by the assessee to M/s. Clayton Dewandre Company Ltd., under the collaboration agreement, should be allowed as a deduction ?


Identical questions were considered by this court in the assessee's own case for the earlier year in CIT v. Sundaram Clayton Ltd. In that case the court has held that the know-how agreements entered into by the assessee with M/s. Clayton Dewandre Company Ltd., U.K., and with Bendix Westinghouse Automotive Air Brake Company, U.S.A., were purely for the purpose of obtaining the relevant know-how for manufacturing and selling the materials manufactured, that it was for the purpose of running the business, that merely because the agreement had been entered into soon after the formation of the company, it cannot be stated that the payments under the agreement were liable to be treated as capital expenditure, that the nature of the expenditure is not dependent upon the time at which the relevant agreement came into existence and that the quality of the expenditure will have to be tested with reference to the object for which it was incurred. The court, ultimately, held that there was no element of capital expenditure involved in the payments made to the said two foreign companies. In view of the said decision, it has to be held that the entire technical aid fees and the royalty paid by the assessee to the two foreign companies should b

e held to be revenue or business expenditure and not capital expenditure as has been urged by the Revenue. Both the questions are, therefore, answered in the affirmative and against the Revenue. There will be no order as to costs.