Judgment:
Sushanta Chatterji, J.
1. The present reference at the instance of the Commissioner of Income-tax, Orissa, raises the following question :
'Whether the Tribunal was justified in holding that a sum of Rs. 13,93,793 paid as technical assistance fees can be treated as revenue expenditure to be allowed as deduction?'
The facts indicate, inter alia, that the assessee-company entered into an agreement dated December 15, 1979, with Bradley and Foster Ltd. of the United Kingdom. Under the terms of the said agreement, the assessee was to receive technical know-how regarding production of grinding media and other associated parts as well as vertical shaft mills, rings and rollers. In consideration for the supply of such information, the assessee-company paid to its foreign collaborator a lump sum amount of Rs. 13,93,793. This amount was claimed as a revenue deduction. The Inspecting Assistant Commissioner (Assessment) in his assessment order held that the payment was in the nature of compensation to acquire secret documents, patents, designs arid other information for manufacturing of the product and that it will create assets of enduring nature and will give a lasting benefit to the assessee. However, the Commissioner of Income-tax (Appeals) held that the expenditure was allowable as revenue deduction. The Revenue preferred an appeal before the Tribunal. The Tribunal upheld the order of the Commissioner of Income-tax (Appeals).
2. In the course of hearing our attention is drawn to the decision in Alembic Chemical Works Co. Ltd. v. CIT : [1989]177ITR377(SC) . The Supreme Court, while considering the case decided by the High Court as reported in ITR No. 78 of 1970 and by reversing the decision of the High Court, observed (headnote):
'(i) That there was no material before the Tribunal to come to the finding that the appellant had obtained under the agreement a 'a completely new plant' with a completely new process and a completely new technical know-how from Meiji. The business of the appellant from the commencement of its plant in 1961 was the manufacture of penicillin. Even after the agreement, the product continued to be penicillin and the agreement with Meiji stipulated the supply of the 'most suitable sub-cultures' evolved by Meiji for purposes of augmentation of the yield of penicillin.
(ii) That there was no material for the Tribunal to hold that the area of improvisation was not a part of the existing business or that the entire gamut of the existing manufacturing operations for the commercial production of penicillin in the appellant's existing plant had become obsolete or inappropriate in relation to the exploitation of the new subcultures of the high-yielding strains supplied by Meiji. The mere improvement in or updating of the fermentation-process would not necessarily be inconsistent with the relevance and continuing utility of the existing infrastructure, machinery and plant of the appellant.
(iii) That the limitations placed in the agreement on the right of the, appellant in dealing with the know-how and the conditions as to non-partibility, confidentiality and secrecy of the know-how, pertained more to the use of the know-how than to its exclusive acquisition.
(iv) That the improvisation in the process and technology in some areas of the enterprise was supplemental to the existing business and there was no material to hold that it amounted to a new or fresh venture. The further circumstance that the agreement pertained to a product already in the line of the appellant's established business and not to a new product indicated that what was stipulated was an improvement in the operations of the existing business and its efficiency and profitability not removed from the area of the day-to-day business of the appellant's established enterprise. The financial outlay under the agreement was for the better conduct and improvement of the existing business and was revenue in nature and was allowable as a deduction in computing the business profits of the appellant.'
On the finding of such facts, the apex court had concluded that the idea of 'once for all' payment and 'enduring benefit' are not to be treated as something akin to statutory conditions; nor are the notions of 'capital' or 'revenue' a judicial fetish. What is capital expenditure and what is revenue are not eternal verities but must needs be flexible so as to respond to the changing economic realities of business. The expression 'asset or advantage of an enduring nature' was evolved to emphasise the element of a sufficient degree of durability appropriate to the context. There is also no single definitive criterion which, by itself, is determinative whether a particular outlay is capital or revenue. The 'once for all' payment test is also inconclusive. What is relevant is the purpose of the outlay and its intended object and effect, considered in a commonsense way having regard to the business realities. In a given case, the test of 'enduring benefit' might break down.
3. Having gone through the aforesaid decision in between the lines, we find that the ratio of the said decision is squarely applicable to the facts of the present case. The decision of the Tribunal is neither contrary to nor violates any of the provisions of law. By relying upon the said decision and considering the facts of the case, we answer the question in the affirmative, that is, in favour of the assessee and against the Revenue. There will be no order as to costs.
D.M. Patnaik, J.
4. I agree.