1. In respectful compliance with the judgment and directions of the High Court in Tax Case No. 169 of 1976 (reference No. 69 of 1971), dated 30-8-1976, the parties were heard afresh on the appeal before the Tribunal and we proceed to dispose of the same after considering the facts and the submissions of the parties.
2. The assessee, T.I. Diamond Chains Ltd., was incorported in India on 26-9-1960 having an initial authorised share capital of Rs. 70,00,000 divided into 70,000 equity shares of Rs. 100 each. Its shareholders on the date of its registration consisted of (i) Tube Investments of India Ltd. (TII) holding 9998 shares and (2) A.M.M. Arunachalam and (3) A.M.M. Murugappa Chettiar, each holding one share, evidently as nominees of TIL It appears, the shareholdings by TII increased to 15,398 as on 2-12-1960, while the other nominees' shareholdings remained the same.
3. The assessee-company was incorporated for the purpose of carrying on of the business of manufacture of cycle chains and automobile chains.
There was an agreement between Diamond Chain Co. Inc., USA, a corporation organised and existing under the laws of the State of Indiana, US, shortly referred to as 'Diamond' and TIl, a company incorporated under the Companies Act, 1956, in India ('TII'), dated 11-10-1961. In this agreement, it is stated that 'Diamond' has for many years been engaged in the manufacture of power-transmission chain and sprockets and other products described as 'subject products' and has accumulated knowledge and experience in that field ; that it is the owner of a diamond shaped (rhomboidal) figure and of the word 'Diamond' as trade-marks or subject products which are widely known and accepted ; that TII desires to engage in the business of manufacturing and selling subject products and to receive the benefit of Diamond's knowledge and experience and the use of such trade-marks and Diamond desires to be associated with TII in such business, all by means of a separate Indian Ltd. company owned by TII and Diamond ; and that for such purpose, TII has caused to be incorporated in India on 26-9-1960, a limited company, named, TI Diamond Chain Ltd., having an initial authorised share capital of Rs. 70 lakhs as stated above. Under the terms of the agreement, TII and Diamond agreed that the issued share capital of the assessee-company shall initially be Rs. 24 lakhs consisting of 24,000 equity shares of Rs. 100 each to be issued to the TII and 'Diamond' in the following proportion :information 2.0 lakhs 72 1/2 per cent ----------information and trade-mark rights 6.6 lakhs 27 1/2 per cent ----------- ---------------- It is further stated that in consideration of Rs. 2 lakhs of equity shares to be issued to TII, it shall make available exclusively to the assessee-company of TII's engineering data and technical information with respect to subject products and to no other party in certain designated area ; make available to the assessee the full benefits of a TII's existing permits from any Government or agency thereof in the designated area to manufacture and sell subject products ; and to engage in the business of manufacturing subject products solely through the activities of the assessee during the term of the licence agreement of even date between Diamond and the assessee. Another provision in the agreement is that in consideration of the equity shares to be issued to it, Diamond shall furnish licences, trademark rights, engineering data and technical information covering the manufacture and sale of subject products as specified in what is called a subscription agreement of even date between Diamond and the assessee undertaking not to furnish licences, trade-mark rights and technical information or assistance to any other person, firm or corporation relating to manufacture or sale of subject products in the designated area during the term of the licence agreement. Under another agreement dated 11-10-1961 between the assessee and Diamond, the assessee agreed to issue to Diamond 6,000 equity shares of the par value of Rs. 100 per share in consideration for the assignment of certain trade-marks giving it the exclusive right of manufacture, use and sell subject products under the said trademarks in India and 600 equity shares of the par value of Rs. 100 per share in consideration of the Diamond supplying to the assessee with its existing engineering data and technical information designed to enable the assessee to produce and sell subject products, such as information in regard to machinery, tools, appliances, methods and techniques employed by Diamond in manufacture and sale of such products, drawings and specifications pertaining to the structure of subject products and information in regard to sources of supply for raw materials, supplies, machinery and equipment required for the production of subject products. The information, copies, notes, sketches, etc., to be supplied by Diamond were to be held in strict confidence by the assessee and were not to be disclosed to anyone except employees thereof and where appropriate to sales agents and then also only to the extent necessary. Diamond also agreed to arrange for instruction and training in the manufacture of chains and allied products of the assessee's representatives on the assessee giving necessary information to Diamond, details as to the time and duration of the visits of the representatives, etc.
4. It is in pursuance of these agreements that the assessee issued 2,000 shares of the value of Rs. 2 lakhs to TII and 600 shares of the value of Rs. 60,000 to Diamond during the previous year which ended on 31-7-1962 relevant to the assessment year 1963-64 under appeal. The assessee claimed deduction in computing its income of the sum of Rs. 2,60,000 made up of the face value of 2000 shares issued to TII and 600 shares issued to Diamond for the technical know-how and information.
The claim has been disallowed by the departmental authorities as being in the nature of preliminary expenses as well as expenses of a capital nature.
5. In the fresh hearing before us, after the High Court's direction, the following submissions are made on behalf of the assessee by the learned representative. The amount of Rs. 2,60,000 incurred by the assessee in this connection does not bring into existence any asset or advantage of an enduring nature, that there is no transfer to or acquisition by the assessee of any asset as a result of the payment and all that it is entitled to is to draw on the technical know-how of the two companies, namely, TII and Diamond. It is further submitted that the period of the agreement is not specified and has no bearing on the question of the nature of the expenditure as to whether it is revenue or capital and that unless, according to the agreement, the technical know-how or information supplied by TII and Diamond becomes property of the assessee-company, it cannot be said that there is any acquisition of capital or advantage of any enduring benefit. It is further submitted that the manner of payment for the technical know-how and information also does not affect the nature of the expenditure and its allowability as a revenue expenditure. The expenditure, as found in the earlier order of the Tribunal, it is stated, is not of a preliminary nature. In such circumstances, it is urged that the assessee is entitled to the deduction of the sum in question Reference is made and reliance placed on the following decisions-Tarzan Hosiery (P.) Ltd. v.ITO [1968] 69 ITR 842 (All.), CIT v. Hindusthan General Electrical Corporation Ltd. [1971] 81 ITR 243 (Cal.), CIT v. Lucas-T.V.S. Ltd. (No. 1) [1977] 110 ITR 338 (Mad.), CIT v. L.A.E.C. (Pumps) Ltd. [1977] 110 ITR 353 (Mad.), Addl. CIT v. Southern Structural Ltd. [1977] 110 ITR 890 (Mad.), Antifriction Bearings Corporation Ltd. v. CIT [1978] 114 ITR 335 (Bom.), Indian Telephone Industries Ltd. v. CIT [1979] 117 ITR 682 (Kar.), CIT v. Tata Engg. & Locomotive Co. (P.) Ltd. [1980] 123 ITR 538 (Bom.), Praga Tools Ltd. v. CIT [1980] 123 ITR 773 (AP) (FB) and Shriram Refrigeration Industries Ltd. v. CIT [1981] 127 ITR 746 (Delhi).
6. The learned departmental representative, on the other hand, relied on the remand report of the AAC. He further referred to the recitals in the preamble of the agreement between Diamond and TII, where the third recital shows, according to him, that the purpose is the manufacture and sale of certain commodities. It is further submitted by him that what is exchanged for the technical know-how is the shares of the assessee-com-pany, which is a capital asset. Reference is made and reliance placed on the following decisions-Fenner Woodroffe & Co. Ltd. v. CIT [1976] 102 ITR 665 (Mad.), Southern Structurals Ltd.'s case (supra), Jonas Woodhead & Sons (India) Ltd. v. CIT [1979] 117 ITR 55 (Mad.) (FB) and Shriram Refrigeration Industries Ltd.'s case (supra).
He also made reference to the commen tary on Income-tax by Kanga and Palkhivala, page 488. It is further submitted by the learned departmental representative that the agreement is not stipulated to be for any specified period and, therefore, it is for ever and, thus, the assessee had secured a benefit or advantage of an enduring nature. He submitted, in short, that the technical know-how acquired by the assessee in this case is a capital asset or an advantage of an enduring nature, that the transfer follows first the acquisition of assets, namely, capital by the two companies, Diamond and TII, that there is no period fixed in regard to the supply of technical know-how and information and it is also not stipulated as in the cases relied on by the assessee that such information or technical know-how, data, etc., will be returned back to the supplier. Reliance in this connection is strongly placed on the decision of the Madras High Court in Southern Structurals Ltd.'s case (supra). The assessee's representative pointed out that the decisions in CIT v. Abhijit Sen [1968] 68 ITR 23 (Cal.) and Hylam Ltd. v. CIT [1973] 87 ITR 310 (AP) have been overruled by the High Courts in Mysore Kirloskar Ltd. v. CIT [1978] 114 ITR 443 (Kar.) (FB) and Praga Tools Ltd.'s case (supra).
7. After giving our due and careful consideration to the facts of this case, we hold that the assessee is not entitled to deduction of the sum claimed by it as expenditure of a revenue nature. What the assessee secured under the agreement with Diamond, in pursuance of which the Diamond was allotted 600 equity shares, no doubt, was the right to obtain Diamond's existing engineering data and technical information designed, to enable the assessee to produce and sell the subject products, such as information in regard to machinery, tools, plants, methods, techniques employed by Diamond in manufacture and sale of products, drawings and specifications pertaining to the structure of the products, information relating to sources, etc. and also to get its personnel trained and instructed by Diamond in the manufacture and sale of the said products, etc. Similarly, in consideration of the allotment of equity shares of the value of Rs. 2 lakhs to TII, the latter was to make available to the assessee all its engineering data and technical information with respect to certain products and to no other party in the designated area ; to make available to the assessee the full benefits of all its existing permits from the Government or agencies thereof to manufacture and sell the products, etc. The technical information, data, drawings and specifications and other services to be provided by the two companies, Diamond and TII, no doubt, are intended to assist in the production or manufacture of the articles and goods contemplated by the parties. The agreements, in our view, contemplate continuous and uninterrupted feeding and supply of such technical information, data, etc., pertaining to the products to be manufactured.
The facts and circumstances in the present case in which the assessee has sought to secure for itself the said technical information, data, particulars, specifications, etc., are totally different from the facts and circumstances in which the assessees in the various decisions relied on have contracted to secure such information, data, particulars, specifications, drawings, etc. and this distinction, in fact, in our view, vitally affects the question in issue before us in this appeal.
8. We shall first of all consider the Supreme Court decision in CIT v.Ciba of India Ltd. [1968] 69 ITR 692, which appears to be a leading case. Even assuming that the collaboration agreement considered in that case is similar to the one in the present case, insofar as it contemplates the supply by the foreign (Swiss) company of technical data, information, specifications, etc., the vital distinguishing feature in that case was that in consideration of the right to receive scientific and technical assistance, the assessee in that case agreed to make payments, calculated at a certain percentage of the net sale price of the products sold by the assessee towards consultancy and technical services, cost of raw materials used for experimental work and royalties on trademark used by the assessee. Among the factors emphasised in the judgment in upholding the claim of the assessee is the fact that the stipulated payment was recurrent and dependent upon the sale and only for the period of the agreement, which was only for a period of five years, liable to be terminated even earlier in certain eventualities.
9. In Hindusthan General Electrical Corpn. Ltd.'s case (supra), a decision of the Calcutta High Court, the payment by the assessee-company, which was already in existence carrying on business of manufacture and sale of electrical goods, of royalty to the foreign company, Simplex Electric Company Ltd. of England, which was held to be allowable as a deduction was calculated at certain rates on the value of the products manufactured by the assessee and it was found that there were certain striking similarities in certain clauses of the agreement in that case and the agreement in the case of Ciba of India Ltd. (supra).
10. In the case of Lucas- T.V.S. Ltd. (supra), the payment contemplated under the collaboration agreement was calculated at 1 per cent of the factory cost of all licensed devices and spare parts for such devices manufactured and sold under one clause and under another clause in consideration of the licences and other rights granted under the agreement a royalty amounting to 2 per cent of the factory cost of all licensed devices and spare parts for such devices manufactured and sold were required to be paid. There was also another clause stating that in respect of the licensed devices which were exported outside the licensed territory, a royalty of 1 per cent in addition to fees and royalties mentioned above shall be paid. The Madras High Court considered that the principles laid down by the Supreme Court in Ciba of India Ltd's case (supra) applies to the facts of the case because the terms of the agreement extracted in the report appeared to be more or less similar to the one considered in the Supreme Court decision.
10A. Similarly, in I.A.E.C. (Pumps) Ltd.'s case (supra), the Madras High Court having regard to the various clauses of the agreement in that case with the foreign collaborator for use of licences and patents held that the payment therefor was only a licence fee and not the price for acquisition of any capital asset, applying the ratio of the Supreme Court decision in Ciba of India Ltd.'s case (supra).
11. In Antifriction Bearings Corpn. Ltd.'s case (supra), the payment of a guaranteed yearly royalty during the term of the contract for acquisition of know-how was held to be allowable as a business expenditure applying the ratio of the Supreme Court decision in Ciba of India Ltd.'s case (supra).
12. In Indian Telephone Industries Ltd.'s case (supra), under a collaboration with a foreign company, which was for a period of seven years, the foreign company, shortly referred to 'Standard', agreed to invest $ 1,250,000, of which the sum of $ 7,50,000 was to be in cash and the balance in know-how valued at $ 500,000 in the share capital of the assessee. It was entitled, among other things, to receive royalty.
During the accounting year relevant to the assessment years 1966-67 and 1967-68, the assessee had paid Rs. 5,95,000 and Rs. 5,96,000, respectively, towards the amount of $ 5,00,000 which it had to pay under the agreement and which 'Standard' had undertaken to invest with the assessee as share capital. It is these two sums which were claimed as a business expenditure under Section 37 of the Income-tax Act, 1961 ('the Act'). The payment was held by the High Court to be allowable applying the decision of the Supreme Court in Ciba of India Ltd.'s case (supra). The terms of the agreement in that case have not been elaborately set out in the report, but it appears that under the agreement the assessee was to pay in cash to 'Standard' $ 5,00,000, which the foreign company agreed to reinvest in the share capital of the assessee. It is to be noticed that the assessee-company in that case was already engaged in the manufacture of telephone and allied equipments, though of a different type before the collaboration agreement.
13. In Tata Engg. & Locomotive Co. (P.) Ltd.'s case (supra) payment made under collaboration agreement for obtaining technical know-how and training of personnel was held to be a revenue expenditure. The assessee in that case entered into two agreements, one with Daimler Benz and another with Henricot. The agreements provided for payment of royalty and a percentage of profit for provision of know-how. The details of the agreement set out show that the royalty was to be paid at a percentage of net sales and a share of profit to Daimler Benz and the payment to Henricot was a specified amount to be paid in the manner and instalments stipulated. The payments in both the cases were held to be allowable as a revenue expenditure.
14. In the case of Shriram Refrigeration Industries Ltd. (supra) a lump sum payment in addition to royalty based on sale price of manufactured articles under a collaboration agreement, under which the assessee obtained licence to manufacture and sell and where there was no transfer or parting with secret process and technical knowledge to the assessee, was held to be a revenue expenditure.
15. In Southern Structurals Ltd.'s case (supra) a payment made by the assessee under a collaboration agreement providing for supply of information and mutual obligations was held to be not a revenue expenditure because it was found that the assessee had acquired an enduring benefit under the agreement. The High Court noticed on a perusal of the agreement that the assessee had entered into an agreement with the foreign collaborator 'Metro' not only for the purpose of getting participation in the equity capital of the assessee, but also for getting technical assistance from the company. After noticing the fact that the agreement contemplated mutual obligations, the High Court noticed that according to Clause 4 of the agreement, considered to be crucial in the matter of consideration of the assessee's claim for allowance, that (sic) it provided that after the expiry of the agreement, the assessee will be free from any further obligation to pay any further amount to the foreign company while the assessee would have the continued use free of charge of all information made available by the foreign company during the period of the validity of the agreement.
16. In Fenner Woodroffe & Co. Ltd.'s case (supra), the assessee-company entered into an agreement for a period of ten years with a foreign company incorporated in England under which the foreign company agreed to make available the technical data relating to the manufacture of leather belting and also to permit the use of such technical data for purpose of manufacture of the products. The foreign company was also to provide foreign technicians to attend at the assessee-company's factory in India and also provide training facilities at the foreign company's works in England to technicians of the assessee-company. The assessee agreed to pay under the agreement a remuneration at the rate of one-half of one per cent of the amount of the ex-factory invoice prices of the Indian company in respect of the quantities of the product sold by the assessee-company. It was held by the High Court in that case that as there was no limitation in the agreement as to its endurability and the assessee could use the technical data and knowledge acquired even after the period of ten years and could deal with it as if it were their own asset, the amounts paid are not admissible as business expenditure under the Act.
17. In Jonas Woodhead & Sons India Ltd.'s case (supra), the assessee-company entered into an agreement with an English company for the manufacture of all types of springs and suspensions for road and rail vehicles as were being manufactured by the English company with the help of the technical knowledge and experience possessed by the English company in connection therewith. The agreement, inter alia, provided for the supply by the English company to the assessee-company of all technical information and know-how in its possession relating to the setting up of plants suitable for the manufacture of the licensed products and relating to the actual manufacture thereof including plant, drawings, estimates, specifications, manufacturing methods, blue-prints of production and testing equipment and other data and information necessary or desirable to enable the assessee-company to manufacture the licensed products and to set up proper and efficient plants therefor. Under the agreement, the assessee was to pay royalty to the English company at rates depending upon the turnover relating to the licensed products. The ITO treated one-fourth of the payments of royalty made by the assessee-company to the foreign company as representing consideration for services provided by the English company of an enduring nature and, hence, disallowed the same as being capital in nature. The High Court upheld the rinding that it was capital expenditure on the ground that the information and services were not confined only to the production of the licensed products but extended also to the setting up of the factory itself and, hence, had an element of capital expenditure imbedded in it.
18. In Shriram Refrigeration Industries Ltd.'s case (supra), it was held that if the collaboration agreement results in the absolute transfer of technical knowledge to the assessee, the assessee could be said to have acquired an asset of enduring advantage but where the payment is made only for obtaining access to information which does not become its own, the payments cannot be elevated to the status of payments of a capital nature.
19. It will be noticed that in almost all the cases stated above, in which the payments claimed by the assessees were held to be allowable as a revenue expenditure, there was an existing business which was already being carried on and the collaboration agreements generally provided for a period during which the agreement was to be in force and periodic or instalment payments were to be made in cash, which in a number of cases was based on either the value of the articles produced or manufactured or at a percentage of profits. But in every case, there was an obligation on the assessee to make payment of a certain sum of money in cash. Even in the case of Indian Telephone Industries Ltd. (supra), where the foreign collaborator 'Standard' under the agreement agreed to reinvest $ 5,00,000 in share capital of the assessee, the facts show that the assessee had actually paid two sums of Rs. 5,95,000 and Rs. 5,96,000 during the accounting years relevant to the assessment years 1966-67 and 1967-68 towards the amount of $ 5,00,000. It is these sums which were claimed as expenditure entitled to be deducted. The point we want to emphasize is that in all the cases, there was an obligation on the assessee-company to make certain payment for the supply of technical know-how and assistance by the foreign collaborator in respect of the products manufactured by the assessee and in most cases the assessee was already carrying on the business even before the collaboration agreement. In the case of the assessee before us, the facts are totally different. We have already set out some of the terms of the agreement between TII and Diamond, which by themselves show from the recitals therein that TII has taken Diamond as a sort of, in a loose sense, a partner in the business of manufacture and selling subject products, which it desired to engage in through the formation of a subsidiary Indian company, namely, the assessee. The agreement clearly stipulates that the initial capital of the Indian company shall be Rs 24 lakhs and the shareholding is to be in the ratio of 72 per cent and 27 1/2 per cent, respectively, between TII and Diamond.
20. It is necessary at this stage to highlight certain further terms of the agreement. Clause 5 of the agreement between Diamond and TII is material and we reproduce below : 5. diamond and TII agree that each of them will vote their equity shares in chain in such a manner and do any and all other acts required, so that : (a) an extraordinary general meeting of chain shall be convened as soon as practicable after the date upon which this agreement shall become effective and the necessary resolutions shall be passed thereat to amend the Articles of Association of chain substantially as set forth in Exhibit C or in such other manner and form as the legal advisers of chain in India shall consider appropriate to give effect to the purpose of such amendments ; (b) diamond shall have the right so long as it shall be an equity shareholder of chain holding 25 per cent or more of the equity share capital of chain to designate one director of chain or if there shall at any time be five or more directors not so designated, two directors ; (c) no additional equity shares will be issued within eighteen months after the date of incorporation of chain without written consent of diamond which consent shall not be unreasonably withheld by DIAMOND ; (d) chain will not incur any short-term or long-term borrowing in addition to that described in Section 4, other than in the ordinary course of business or for proper business purposes of chain at interest rates not in excess of these applying at the time for comparable borrowings.
According to Clause 6, the parties intend that production of chain both as to volume and types of products, shall be such as to meet, as the first priority the needs for original equipment produced by TII and its present and future subsidiaries (TI Miller Private Ltd. is stated to be at the relevant time the only present subsidiary) in the designated area. According to Clause 7, the parties further intend that the aims of chain shall be first to raise the production of cycle chains to a point where TII shall be independent of other sources of supply therefor for original equipment and replacements therefor made by TII and its subsidiaries and then to expand operations into the field of automotive and other industrial chains and sprockets. Under Clause 8, the parties further intend to conserve (so far as it may be practicable to do so without rendering chain subject to additional tax liabilities in India) the financial resources of chain by retaining in said company a high proportion of profits earned until production is achieved for a wide range of cycle, automotive and other industrial chains and sprockets and to maintain ample liquidity to assure performance of chain's obligations. Clause 11 puts a ban on any change or modification in any manner of the agreement except by an instrument in writing signed by a duly authorised officer of each of the parties. It is also to be noted that the Exhibit C styled 'To promoters' agreement' seeks to amend the Articles of Association of the assessee-company to suit the requirements of Diamond. In other words, TII agreed with Diamond to allow the latter participation in the new venture of business to be carried on through the assessee subsidiary company to the extent of 27| per cent in return for the assignment of trademarks and in consideration of the obligations undertaken by Diamond in regard to supply of technical information, engineering data, etc., relating to the manufacture of subject products. It is in pursuance of this agreement that the further agreement between the assessee and Diamond of the same date has been entered into under which the assessee agreed to allot 6,000 equity shares in consideration for the assignment of trademarks and 600 equity shares for the supply of Diamond's existing engineering data and technical information. It may be noted in passing that there is no similar agreement between the assessee-company and TII in regard to allotment of equity snares of Rs. 2 lakhs as contemplated in the agreement between TII and Diamond. At least none has been pointed out before us or brought to our attention and the allotment seems to have been made to TII on the basis of the agreement between TII and Diamond. Thus, what is obvious from the facts stated above is that there is no payment of any sums or money contemplated, or carried out, in regard to the obligations of either TII or Diamond of supply of technical information or engineering data or other services by the two participant shareholders. The agreement and the allotment pursuant thereto of the shares of the assessee-eompany, relate, therefore, to , the very framework or capital structure of the assessee-eompany and its existence and there is no payment of any sum or equivalent thereof for acquiring the technical know-how, engineering data or information. Even assuming that an expenditure incurred need not be in cash in a stipulated sum of money, but can include payment in kind by way of transfer of any property or assets, the transaction in the present case does not involve release or transfer to Diamond or to TII in return for supply of technical know-how, data, information, etc., of any asset or property owned by the assessee because the shares it allotted never constituted its asset or property as understood according to business, commercial or accounting principles and any one with a fair knowledge of company law knows that ordinarily a company cannot acquire or own its shares. The transaction merely gives to the foreign company Diamond or TII a right to participate in the management or administration of the business of the assessee in accordance with and subject to the memorandum and articles of association or other statutory provisions in this connection. Prior to the allotment of the shares to Diamond, the entire share capital of the assessee-eompany was held by TII and, thus, the assessee was a 100 percent subsidiary of TII and by the allotment the TII agreed to allow Diamond to participate in the administration and running of the business of the assessee-eompany and the profits thereof by way of dividend, if necessary, to the extent of 27 1/2 per cent. A limited company, under the Companies Act, is, subject to statutory provisions, entitled to raise capital or increase its existing capital by issue of shares either for payment in cash or for consideration otherwise than in cash. For instance, it can allot shares for any property or asset other than cash to be transferred to it or for services rendered or to be rendered. In all such cases, it is a mode of the company acquiring capital for its business and does not involve release of any of its assets including cash. Such a transaction, according to us, does not, in any view of the matter, involve an expenditure incurred by the company in carrying on its business. It may be noted that as a holder of equity shares covered by the concerned allotment, each of the allottee companies is entitled to a repayment of the capital amount and pro rata surplus profit in the event of liquidation or winding up of the company after meeting all other outside liabilities. In the circumstances, in our view, the cases relied on either by the assessee or by the department are totally distinguishable on facts and the principles stated therein will have no application to the facts of the present case. As already stated, in our view, the transaction involving allotment of shares by the assessee-company is in pursuance of the agreement between TII and Diamond for carrying on the business in what may be called a partnership through the medium of the assessee-company and it relates to the very framework or the formation and existence of the assessee-company by way of its shareholding and does not involve any payment of any sum by the assessee-compajiy or transfer of any asset owned and possessed by it to the foreign company, Diamond or the Indian Company TII ; the question as to whether the assessee acquired any capital asset by any expenditure incurred by it or the expenditure was only of a revenue nature does not arise for consideration. In the circumstances, we rejected the assessee's claim and uphold the findings of the departmental authorities that the assessee is not entitled to any deduction of the amounts claimed by it.