J.M.PANCHAL, J. - (1.) AT the instance of the Commissioner of Income -tax, Central, Ahmedabad, the Income -tax Appellate Tribunal, Bench 'B' ('the Tribunal', for short), has made the present reference to this court under section 256(1) of the Income -tax Act, 1961 ('the Act', for short), as the Tribunal was satisfied that two questions of law arise out of the order passed by it in Income -tax Appeal No. 1956/(Ahd.) of 1979.
(2.) THE reference has arisen in the background of the following facts : The assessee, Messrs. Sayaji Iron and Engineering Company, is a private limited company, which manufacturers road making machines, quarry equipments and turn -key plants. The assessee entered into two contracts with : (i) Klaus Gerd Hoes of West Germany, and (ii) Aulmnn and Neckscheulte of West Germany, on November 13, 1972, and March 26, 1973, respectively. The assessee received technical know -how for manufacture, construction and assembly of various sizes of jaw crushers, impact breakers, grinding attachments double shifts mixtures and curring and crushing machines under the contract with Aulmnn and Neckscheulte; whereas it received know -how for manufacture, construction and assembly for asphalt paver finishers models under the contract with Klaus Gerd Hoes. The contracts were to be operative initially for a period of five years, renewable for a further period of 5 years. The blue prints, drawings and information relating to the manufacture of the machinery under these know -how agreements were to be received by the assessee in West Germany within three months from the date of each contract coming into force. The assessee was to pay for the supply of the documents a sum of Rs. 2,40,000 to Aulmnn and Neckscheulte of West Germany and a sum of Rs. 1,10,000 to Klaus Gerd Hoes in five equal yearly instalments. The first instalment was payable within three months against airway bill as proof of dispatch of the necessary blue print and plan and the next four instalments in the four consecutive years after the first instalment. Besides, the assessee was to manufacture under licence from these two West German companies the machinery in question in accordance with technical know -how using the name of the two companies. For use of the patent, experience and know -how for manufacture of the machinery, the assessee was to pay a royalty at the rate of four per cent. of the net ex -factory sale price of the products. As a result of the abovereferred agreements, the assessee was required to pay Rs. 22,000 to Klaus Gerd Hoes of West Germany and Rs. 48,000 to Alumnn Neckscheulte of West Germany. The assessee submitted its return of income for the assessment year 1975 -76 declaring a total income of Rs. 9,45,826. Before the Income -tax Officer, the assessee claimed deduction of Rs. 70,000 paid to the above referred two foreign companies as revenue expenditure. The Income -tax Officer took the view that the documents pertaining to designs, blue prints and other information became the sole property of the assessee at the fixed cost of Rs. 2,40,000 payable to Aulmnn and Neckscheulte of West Germany and Rs. 1,10,000 payable to Klaus Gerd Hoes of West Germany and the payment in question of Rs. 70,000 was an expenditure of a capital nature. The Income -tax Officer, therefore, rejected the assessee's claim of deduction of Rs. 70,000 as revenue expenditure.
(3.) THE assessee, therefore, preferred an appeal before the Commissioner of Income -tax (Appeals), Baroda, without any success. The assessee thereupon filed Income -tax Appeal No. 1056/(Ahd.) of 1979 before the Tribunal.;