Decided on November 01,1983



CHADHA,J. - (1.)THESE two references, one at the instance of the assessee, and the other, at the instance of the Department, under S. 256(1) of the INCOME TAX ACT, 1961 (hereinafter referred to as "the Act"), raise the following questions :
(2.)AT the instance of the assessee:
"1. Whether, on the facts and in the circumstances of the case, the amount of Rs. 4 lakhs debited by the assessee to 'Deferred Revenue Expenditure Technical Know -how Payment Account' was expenditure of a capital nature ? 2. If answer to question No. 1 is in the affirmative, whether, on the facts and in the circumstances of the case, the Tribunal erred in law in holding that the assessee -company was not entitled to depreciation in respect of the said amount of Rs. 4 lakhs ?"

At the instance of the Revenue :

"Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in upholding the deletion of Rs. 1,49,098 representing the profit on devaluation of pound sterling from the taxable income of the assessee -company for the asst. year 1969 -70?

(3.)THE assessee is a public limited company doing business in the manufacture of turbines and other machinery for sugar mills. It entered into two agreements with two parties of England, namely, the Peter Brotherhood Ltd. (hereinafter referred to as "Brotherhood") and the Bookers Sugar Machinery Group Ltd. (hereinafter referred to as "Sugar Group"). The agreement with the Brotherhood was dated June 1, 1961, and was in connection with turbine. The second agreement with the Sugar Group was of June 2, 1961, and concerned sugar mill machinery. In pursuance of these agreements, an amount of 40,000 was paid to Brotherhood and 50,000 was paid to Sugar Group in the accounting year relevant to the asst. year 1963 -64 by the assessee -company. The assessment year in question in these references is 1969 -70, its previous year having expired on May 31, 1968. At the time of payment of the aforesaid amounts of 40,000 and 50,000 as aforesaid, both the Brotherhood and Sugar Group advanced to the assessee -company 40,000 and 50,000, respectively, to be paid back in ten equal instalments. The amount of 90,000 paid under the agreements was equivalent to Rs. 12 lakhs. The assessee -company in its books of account capitalised an amount of Rs. 8 lakhs and added it to the cost of plant and machinery. In regard to the balance of Rs. 4 lakhs, it debited an account called "Deferred Revenue Expenditure Technical Know -how Payment" with the amount of Rs. 4 lakhs. It carried forward this balance for two years but in the year of account ending on May 31, 1964, it wrote off an amount of Rs. 50,000 out of this amount. In the next three years, it wrote off amounts of Rs. 50,000, Rs. 50,000 and Rs. 90,390, respectively. The assessee claimed these amounts as deductions while determining its profits on the ground that they were expenditure of revenue nature. The IT authorities, however, disallowed those deductions on the ground that they were clearly of capital nature resulting in a benefit of lasting nature to the company. Those decisions of the Revenue were upheld by two different Benches of the Tribunal. For the four assessment years, namely, asst. yrs. 1965 -66 to 1968 -69, two identical questions, besides other questions, were referred to this Court for its opinion.

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