SUHAS CHANDRA SEN, J. - (1.) THE following questions of law have been referred to this Court by the Tribunal under s. 256(1) of the IT Act, 1961 : R. A. No. 683 (Cal) of 1984 " 1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that royalty and commission payments to various foreign companies were in the nature of revenue expenses and that they should be allowed as business expenditure ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the commission and brokerage paid to agents were not in the nature of sales promotion expenses and, therefore, not disallowable under s. 37(3A) of the IT Act, 1961 ?" " 1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that royalty and commission payments to various foreign companies were in the nature of revenue expenses and that they should be allowed as business expenditure ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in deleting the disallowance made by the ITO under s. 40A(5) of the IT Act, 1961 ?" R. A. No. 685 (Cal) of 1984: " 1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that royalty and commission payments to various foreign companies were in the nature of revenue expenses and that they should be allowed as business expenditure ? 2.. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in deleting the disallowance made by the ITO under s. 40A(5) of the IT Act, 1961 ?" " 1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that royalty and commission payments to various foreign companies were in the nature of revenue expenses and that they should be allowed as business expenditure ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that commission and brokerage paid to agents were not in the nature of sales promotion expenses and therefore, not disallowances under s. 37(3A) of the IT Act, 1961 ?"
(2.) THE assessment years involved are the asst. yrs. 1976-77 to 1979-80 for which the relevant accounting periods are the financial years 1975-76, 1976-77, 1977-78 and 1978-79, respectively. The Tribunal has stated that the first question is common for all the assessment years under consideration. The Tribunal has recorded the following facts in the statement of case : The point involved related to the disallowance of payment of royalty and technical fees paid, to the foreign concerns by the assessee. The ITO noted in the assessment order for the assessment year 1976-77 that the assessee claimed deduction of Rs. 45,35,912 as royalty and technical fees paid to the foreign parties. The ITO noted the different amounts paid during the earlier years and the amounts debited during the year to those four foreign companies. He examined the agreement made between the assessee and M/s General Motors Corporation which was in respect of setting up a factory at Madras by providing technical knowledge and services for the manufacture of rear dump, scraper, front-end loader, etc. He pointed out that the foreign company would supply without charge, a reproducible copy of layout, detail and assembly drawings, specification, etc., and other items of technical information and know-how in order to enable the assessee to carry out the Euclid manufacturing programme. He also noted that, for the additional copies of the technical information, the assessee was charged by the foreign company at standard rates for such supply. He also pointed out that there was a provision for sending foreign technicians to the assessee for assisting in the work and that apart, he noted that the assessee was granted the right to use the technical information and know-how for the purpose of the above programme and that the assessee was also granted licence, to manufacture, use and to sell such components and, in consideration, the assessee was to pay licence fee at 6 1/2 per cent. of the net sale price to the foreign company.
(3.) THE ITO pointed out that the agreement covered a fairly long period of 12 years, after which the assessee would have the property in the information, specification and technique provided by the foreign company and it can exploit the same indefinitely without payment of further consideration.;