COMMISSIONER OF INCOME TAX CENTRAL Vs. HINDUSTHAN GENERAL ELECTRICAL CORPORATION LTD

JUDGEMENT

(1.) The assessment year is 1959-60 for which the previous year ended on the 31st July, 1958. The assessee is a public limited company. It carries on the business of manufacture and sale of certain electrical goods. On the 21st May, 1956, the assessee entered into an agreement with Messrs. Simplex Electric Company Ltd. of England (hereinafter sometimes called the " foreign company "}. By this agreement the assessee acquired certain rights to manufacture and sell in India products of " Simplex " design and to use the trade name " Simplex " on the terms and conditions therein mentioned. Some of the clauses of this agreement which the Tribunal has quoted in the statement of the case are as follows :

(2.) During the previous year the assessee paid to the foreign company Rs. 5,360 for the cost of preparing and providing prints, designs, drawings, specifications, instructions and other information in terms of Clause 3(a) of the agreement. The assessee also paid a sum of Rs. 13,938 under Clause 9(a) of the agreement being royalty based on specified percentages. The Income-tax Officer allowed a deduction of Rs. 5,360 but disallowed the claim for deduction of Rs. 13,938 on the ground that it represented expenditure of a capital nature.

(3.) The Appellate Assistant Commissioner held that the expenditure of Rs. 13,938 depended upon production and did not bring into existence any assets of an enduring nature. He allowed the sum of Rs. 13,938 as deduction in computing the assessee's business profit.