Rc/147/1996 Of Commissioner Of Income Tax v. Kadevi Engineering Co. (P) Ltd

THE HON’BLE SRI JUSTICE V.V.S.RAOANDTHE HON’BLE SRI JUSTICE B.N.RAO NALLA REFERENCE CASE No.147 of 1996 Dated:28.11.2011 Between: Commissioner of Income Tax, AP.I, Hyderabad. …Applicant and Kadevi Engineering Co.(P) Ltd., Hyderabad. …Respondent THE HON’BLE SRI JUSTICE V.V.S.RAOANDTHE HON’BLE SRI JUSTICE B.N.RAO NALLA REFERENCE CASE No.147 of 1996 ORDER:(Per Hon’ble Sri Justice V.V.S.Rao) This is a reference under Section 256(1) of the Income Tax Act, 1961. The question referred by the Income Tax Appellate Tribunal for the decision of this Court is as follows. Whether on the facts and in the circumstances of thecase, the ITAT was justified in law in holding that theexpenditure of Rs.1,55,583/- (being final payment of 1/3[rd]consideration) incurred towards technical know-how(including drawings and documentations) was anallowable revenue expenditure? To the extent necessary for disposal of the reference thebrief fact of the matter is as follows. The respondent (assessee)is in the business of electronic items like antenna, amplifiers etc., and is engaged in the manufacture of telescopic serial masts usedin the Telecommunications and the Defence Departments. So asto incorporate latest technical developments in its products, theassessee obtained technical know-how from M/s.Hillo MastLimited, U.K., duly paying the first instalment of consideration ofRs.1,51,396/- for the assessment year 1981-1982. During thatassessment year, the assessee claimed it as revenueexpenditure, but it was not allowed by the Income Tax Officer,which was confirmed by the Commissioner of Income Tax(Appeals). In their appeal, before the Tribunal, placing reliance onthe decision of the Supreme Court in Empire Jute Co. Ltd. vCommissioner of Income Tax[[1]]and a Full Bench decision ofthis Court in Praga Tools Ltd. v Commissioner of IncomeTax[[2]], the Tribunal held that the amounts paid towards technicalknow-how are allowable as revenue expenditure. The second instalment of consideration to technicalknow-how was paid during 1982-1983 and the third instalment ofRs.1,55,583/- was paid during 1984-1985. Even for this year also,the Income Tax Officer rejected the deduction as revenueexpenditure. But the Commissioner of Income Tax (Appeals)allowed the appeal and directed the Income Tax Officer to treat theexpenditure towards technical know-how as revenue expenditure. Aggrieved thereby, an appeal was preferred before the Tribunal,which was dismissed. Therefore, the Revenue sought thereference. I n Commissioner of Income Tax v M/s.KadeviEngineering Company (P) Ltd., (unreported order in R.C.No.58of 1993, dated 30.11.2004), involving the same assessee, aDivision Bench of this Court considered a similar question and answered the question in favour of the assessee and against theRevenue. Following the decision in R.C.No.58 of 1993, the questionreferred is answered in the affirmative in favour of the assesseeand against the Revenue. The Reference Case shall stand disposed of accordinglywithout any order as to costs. _______________ (V.V.S.RAO, J) 28.11.2011vs ____________________ (B.N.RAO NALLA, J) [1](1980) 124 ITR 1(1980) 124 ITR 1 [2](1980) 123 ITR 773(1980) 123 ITR 773