Dismissing the appeal of the assessee the Court held that, the memorandum of understanding with the foreign company resulted in setting up of a new business in the shape of joint venture. It was not merely a transfer of technical know-how, but extended to the level of rendering valuable services including the setting up of a factory. Though the royalty was to be paid over a period of seven years, there was no restriction on the assessee to continue with the manufacture and sale of products thereafter also. The expenditure was incurred at the pre-production stage and hence was capital expenditure. Ratio in Honda Siel Cars (India) Ltd. v. CIT (2017) 395 ITR 713 (SC) is explained. (AY. 1996 -97)
Saboo Berlac Laboratories Ltd. v. ACIT (2019) 416 ITR 389 (P&H)(HC)
S. 37(1) : Business expenditure-Capital or revenue-Royalty paid as percentage of sales for obtaining technical Know how for setting up new business—Held to be capital expenditure.