A lump sum payment made for technical assistance is allowable as a deduction in computing the profits and gains of a business if the expenditure is revenue in nature and is wholly and exclusively incurred for the purpose of carrying on the business.

( 1 ) THIS reference under Section 256 (1) of the I. T. Act, 1961, relates to the assessment year 1973-74. The Tribunal has referred to this court the following two questions, one at the instance of the assessee and the other at the instance of the Revenue :"1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of Rs. 66,666 should be allowed as a deductible revenue expenditure in computing profits and gains of the assessee's business during the accounting year relevant to the assessment year 1973-74 ? 2. Whether, on the facts and in the circumstances of the case, when the amount of Rs. 5,07,903 had not been transferred to a fund and the concerned amount had not gone irretrievably out of the coffers of the assessee having regard to the provisions of section 40a (7) of the Act with retrospective effect from 1st April, 1973, the Tribunal was right in disallowing the claim under the provisions of the Income-tax Act, 1961 ?"

( 2 ) SO far as the second question is concerned, which is at the instance of the Revenue, it must, in view of the decision of this court in the case of People's Engineering and Motor Works Ltd. v. CIT [1981] 130 ITR 174, be answered in the affirmative and in favour of the Revenue. We must, however, make it quite clear that in the previous decision, referred to hereinbefore, this court was concerned with a case where a provision for gratuity had been made. In the premises, this answer would not affect the consideration of any case where no provision has been made at all.

( 3 ) WE must now deal with the first question, which is at the instance of the assessee. In order to appreciate the said question, it would be necessary to refer to certain facts in the sense that in the assessment order for the relevant assessment year, the ITO disallowed Rs. 66,666 with reference to technical consultation by the assessee with Kaiser Aluminium Technical Services Inc. The assessee being aggrieved went up in appeal. The assessee relied upon the decision of the Tribunal for the earlier years. The decision of the Tribunal for the earlier years has not been made an annexure or a part of the paper book. But, as the Tribunal, in the instant case, has referred to the earlier years' decision, by consent of the parties, we are treating a copy of the said decision of the Tribunal, which was supplied to us, as jrecords of this case. The AAC, however, held that the Tribunal, in the earlier years, had not considered all the clauses of the agreement in question, specially cls. 6 and 7, and on a combined reading of all the clauses the payment of Rs. 12 lakhs was to secure the contractual obligation to render technical assistance for a period of 20 years and this lump sum payment, according to the AAC, was in addition to and quite apart from what the company would pay for obtaining know-how from year to year. The AAC had referred to certain cases and thereafter held that, on the facts and circumstances of this case and from whichever angle the expenditure of Rs. 12 lakhs might be looked at, the assessee was not entitled to deduction of any portion of the expenditure which was incurred in 1960 as business expenditure in computing the profits and gains of the assessee-company for the assessment year 1973-74.

( 4 ) BEING aggrieved by the said decision of the AAC, the assessee went up in appeal before the Tribunal and, on the authorities of the several decisions, contended that the Tribunal should not follow its previous decision. After a consideration of the matter and the different clauses, the Tribunal preferred to rely on its previous decision and came to the conclusion that Rs. 66,666 which was referable to expenditure incurred for the years the assistance was obtained from Kaiser Co. was allowable as deduction. The Tribunal had to deal with two main contentions, viz. , that the expenditure in question was capital in nature and, secondly, that the expenditure