I paid a foreign firm a lump sum for technical know-how that raised the yield of a product I was already making. The Assessing Officer says section 37(1) is shut because I bought an asset of enduring benefit. Is the payment capital?
Not on these facts. The Supreme Court held that the outlay was for the better conduct and improvement of the existing business and was therefore revenue. It reached that by refusing to treat the once-for-all payment and the enduring benefit as decisive: those ideas are not statutory conditions, there is no single definitive criterion, and what matters is the purpose of the outlay and its intended object and effect, judged in a common-sense way with regard to business realities. In a fast-moving field the know-how itself may lack the durability an enduring capital asset needs.
Decided by the Supreme Court (Supreme Court of India - M.N. Venkatachaliah J, with R.S. Pathak CJ on the Bench) on 1989-03-31, reported as [1989] 177 ITR 377 (SC); Civil Appeal No. 43 (NT) of 1975, with the supplementary reference arising out of ITA No. 24 of 1971. It bears on section 37, section 37(1), section 256(1), section 256(2), section 34 (Act of 2025) of the Income Tax Act 1961, in Deductions & Disallowances and How Tax Law Is Read matters.
Every capital-or-revenue argument about a payment for technology, process improvement, software, designs or a collaboration agreement runs into the enduring-benefit test, and this is the judgment that tells a practitioner how much weight that test can bear. Its value is in two parts. The first is the method: the Court sets out seven formulations from three jurisdictions and shows that they do not agree, and then says in terms that they are useful servants but over-exacting masters, that no single criterion is determinative and that the once-for-all test is inconclusive. That is the answer to an officer who treats a lump sum as capital because it was paid once. The second is the factual test the case actually supplies, and it is narrower and more useful than the quotations: was the outlay for the better conduct and improvement of a business already being carried on, or did it bring a new venture into existence? The Court answered that on three things - the same product before and after, an existing plant that remained relevant, and contractual terms that gave a right to use rather than an exclusive acquisition. Those are the three matters to put on the file. Read together with Jonas Woodhead, which applies the same reasoning and reaches the opposite result on facts where the foreign firm built the factory, the pair marks out both sides of the line.
Binding on every court and authority in India.
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The assessee, a company manufacturing antibiotics and pharmaceuticals, was licensed on 8 June 1961 to manufacture penicillin on its plant. In the early years its penicillin-producing strains yielded only about 5,000 units per millilitre of the culture medium. In 1963 it negotiated with M/s Meiji Seika Kaisha Limited of Japan, which agreed to supply the technical know-how needed to achieve more than 10,000 units per millilitre with better technology, a better fermentation process and better-yielding strains. By an agreement of 9 October 1963, in consideration of a once-for-all payment of 50,000 US dollars, then Rs.2,39,625, Meiji agreed to supply sub-cultures of its most suitable penicillin-producing strains, the technical information, know-how and written description of its fermentation process with a flow sheet of the process on a pilot plant, the design and specifications of the main equipment in such a pilot plant, to arrange visits and training for the assessee's technical representatives at the assessee's expense, and to advise on large-scale manufacture for a period limited to two years from the effective date. The know-how was to be kept confidential and secret, the assessee was prohibited from parting with it and from seeking any patent for the process. For assessment year 1964-65 the assessee claimed the sum as revenue expenditure. The Income-tax Officer held it capital, as being for the acquisition of an asset or advantage of enduring benefit, and the Appellate Assistant Commissioner agreed. The Tribunal dismissed the further appeal, holding that the arrangement envisaged a new venture on a new process with a new technology on a new type of plant, and recording that a completely new plant with a completely new process and a completely new technical know-how was obtained. The Gujarat High Court, on a reference under section 256(1), answered against the assessee on 23 January 1974 and dismissed an application under section 256(2) for a second question. This Court directed a supplementary statement of the case, so both questions came before it.
The appeal was allowed with no order as to costs. The first question was answered in the affirmative and against the Revenue, and the supplementary question in the negative and against the Revenue; the judgment under appeal was set aside. On the facts the Court held there was no material for the Tribunal to record the finding that the assessee had obtained under the agreement a completely new plant with a completely new process and a completely new technical know-how, and that the High Court, while recognising the fallacy in the assumption about a new plant, had nevertheless proceeded on the footing that a completely new process and technical know-how had been obtained. The improvisation in the process and technology in some areas of the enterprise was supplemental to the existing business and there was no material to hold that it amounted to a new or fresh venture; the agreement pertained to a product already in the line of the assessee's established business and not to a new product, which indicated an improvement in the operations of the existing business and its efficiency and profitability not removed from the area of day-to-day business. The financial outlay was accordingly for the better conduct and improvement of the existing business and was revenue expenditure. On the law the Court held that in the infinite variety of situational diversities it is well nigh impossible to formulate any general rule, that the suggested tests are generally efficacious and serve as useful servants but as masters tend to be over-exacting, that the idea of once-for-all payment and enduring benefit are not to be treated as something akin to statutory conditions, that there is no single definitive criterion which by itself is determinative, that the once-for-all payment test is inconclusive, and that what is relevant is the purpose of the outlay and its intended object and effect considered in a common-sense way having regard to business realities. It added that the rapid strides in science and technology in this field should make a court a little slow and circumspect in too readily pigeon-holing such an outlay as capital, and that the confidentiality and non-partibility conditions inclined towards the inference that the right pertained more to the use of the know-how than to its exclusive acquisition.
Section 37 was the provision in issue, and the Court set out at the start what it requires: in computing the income chargeable under the head profits and gains of business or profession it allows expenditure laid out or expended wholly and exclusively for the purpose of the business, but the fact that an item is wholly and exclusively laid out for the business is not by itself enough, because the expenditure must also not be in the nature of capital expenditure. Everything that follows is about that second condition. The Tribunal had decided the case on a single finding: that what the assessee bought was a new plant, a new process and new technology, and therefore a new venture. Once that finding stood, the conclusion followed. The Court's first move was to ask whether there was any material for it, and it held there was none. The High Court had itself noticed that no new plant had been obtained, and had then carried the rest of the finding forward anyway. With the finding gone, the question had to be decided afresh, and the Court used the occasion to say something general about how it should be decided. The survey it conducted is unusually complete - City of London Contract Corporation v Styles for the distinction between acquiring and carrying on a concern, Vallambrosa Rubber for the once-for-all criterion, Atherton for the enduring benefit, Assam Bengal Cement for the Indian formulation, Sun Newspapers for the three matters Dixon J identified, Regent Oil for Lord Reid's warning against treating one criterion as paramount, B.P. Australia for the common-sense appreciation of all the guiding features. The purpose of the survey is to show that the tests disagree with one another and that none of them is a rule. From that the Court drew the sentence the case is known for, and it is a sentence about legal method rather than about know-how. Tests are servants, not masters. Once-for-all and enduring benefit are not statutory conditions. Capital and revenue are not eternal verities but must respond to the changing economic realities of business. The enduring-benefit formula was evolved to emphasise a sufficient degree of durability appropriate to the context - which is to say it asks a question about degree, and a question about degree has to be answered on the facts. Applied here, the answer came from three facts. The product was penicillin before and after. The plant already built, put in the argument for the assessee at an outlay of more than Rs.66 lakhs, was not shown to have become obsolete or irrelevant. And the agreement itself, in the clauses the Court set out, gave a limited advisory obligation for two years and imposed confidentiality, non-partibility and a bar on patenting - the marks of a licence to use, not of an acquisition. The last step is the one that gives the judgment its modern reach. The Court held it unrealistic to attribute a degree of endurability and permanence to technical know-how at any particular stage in a fast-changing area of science, because the state of the art is constantly updated. Durability is an attribute of the thing acquired, not only of the contract.
The idea of 'once for all' payment and 'enduring benefit' are not to be treated as something akin to statutory conditions; nor are the notions of 'capital' or 'revenue' a judicial fetish. What is capital expenditure and what is revenue are not eternal verities but must needs be flexible so as to respond to the changing economic realities of business.
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Handle my notice → Ask a CA on WhatsAppNot on these facts. The Supreme Court held that the outlay was for the better conduct and improvement of the existing business and was therefore revenue. It reached that by refusing to treat the once-for-all payment and the enduring benefit as decisive: those ideas are not statutory conditions, there is no single definitive criterion, and what matters is the purpose of the outlay and its intended object and effect, judged in a common-sense way with regard to business realities. In a fast-moving field the know-how itself may lack the durability an enduring capital asset needs. This was decided by the Supreme Court (Supreme Court of India - M.N. Venkatachaliah J, with R.S. Pathak CJ on the Bench) and bears on section 37, section 37(1), section 256(1), section 256(2), section 34 (Act of 2025) of the Income Tax Act 1961. It is reported as [1989] 177 ITR 377 (SC); Civil Appeal No. 43 (NT) of 1975, with the supplementary reference arising out of ITA No. 24 of 1971. Every capital-or-revenue argument about a payment for technology, process improvement, software, designs or a collaboration agreement runs into the enduring-benefit test, and this is the judgment that tells a practitioner how much weight that test can bear. Its value is in two parts. The first is the method: the Court sets out seven formulations from three jurisdictions and shows that they do not agree, and then says in terms that they are useful servants but over-exacting masters, that no single criterion is determinative and that the once-for-all test is inconclusive. That is the answer to an officer who treats a lump sum as capital because it was paid once. The second is the factual test the case actually supplies, and it is narrower and more useful than the quotations: was the outlay for the better conduct and improvement of a business already being carried on, or did it bring a new venture into existence? The Court answered that on three things - the same product before and after, an existing plant that remained relevant, and contractual terms that gave a right to use rather than an exclusive acquisition. Those are the three matters to put on the file. Read together with Jonas Woodhead, which applies the same reasoning and reaches the opposite result on facts where the foreign firm built the factory, the pair marks out both sides of the line. If it applies to you, the first step is this: Show that the product and the business are the same before and after. The Court's finding was that the business from the commencement of the plant in 1961 was the manufacture of penicillin and that even after the agreement the product manufactured continued to be penicillin.
The assessee, a company manufacturing antibiotics and pharmaceuticals, was licensed on 8 June 1961 to manufacture penicillin on its plant. In the early years its penicillin-producing strains yielded only about 5,000 units per millilitre of the culture medium. In 1963 it negotiated with M/s Meiji Seika Kaisha Limited of Japan, which agreed to supply the technical know-how needed to achieve more than 10,000 units per millilitre with better technology, a better fermentation process and better-yielding strains. By an agreement of 9 October 1963, in consideration of a once-for-all payment of 50,000 US dollars, then Rs.2,39,625, Meiji agreed to supply sub-cultures of its most suitable penicillin-producing strains, the technical information, know-how and written description of its fermentation process with a flow sheet of the process on a pilot plant, the design and specifications of the main equipment in such a pilot plant, to arrange visits and training for the assessee's technical representatives at the assessee's expense, and to advise on large-scale manufacture for a period limited to two years from the effective date. The know-how was to be kept confidential and secret, the assessee was prohibited from parting with it and from seeking any patent for the process. For assessment year 1964-65 the assessee claimed the sum as revenue expenditure. The Income-tax Officer held it capital, as being for the acquisition of an asset or advantage of enduring benefit, and the Appellate Assistant Commissioner agreed. The Tribunal dismissed the further appeal, holding that the arrangement envisaged a new venture on a new process with a new technology on a new type of plant, and recording that a completely new plant with a completely new process and a completely new technical know-how was obtained. The Gujarat High Court, on a reference under section 256(1), answered against the assessee on 23 January 1974 and dismissed an application under section 256(2) for a second question. This Court directed a supplementary statement of the case, so both questions came before it. The matter was decided on 1989-03-31 by the Supreme Court (Supreme Court of India - M.N. Venkatachaliah J, with R.S. Pathak CJ on the Bench). On those facts the Supreme Court held as follows. The appeal was allowed with no order as to costs. The first question was answered in the affirmative and against the Revenue, and the supplementary question in the negative and against the Revenue; the judgment under appeal was set aside. On the facts the Court held there was no material for the Tribunal to record the finding that the assessee had obtained under the agreement a completely new plant with a completely new process and a completely new technical know-how, and that the High Court, while recognising the fallacy in the assumption about a new plant, had nevertheless proceeded on the footing that a completely new process and technical know-how had been obtained. The improvisation in the process and technology in some areas of the enterprise was supplemental to the existing business and there was no material to hold that it amounted to a new or fresh venture; the agreement pertained to a product already in the line of the assessee's established business and not to a new product, which indicated an improvement in the operations of the existing business and its efficiency and profitability not removed from the area of day-to-day business. The financial outlay was accordingly for the better conduct and improvement of the existing business and was revenue expenditure. On the law the Court held that in the infinite variety of situational diversities it is well nigh impossible to formulate any general rule, that the suggested tests are generally efficacious and serve as useful servants but as masters tend to be over-exacting, that the idea of once-for-all payment and enduring benefit are not to be treated as something akin to statutory conditions, that there is no single definitive criterion which by itself is determinative, that the once-for-all payment test is inconclusive, and that what is relevant is the purpose of the outlay and its intended object and effect considered in a common-sense way having regard to business realities. It added that the rapid strides in science and technology in this field should make a court a little slow and circumspect in too readily pigeon-holing such an outlay as capital, and that the confidentiality and non-partibility conditions inclined towards the inference that the right pertained more to the use of the know-how than to its exclusive acquisition.
Section 37 was the provision in issue, and the Court set out at the start what it requires: in computing the income chargeable under the head profits and gains of business or profession it allows expenditure laid out or expended wholly and exclusively for the purpose of the business, but the fact that an item is wholly and exclusively laid out for the business is not by itself enough, because the expenditure must also not be in the nature of capital expenditure. Everything that follows is about that second condition. The Tribunal had decided the case on a single finding: that what the assessee bought was a new plant, a new process and new technology, and therefore a new venture. Once that finding stood, the conclusion followed. The Court's first move was to ask whether there was any material for it, and it held there was none. The High Court had itself noticed that no new plant had been obtained, and had then carried the rest of the finding forward anyway. With the finding gone, the question had to be decided afresh, and the Court used the occasion to say something general about how it should be decided. The survey it conducted is unusually complete - City of London Contract Corporation v Styles for the distinction between acquiring and carrying on a concern, Vallambrosa Rubber for the once-for-all criterion, Atherton for the enduring benefit, Assam Bengal Cement for the Indian formulation, Sun Newspapers for the three matters Dixon J identified, Regent Oil for Lord Reid's warning against treating one criterion as paramount, B.P. Australia for the common-sense appreciation of all the guiding features. The purpose of the survey is to show that the tests disagree with one another and that none of them is a rule. From that the Court drew the sentence the case is known for, and it is a sentence about legal method rather than about know-how. Tests are servants, not masters. Once-for-all and enduring benefit are not statutory conditions. Capital and revenue are not eternal verities but must respond to the changing economic realities of business. The enduring-benefit formula was evolved to emphasise a sufficient degree of durability appropriate to the context - which is to say it asks a question about degree, and a question about degree has to be answered on the facts. Applied here, the answer came from three facts. The product was penicillin before and after. The plant already built, put in the argument for the assessee at an outlay of more than Rs.66 lakhs, was not shown to have become obsolete or irrelevant. And the agreement itself, in the clauses the Court set out, gave a limited advisory obligation for two years and imposed confidentiality, non-partibility and a bar on patenting - the marks of a licence to use, not of an acquisition. The last step is the one that gives the judgment its modern reach. The Court held it unrealistic to attribute a degree of endurability and permanence to technical know-how at any particular stage in a fast-changing area of science, because the state of the art is constantly updated. Durability is an attribute of the thing acquired, not only of the contract. In the words reproduced by the source cited on this page: "The idea of 'once for all' payment and 'enduring benefit' are not to be treated as something akin to statutory conditions; nor are the notions of 'capital' or 'revenue' a judicial fetish. What is capital expenditure and what is revenue are not eternal verities but must needs be flexible so as to respond to the changing economic realities of business." The decision followed or applied Commissioner of Income-tax, Bombay City I v CIBA of India Ltd., [1968] 2 SCR 696 - referred to at 705; Empire Jute Co. Ltd. v Commissioner of Income-Tax, [1980] 124 ITR 1 - through the passage set out from Commissioner of Income-tax, Bombay v Associated Cement Co. Ltd.; Assam Bengal Cement Co. Ltd. v Commissioner of Income-tax, [1955] 27 ITR 34 - the Indian formulation of the test; Regent Oil Co. Ltd. v Strick, [1966] AC 295 - Lord Reid on the futility of exclusive dependence on any single principle; B.P. Australia v Commissioner of Taxation of the Commonwealth of Australia, [1966] AC 224 - Lord Pearce on a common-sense appreciation of all the guiding features.
It was decided by the Supreme Court on 1989-03-31 and is reported as [1989] 177 ITR 377 (SC); Civil Appeal No. 43 (NT) of 1975, with the supplementary reference arising out of ITA No. 24 of 1971. Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 37, section 37(1), section 256(1), section 256(2), section 34 (Act of 2025), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The appeal was allowed with no order as to costs. The first question was answered in the affirmative and against the Revenue, and the supplementary question in the negative and against the Revenue; the judgment under appeal was set aside. On the facts the Court held there was no material for the Tribunal to record the finding that the assessee had obtained under the agreement a completely new plant with a completely new process and a completely new technical know-how, and that the High Court, while recognising the fallacy in the assumption about a new plant, had nevertheless proceeded on the footing that a completely new process and technical know-how had been obtained. The improvisation in the process and technology in some areas of the enterprise was supplemental to the existing business and there was no material to hold that it amounted to a new or fresh venture; the agreement pertained to a product already in the line of the assessee's established business and not to a new product, which indicated an improvement in the operations of the existing business and its efficiency and profitability not removed from the area of day-to-day business. The financial outlay was accordingly for the better conduct and improvement of the existing business and was revenue expenditure. On the law the Court held that in the infinite variety of situational diversities it is well nigh impossible to formulate any general rule, that the suggested tests are generally efficacious and serve as useful servants but as masters tend to be over-exacting, that the idea of once-for-all payment and enduring benefit are not to be treated as something akin to statutory conditions, that there is no single definitive criterion which by itself is determinative, that the once-for-all payment test is inconclusive, and that what is relevant is the purpose of the outlay and its intended object and effect considered in a common-sense way having regard to business realities. It added that the rapid strides in science and technology in this field should make a court a little slow and circumspect in too readily pigeon-holing such an outlay as capital, and that the confidentiality and non-partibility conditions inclined towards the inference that the right pertained more to the use of the know-how than to its exclusive acquisition. It arises in Deductions & Disallowances and How Tax Law Is Read matters, on section 37, section 37(1), section 256(1), section 256(2), section 34 (Act of 2025) of the Income Tax Act 1961, and was decided by Supreme Court of India - M.N. Venkatachaliah J, with R.S. Pathak CJ on the Bench. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Show that the existing plant remained relevant. Put on the file what the plant cost, that it was not scrapped, and that the improvement did not require a new one. The Court held there was no material for the Tribunal's finding that a completely new plant with a completely new process had been obtained. Read the agreement for what it gives you and for how long. Clauses that keep the information confidential, forbid you to part with it and forbid you to patent it point to a right to use rather than an exclusive acquisition, and the Court said so. Where the technology is one that dates quickly, say so and evidence it. The Court held it unrealistic to attribute a degree of endurability and permanence to know-how in a fast-changing area of science. Quote the whole passage, not the first clause. The Court did not abolish the enduring-benefit test; it held that the test may break down and that no single criterion is determinative. Before running this on a current year, check whether the payment falls under section 35AB or into the intangible-asset block, because that is a question of the law of your own year and this judgment does not answer it.
Still good law. The decision stands and the passage about the once-for-all payment and the enduring benefit is one of the most quoted in Indian tax law: eighty-eight later court and Tribunal documents carry the sentence about the judicial fetish. The Supreme Court itself set the passage out at length eight years later in Jonas Woodhead and Sons (India) Ltd. v Commissioner of Income Tax, decided 11 February 1997, and High Courts have reproduced it repeatedly - the Kerala High Court in Vanaja Textiles on 29 October 1993, the Gujarat High Court in Deepak Nitrite on 23 June 1998 and in Gujarat Carbon on 5 December 2001, the Madras High Court in Janakiram Mills on 29 April 2005, the Allahabad High Court in Prem Heavy Engineering Works on 9 August 2005. What has to be watched is the pull between this case and Jonas Woodhead, and it is not a conflict. Alembic decides that a payment for know-how which improves an existing line of production is revenue, because the product stayed the same, the existing plant stayed relevant, and the know-how in that field lacks the durability of a capital asset. Jonas Woodhead decides that where the foreign firm not only supplied know-how but designed and set up the factory for a new business, and the assessee could go on manufacturing after the agreement ended, part of the payment is capital - and it says so while applying Alembic's own reasoning. The two together give the question its shape: same business improved, or new business established. There is a statutory overlay this judgment could not have. Section 35AB, giving a spread deduction for lump sum consideration for know-how, was inserted with effect from 1 April 1986 and ceased to apply to expenditure incurred after 31 March 1998, after which know-how went into the intangible-asset block for depreciation. This case concerns assessment year 1964-65 and says nothing about either regime, so a modern claim has to be located in the law of its own year first. The Income-tax Act, 1961 was repealed on 1 April 2026 by section 536(1) of the Income-tax Act, 2025, and section 536(2)(c) continues it for proceedings about tax years beginning before that date. The general deduction is now section 34 of the 2025 Act. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
This record was built from the judgment itself, and the sentence it turns on needed more care than usual for a reason that should be stated plainly. The copy read prints a reporter's headnote and a numbered summary of the holding above the judgment, and that summary carries the famous sentence too, so the sentence has travelled in two forms. The version quoted on this page was taken from the body of the opinion, where it stands immediately before the Court recalls the words of Rich J. in Herring v Federal Commissioner of Taxation, and some way ahead of the passage on B.P. Australia. That placement matters: the sentence is offered as part of an argument about how to read a statute that has not spoken, not as a free-standing rule. The copy read also carries two evident transcription slips in that very sentence, printing judical for judicial and varities for verities. The spellings used here follow the reproductions in other courts, which are consistent with one another - the Supreme Court's own later judgment in Jonas Woodhead among them. Anyone quoting the passage should quote the whole of it rather than the first clause. The Court did not say that the enduring-benefit test is wrong. It said the test was evolved to emphasise a sufficient degree of durability appropriate to the context, that there is no single definitive criterion, that the once-for-all test is inconclusive, and that in a given case the test of enduring benefit might break down. Those are four separate propositions, and in practice the second and the third are the ones that decide most disputes about a lump sum. One caution, and it is why this record is marked as a trap. The case is filed as a taxpayer's case and the result was a complete win, but it is cited far more often than it is read. What it holds is that the outlay was for the better conduct and improvement of the existing business. Every step in the reasoning is tied to that finding - the same product, the same plant, an improvement in yield. Where the payment brings a new line into existence, or the plant has to be replaced, the case points the other way, and the Supreme Court said so itself when it applied Alembic's reasoning in Jonas Woodhead and dismissed the assessee's appeal. The judgment does not apportion. The whole of the payment was held revenue, and the Court never considered whether a composite payment might be split. That question was decided the other way on different facts in Jonas Woodhead and Sons (India) Ltd. v Commissioner of Income Tax, where the Supreme Court upheld a finding that a quarter of a running royalty was capital because the foreign firm had set up the factory for a new business; so a taxpayer who cites Alembic against any suggestion of apportionment is citing it for something it did not decide. It does not lay down a rule about know-how payments as a class. The Court was explicit that there is no single definitive criterion, and it reached its result on findings about this business: that penicillin was and remained the product, that the plant put up in 1961, said in argument to have cost more than Rs.66 lakhs, was not shown to have become obsolete, and that the confidentiality and non-partibility clauses pointed to a right to use rather than an exclusive acquisition. It does not deal with section 35AB or with the later treatment of know-how as a depreciable intangible, neither of which existed for the year before it. It does not decide what happens where the technology is not in a fast-moving field. The observation that rapid advances in antibiotic medical microbiology make it unrealistic to attribute durability to the know-how is tied to that science. The Court did not say that all technical know-how lacks the requisite durability. It does not settle the treatment of the expenditure on the assessee's side of the account beyond allowing the deduction. The figures for the later years, the fate of the plant, and whether any part of the payment was for the pilot plant design as distinct from the strains are not dealt with; the agreement is set out in three clauses and the Court worked from those. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeal was allowed with no order as to costs. The first question was answered in the affirmative and against the Revenue, and the supplementary question in the negative and against the Revenue; the judgment under appeal was set aside. On the facts the Court held there was no material for the Tribunal to record the finding that the assessee had obtained under the agreement a completely new plant with a completely new process and a completely new technical know-how, and that the High Court, while recognising the fallacy in the assumption about a new plant, had nevertheless proceeded on the footing that a completely new process and technical know-how had been obtained. The improvisation in the process and technology in some areas of the enterprise was supplemental to the existing business and there was no material to hold that it amounted to a new or fresh venture; the agreement pertained to a product already in the line of the assessee's established business and not to a new product, which indicated an improvement in the operations of the existing business and its efficiency and profitability not removed from the area of day-to-day business. The financial outlay was accordingly for the better conduct and improvement of the existing business and was revenue expenditure. On the law the Court held that in the infinite variety of situational diversities it is well nigh impossible to formulate any general rule, that the suggested tests are generally efficacious and serve as useful servants but as masters tend to be over-exacting, that the idea of once-for-all payment and enduring benefit are not to be treated as something akin to statutory conditions, that there is no single definitive criterion which by itself is determinative, that the once-for-all payment test is inconclusive, and that what is relevant is the purpose of the outlay and its intended object and effect considered in a common-sense way having regard to business realities. It added that the rapid strides in science and technology in this field should make a court a little slow and circumspect in too readily pigeon-holing such an outlay as capital, and that the confidentiality and non-partibility conditions inclined towards the inference that the right pertained more to the use of the know-how than to its exclusive acquisition.
TaxSphere, “Alembic Chemical Works Co Ltd v CIT”, https://taxnotice.vittsphere.com/caselaw/case/alembic-chemical-works-v-cit-know-how-that-improves-an-existing-business/ (validity last checked 2026-09-23)
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