COMMISSIONER OF INCOME-TAX, BOMBAY versus CIBA OF INDIA LTD.

Citation: [1968] 2 S.C.R. 696 · Decided: 15-12-1967 · Supreme Court of India · Bench: J.C. SHAH · Disposal: Dismissed

Cited by 1 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

696 
COMMISSIONER OJ.' 11"COME-TAX, BOMBAY 
v. 
CIBA OF INDIA LTD. 
December 15, 1967 
(J. C. ~HAI!. V. RAMASWAMI AND V. BHARGAVA, JJ.J 
Income-tax Act ( 11 of 1922), ss. 10(2) (xii) ar,,J (xv )-Scop• of. 
A Swiss compan), Ciba Ltd. of Basle, carried on ~he business 
of 
selling its products in India, through a subsidiary called Ciba (India) 
Ltd. Afler the incorporation of the ~e 
the activities of the Swiss 
A 
B 
Co. in India were bifurcated : the 
pharmaceutical section 
was taken 
C 
over by rbe assessee Ciba of India Ltd. and the other Jines of business 
were continued by Ciba (India) Ltd. 
An agreement was entered into 
between the Sv.·iss Co. and the asscssee for providing the la:ter with 
technical assistance for running the business. 
The SY:iss Co., which was 
continually carrying on research had agreed to make the results available 
to rbe assessee. and the assessee was expressly prohibited from divulging 
confidential information to thir.d partie<; without the consent ~f the Swiss 
Co. A li'.'Cnce was granted to the assessce to use the Swiss co·s patents 
D 
and trade marks in India. 
The licence was to be for a period of 5 years 
liable to be terminated in certain eventualities even before the expiry of 
that period. 
It was subject :o rights actually granted or which may be 
granted after the date of the agreement to others. 
In consideration of 
the right to receive scientific and technical assistance the ass~ee stipulated 
to make certain recurrent contributiOns deipcndent up~n the sales and only 
for the period of the agreement. 'Pur.mant to this agreemcll!, the assessce 
E 
paid diverse sums of money to the Swiss Co. and claimed them as ad-
mis&ible deductions either under s. 10(2) (xii) or s. 10(2) (xv) of the 
Indian Income-OJ< Act, 1922, in proceedings for assessment to tax. 
The Swiss Co. had also en:ered into an agreement with May and 
Baker Ltd. of England, who were also carrying on business as pbarroa-
ceutieal manufacturers in India. 
By that agreement the two comp•nies 
nrutually agreed to grant to one another a non-exclusive licence in respect 
F 
ot · certain products in different countries including India. 
By cl. 5 of 
the agreement the two companies agrocd to take all necessary •tel" to 
defend patents granted to or applied for in respect of th00e products 
against infringement, and agreed to share equally all costs incurred. In a 
suit insti:uted by May and Baker against Mis. Boots Druit Co. alleging 
that the latter· has infringed the Indian patents of the plaintiffs. May 
and Baker had co incur certain costs and the Swiss Co. paid its share to 
May and Ba);er as per the terms of cl. 5 of the agreement. The as.sesoee 
G 
reimbursed that amount to the Swiss Co. and claimed it as a permissible 
deduction under s. 10(2) (xv) in proceedings for assessment to tax. 
The High Court, on reference, held in favour of the ~ 
that the 
first claim .was an admissible deduction under s. 10(2)(xv) but not under 
s. 10(2)(xii), and held that the =ond claim was not a permissible deduc-
tion. 
Jn. appeals, by the Commissioner of Incomc<ax and the assessec, 
H 
HELD : (I) Expenditure (not being in the nature of capital expendi-
ture) laid out or expended on scientifio rtsearch relating to the busiaess 
A 
II 
c 
D 
·' 
E 
H 
C.J.T. v. CIBA OF INDIA LTD. (Shah, J:) 
697 
of a person is an admissible allowance under s. 10(2)(xii) if the ex-
penditure was laid out or expended bv the jlSOOSSee. ln the present case, 
the amounts paid to the Swiss Co, were not laid out or expended by the 
assessee on s·cienti.fia research relating to the business of the assessee. Pay-
ment made Ito recoup another for eixpenditure for s'cientific research in-
curred by that other person, even if it may ultimately benefit the assessee 
is, unless it is carried on for or on behalf of the assessee, not expenditure 
laid out or expended in relation to the business of rt:he assessee. 
The.re-
fore, the expenditure was not allowable under s. 10(2) (xii). 
[701 G-H; 
702 A-BJ 
But, it was an admissible allowance under s. 
10(2) (xv), because, 
•!he expenditure 
in.curr~cJ by the assessee was not an allowance of the 
nature described in els. (i) to (xiv) of s. 10 (2), it was laid out or ex-
pended wholly or exclusively 
for the purpose of the 
business of the 
assessee, and it was riot of a capital nature. 'The 'assessee did not become 
entitled exclusively even for the period.of the agreement to the patents and 
trade marks of the 

Excerpt shown. Read the full judgment & AI analysis in Lexace.