The test which is applied for determining the allowability of the expense is whether it is a revenue expenditure or a capital expenditure.
Broadly speaking, when an expenditure is incurred to bring into existence an asset or an advantage for the enduring benefit of a trade, such an expenditure is attributable to capital and not to revenue.
If it is a revenue expenditure, it will be allowed as deduction from the income of the Indian collaborator, but if it is a capital expenditure, it will not be allowed as a deduction from income.
This issue has come up before various courts in several cases. The judicial consensus appears to be that when payment is made for
