TMI Blog1995 (12) TMI 103X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 27-9-1978, the lump sum consideration of Rs. 1,74,27,386 is a revenue expenditure allowable under section 37(1) ?" There is complete agreement between the parties that by answering the above modified question, we will be disposing of only the first ground in the Revenue's appeal (ITA No. 253/PN/85 relating to assessment year 1979-80). Both the sides were fully aware that the other grounds of ITA No. 253/PN/85 are yet to be decided by the Division Bench. Therefore, to sum up resultant position that by taking up the above-referred question for consideration, we should be taken to be disposing of only the first issue involved in the Revenue's appeal (ITA No. 253/PN/85 for assessment year 1979-80). We feel that this clarification is necessary in order to correctly understand the sequence of the proceedings. 2. The brief facts are that the assessee, a company, was a manufacturer of light commercial vehicles and diesel engines for the last several years. Vide agreement dated 27-9-1978, the assessee entered into an agreement with M/s Daimler Benz A.G., by which M/s Daimler Benz A.G., West Germany, granted the assessee the sole and exclusive right to assemble and manufacture OM 615 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eement was not for any new business or for factory or plant layout but merely to upgrade the technology in the manufacture of diesel engines by adopting the latest designs. It was further submitted before him that the company only obtained a licence to manufacture in accordance with the designs and techniques of M/s. Daimler Benz and there was no outright purchase of the know-how. The Agreement was only for a period of 10 years and on completion of the term the assessee was under obligation to return all data, drawings, documentations, etc., received by it under the Agreement. It was, therefore, claimed that the payment of technical know-how could not be regarded as capital expenditure. Reliance was placed on the decision of the Hon'ble Bombay High Court in the case of CIT v. Tata Engg. Locomotive Co. (P.) Ltd. [1980] 123 ITR 538. An affidavit of the Mg. Director was also placed on record to show that the mode and manner in which the technical know-how was furnished under the Agreement was only a continuous flow of information for efficient and economical running of the business. It was further pointed out that the broad features of the present Agreement compared fully with the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... controversy and mutually agreed to the suggested question extracted in the earlier part of the order. 8. Dr. Sunil Pathak, the ld. Sr. Departmental Representative, vehemently objected to the order of the ld. CIT(A). According to him, the A.O. in this case carefully examined the various clauses of the Agreement entered into by the assessee with M/s Daimler Benz A.G. and recorded a specific finding that the right obtained by the assessee was in the capital field being of an enduring nature. The finding of the A.O. is duly supported by the various clauses of the said Agreement dated 27-9-1978. According to him, the assessee is desirous of obtaining technical know-how designs, drawings and technical information in respect of assembly and manufacture of O.M. 615 diesel engines from M/s. Daimler Benz A.G. M/s. Daimler Benz had not made available its technical know-how for the assembly and manufacture of O.M. 615 engines to any party outside Europe. By this Agreement, the assessee was granted sole and exclusive licence to assemble and manufacture in its plant in Pune, India, the said D.B. diesel engines vide Article 1 of the Agreement. The assessee was entitled to receive the know-how ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ld. counsel for the assessee, vehemently supported the order of the ld. CIT(A). According to him, there is no dispute with regard to the fact that the assessee is a company manufacturing light commercial vehicles and diesel engines for the last several years. The business was set up in 1958 and the production of light commercial vehicles commenced in the year 1962. Eversince 1978, the assessee started production of not only fight commercial vehicles but also engines (including H.S.E. diesel). The assessee, therefore, entered into this Agreement with a view to upgrade the technology in the manufacture of High Speed Diesel Engines and to streamline the process of manufacture so as to achieve more efficiency and economy. The Agreement is directly related to the manufacture of the product and assumes the character of running expenses of the business. Relying on the decision in the case of Ciba of India Ltd., it is submitted that the amount paid for the provision of know-how and licence is in the revenue field and is an allowable expenditure. The learned counsel before us further drew our attention to the various provisions of the Agreement to highlight the fact that the ownership ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a common-sense way having regard to the business realities. Applying its earlier decisions in the case of Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1 (SC) and in the case of CIT v. Associated Cement Companies Ltd. [1988] 172 ITR 257 (SC); it was held that acquisition of know-how to produce higher yield and sub-culture of high-yielding strain of penicillin assumes the character of revenue expenditure. Since the facts of the case are identical to the facts before the Hon'ble Supreme Court, it is submitted that there is no infirmity in the order of the CIT(A) and the same is liable to be upheld. 11. The learned counsel for the assessee also referred to the decision of the Hon'ble Andhra Pradesh High Court in the case of CIT v. Venkateswara Transmission (P.) Ltd. [1988] 171 ITR 476 and of the Hon'ble Punjab and Haryana High Court in the case of CIT v. Super Steels [1989] 178 ITR 637 for the proposition that fee paid 'to foreign company for obtaining technical information is revenue expenditure. The learned counsel also gave a compendium of decisions to support the claim that the expenditure is in the field of revenue as per the list given as part of the paper book. 12. The learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt was for the use of the trade name. The decision in the case of Southern Structurals Ltd. [1977] 110 ITR 890 (Mad.) merely followed the decision in Fenner Woodroffe Co.'s case [1976] 102 ITR 665 (Mad.). Since we are inclined to dissent from the view taken in that case, it is not possible to hold on the strength of the authority in that case that the expenditure in question in respect of any of the agreements in question must be treated as capital expenditure." Since the jurisdictional High Court in this case dissented itself from the decision of the Hon'ble Madras High Court relied upon by the Assessing Officer, there is no alternative for the Tribunal but to follow the binding decision of the jurisdictional High Court. The decision of the Allahabad High Court relied upon by the Assessing Officer also was decided on the same lines as in the case of Fenner Woodroffe Co. Ltd. by holding that since the assessee acquired ownership of the know-how and data for use by it in future without any limit of time, the assessee obtained an advantage of an enduring nature and, therefore, the payment was clearly capital in nature. Since the Hon'ble Bombay High Court dissented from followin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... right under the Agreement under consideration was granted only for a period of 10 years. The object of the Agreement was to obtain the benefit of technical assistance for updating the technology and for the running of the business more efficiently and economically. The assessee was to maintain secrecy and could only share technical know-how with the permission of M/s. Daimler Benz A.G. The technical data, etc., were to be returned to M/s. Daimler Benz A.G. on the expiry of the period of Agreement. Applying the ratio of the decision in Ciba of India Ltd.'s case, it is apparent that the assessee-company in this case had not acquired any asset or advantage of an enduring nature for the benefit of its business. 15. One of the objections raised by the revenue is that the assessee can continue production even after the expiry of the Agreement and, therefore, the assessee was deemed to have sole and exclusive rights in terms of the Agreement. This issue came up before the Hon'ble Bombay High Court in the case of Tata Engg. Locomotive Co. (P.) Ltd. and it was held that the fact that the production can still be continued after the expiry of the Agreement is wholly immaterial for decidi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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