TMI Blog1979 (2) TMI 97X X X X Extracts X X X X X X X X Extracts X X X X ..... re, which is a Government company. I.T.R.C. No. 116 of 1974 arises out of the assessment proceedings under the Act in respect of the assessment year 1966-67 and I.T.R.C. No. 117 of 1974 arises out of the assessment proceedings in respect of the assessment year 1967-68. The facts leading to these references are as follows: The assessee is engaged in the manufacture of telephone and allied equipment. Till the year 1964, the assessee was manufacturing telephone exchange equipment known as "strowger " type equipment which functioned on the " step by step " system. In the year 1964, the Government of India wanted to introduce direct dialing system throughout India and for this purpose, it was considered necessary to convert the telepone exchanges into the " cross-bar " type which could later be incorporated and adopted into electronic telephone exchanges. Pursuant to the above decision, the Government of India entered into three agreements on 21st May, 1964. The parties to these three agreements were: I-agreement : (i) The Government of India; (ii) The assessee ; (iii) International Standard Electric Corporation of USA (hereinafter referred to as "Standard" ); II-agreement: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal principally relied upon the decision of this court in Mysore Kirloskar Ltd. v. CIT [1968] 67 ITR 23 (Mys) (hereinafter referred to as the " first Kirloskar's case ") in which this court had declined to follow the judgment of the High Court of Bombay in CIT v. Ciba Pharma Pvt. Ltd. [1965] 57 ITR 428. The said decision of the Bombay High Court was later on affirmed by the Supreme Court in CIT v. Ciba of India Ltd. [1968] 69 ITR 692. When a question similar to the one which arose for consideration in Mysore Kirloskar's case [1968] 67 ITR 23 (Mys) arose for consideration again before a Full Bench of this court in Mysore Kirloskar Ltd. v. CIT [1978] 114 ITR 443 (Mys) (hereinafter referred to as the " second Kirloskar's case "), the decision in the first Mysore Kirloskar's case [1968] 67 ITR 23 (Mys) was overruled in view of the pronouncement of the Supreme Court in Ciba's case [1968] 69 ITR 692. Thus, the decision in the first Mysore Kirloskar's case [1968] 67 ITR 23 (Mys), relied on by the Tribunal, is no longer good law. In the instant cases, the undisputed facts are: (i) The assessee was carrying on the business of manufacturing telephone exchange equipments, though of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... set or advantage for the enduring benefit of the business is thus acquired or brought into existence it would be immaterial whether the source of the payment was the capital or the income of the concern or whether the payment was made once and for all or was made periodically. The aim and object of the expenditure would determine the character of the expenditure whether it is a capital expenditure or a revenue expenditure. The source or the manner of the payment would then be of no consequence. It is only in those cases where this test is of no avail that one may go to the test of fixed or circulating capital and consider whether the expenditure incurred was part of the fixed capital of the business or part of its circulating capital. If it was part of the fixed capital of the business it would be of the nature of capital expenditure and if it was part of its circulating capital it would be of the nature of revenue expenditure. These tests are thus mutually exclusive and have to be applied to the facts of each particular case in the manner above indicated." In the instant cases, the asset which, according to the department, was acquired by the assessee was technical know-how. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nments could be treated as a revenue receipt or capital receipt. Lord Reid, in the course of his speech, in that case observed : "I cannot accept the contention that by each of these agreements the appellants sold a part of that capital asset and received a price for it. There is nothing in the case to indicate that that capital asset was in any way diminished by carrying out these agreements. The whole of their knowledge and experience remained available to the appellants for manufacturing and further research and development, and there is nothing to show that its value was in any way diminished. They had not even given up a market which had been open to them. They could not sell their engines in these countries whether they made these agreements or not. If they had not made these agreements they would have got nothing from these countries ; by making them they were able to exploit their capital asset by receiving large sums for its use there. In essence what they did was to teach the 'licensees' how to make use of the 'licences' which they granted." The learned Lord was of the opinion that the receipts in question were in the nature of revenue receipts since the assessee had ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
