Home Case Index All Cases Income Tax Income Tax + HC Income Tax - 2015 (9) TMI HC This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2015 (9) TMI 1362 - HC - Income TaxSale of self-developed technical know-how - whether chargeable to tax - cost of acquisition is Nil - AO held as revenue receipt - ITAT held that appellant was liable for capital gains tax in view of the amendment made in section 55 with effect from the assessment year 1998-99 - whether the first agreement is a composite agreement or taking the said agreement as a whole, whether the clauses in it are severable? - Held that:- Clauses of the first agreement, particularly Clauses 1,2,3,4,8 and 9 thereof, have to be scrutinized closely. To understand the actual effect of the first agreement, such through consideration is necessary. So far as Clause 1 is concerned we find that not only the appellant was to "render, supply, furnish and provide said technical Know-how, advice, guidance" to Truepack but was also under an obligation to "provide information, assistance and services for day to day operation, production and manufacture" of bottles. Thus this Clause, a composite provision, provided not only for transfer of technology for manufacture of bottles but also to provide assistance for running the factory on a daily basis. In this connection it is worth mentioning that Clause 3 is near similar to Clause 1 as the appellant was not only to provide "all the relevant information, data, documents, drawings, design, manuals pertaining to technical know-how for the product and manufacture" of bottles but was also to "provide its expert advice on all aspects so as to enable the transferee to have the sufficient information to run the operations of manufacturing" the bottles. Then under Clause 2 appellant was to depute a technical person on the request of Truepack to train the staff to run the factory and maintain the machines and to optimize the methods of operation required for manufacture of bottles which was essential "for day to day operation" under Clause 1. In this context it is not material that the appellant had undertaken to bear the expenses for food and lodging of such technical person. From an analysis of the Clauses of the first agreement we find that mere parting by the appellant of the technical know-how to Truepack was not the sole object with which the said agreement was entered into but was also to assist the transferee in renovation, in installing and in commissioning the plant. It is clear from the language of the Clauses of the first agreement that the sale of know-how and the renovation, installation and commissioning of the plant were interlinked. In view of the discussion on the first agreement, no discussion is required on the subsequent agreement, the non-competition agreement, which refers to first agreement. Since Court has to look at the nature and substance of the transaction in the background of the agreement and as in the case in hand under the first agreement the appellant had transferred the know-how and had agreed to provide other services from renovation and installation of machinery till the commissioning of the plant as evident of the first agreement, on facts the judgments of the Supreme Court in CIT vs. B.C. Srinivasa Setty (1981 (2) TMI 1 - SUPREME Court), CIT vs. D.P. Sandu Bros. Chembur P. Ltd (2005 (1) TMI 13 - SUPREME Court) and the judgment of the Bombay High Court in CIT vs. Ralliwolf Ltd: [1982 (7) TMI 48 - BOMBAY High Court] are not applicable. Since payment of balance consideration of ₹ 44,00,000/- is linked with the installation and commissioning of machines at the transferee place and after trial production and as it appears that the installation had taken place in the assessment year 1998-99, the principles of law laid down in paragraph 8 of the judgment in Ajay Guliya v. Assistant Commissioner of Income-tax, New Delhi(2012 (7) TMI 530 - DELHI HIGH COURT) are not applicable. - order of ITAT confirmed - Decided in favour of the Revenue
|