TMI Blog1992 (11) TMI 141X X X X Extracts X X X X X X X X Extracts X X X X ..... llowance at 10%. For the purpose of recording this finding he also took into consideration the amendment in rules w.e.f.1st April, 1985. After hearing the representatives of both the sides, as announced in Court, we uphold the appellate order. 4. The next ground is in respect of technical know-how fees paid to M/s Thomas Broadbent and Sons Ltd.U.K. 4.1 The assessee entered into two separate agreements with M/s Thomson Broadbent Sons Ltd. on1st June, 1978. This agreement is styled as "know-how Agreement". Under this agreement the assessee agreed to purchase technical know-how for manufacturing of industrial batch centrifuges. The second agreement is styled as "Technical Assistance Agreement" which provides for rendering of technical assistance and services by the foreign collaborators as also allow the company the use of brand name "Broadbent". The assessee made the payment of Rs. 2,25,000 under the know-how agreement and claimed the same as revenue expenditure. The Assessing Officer treated the expenditure as capital in nature. The Commissioner(A) took into consideration various clauses of the agreement styled as "Technical know-how agreement" and came to the conclusion that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court. We, therefore, uphold the appellate order. 6. The next ground is in connection with the amount of Rs. 3,33,333 paid to M/s Joy Industrial Equipments Ltd.,U.S.A. 6.1 The assessee also had entered into a collaboration agreement with above foreign concern. The agreement is into two parts. First part is in respect of purchase of technical know-how required for manufacture of certain machinery on lump sum consideration of Rs. 10 lacs. The second part concerns with provision of technical assistance in consideration of royalty at 5%. In so far as the first is concerned it is provided, as was observed by the Assessing Officer and the Commissioner(A) that in case the agreement is terminated, the lump sum consideration of Rs. 10 lacs would be returned back by the foreign collaborators. Thus, according to the Assessing Officer as also the Commissioner(A), the assessee had purchased technical know-how. Besides the broad features of the agreement were similar to those found in collaboration agreement with M/s Thomson Broadbent Ltd.,U.K., as discussed earlier. The assessee had contended before the Commissioner(A) that this was an old agreement and in asst. yr. 1981-82 a similar payme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs to be acceptable. The technical know-how purchased is in respect of information regarding design, manufacture, use, application and operation of the products, etc., manufacturing drawings, operating and maintenance manuals and sale literature currently in use by foreign collaborators, etc. Considered this meaning of the asset acquired together with the period of 5 years during which the agreement continued, we are of the view that the asset acquired is not of enduring nature, especially because of the restrictive clauses with regard to the sub-licensing and the assignment, as are mentioned in cls. 18 and 19 of the agreement. Even on termination of the agreement by either of the parties, the assessee is not entitled to return of full amount of consideration paid, but only that amount which is determined by arbitration as is provided in cl. 22 of the agreement. Such being the position, we find that the agreement is not identical with those entered into withU.K.collaborators, namely, M/s Thomson Broadbent Sons Ltd. 6.4 For the foregoing reasons we set aside the appellate order on this ground and direct the Assessing Officer to grant deduction as claimed by the assessee. 7. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sis of our reasons stated in respect of such disallowance for hydraulic unit, we hold that disallowance cannot be sustained and, therefore, the same is deleted. (iii) The next amount disallowed was Rs. 1,15,204 in respect of Mathura Unit. Before the Commissioner(A) it was submitted by the assessee that the particulars in respect of the payment asked for could not be furnished by the assessee on the ground that the papers of the unit were not readily available. Even before us no material was placed by the assessee to dislodge the finding recorded by the tax authority and since the disallowance was made on the basis of inadequate evidence, we decline to interfere. 7.1 The decisions pressed into service by Mr. Marwah have been considered. They are as follows : CIT vs. Autopins (India) (1992) 101 CTR (Del) 302 : (1991) 192 ITR 161 (Del); CIT vs. Holman Climax Mfg. Ltd. (1992) 196 ITR 698 (Cal); CIT vs. Shaw Wallace Co. Ltd. (1991) 100 CTR (Cal) 188 : (1991) 190 ITR 455 (Cal); CIT vs. Rahimia Lands Tea Co. (P) Ltd. (1992) 197 ITR 310 (Cal) and Goyal Gases (P) Ltd. vs. CIT (1992) 44 TTJ (Del) 414 : (1992) 42 ITD 135 (Del). 8. The next ground is against disallowance of Rs. 10 la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subsidiary were attributable to the borrowed funds of the assessee, on which interest had been paid and claimed as deduction. Referring to the decision in the case of CIT vs. United Breweries (1973) 89 ITR 17 (Mys) he held that the funds borrowed and advanced to the subsidiary free of interest could not be treated as funds borrowed for the purpose of assessee's own business. It is not disputed that this decision applied by the Commissioner(A) was applicable to the facts of the case. Even the decision reported in the case of Modern Mills Ltd. vs. ITO (1991) 38 ITD 370 (Bom) is not applicable because we find that facts are entirely different. One of the main distinguishing feature is, in that case the Tribunal had found that for all three units there were common bankers, common creditors, common depositors, etc., and, therefore, it was found expedient by the assessee company to advance the loans to the companies under the same management for the purpose of business. The facts before us are not similar. We, therefore, find ourselves unable to interfere with the appellate order. 8.2 However, with regard to the quantum of disallowance we find that probably the assessee deserves some r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rposes of this ground of appeal may be reproduced as under: "Both the parties hereto agree that all designs, drawings, specifications and all other papers relative to the technical know-how agreement dt.21st Nov., 1973concerning TRITECH cane juice Clarifier between ETS/Triveni and M/s Intech Engineers Pvt. Ltd. and subsequently assigned by ETS to Triveni will be the property of Triveni for use directly or indirectly. Triveni will manufacture and market the Intech clarifies as they were doing before. This will, however, not be under the name TRITECH. This will not be construed as any infringement on Intech patents or rights. However, it is clearly being understood between the parties that Intech shall be free to use the drawings, designs, specifications, data and all other specifications relevant to the technical know-how in the manufacture, sale and distribution of TRITECH equipment, directly or indirectly." M/s Engineering and Technical Services Ltd. (hereinafter referred to as ETS Ltd.), a subsidiary of the appellant-company also entered into an agreement on the same date, i.e., 21st Nov, 1973 with M/s Intech Engineers Pvt. Ltd. for supply of technical know-how which was to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting the amount to the P L account and debiting M/s Intech Engineers and thereafter reversing the entries by the same amount of Rs. 10,49,661 in the assessment year under appeal, i.e., asst. yr. 1983-84, the figure as mentioned in the settlement agreement dt.17th Nov, 1980is for an amount of Rs. 9,99,564. In so far as the difference in two figures is concerned, learned counsel did not dispute the disallowance of the amount of Rs. 50,097 out of the disallowance made by the ITO. 15.5 The facts as stated by the ITO in the assessment order while making the impugned disallowance of Rs. 10,49,661 are at variance with what has been mentioned before me by the learned counsel in his written submission to which reference has been made above. The amount of Rs. 10,49,660 refers to royalty payments in lieu of sale of drawings, designs, etc., by Intech Engineers to the appellant-company. According to the ITO the expenditure on royalty, in the facts of the case, is of the nature of capital expenditure and cannot be allowed as a deduction. The ITO has referred to cl. (6) of the settlement agreement dt.17th Nov., 1980which reads as follows: "Both the parties hereto agree that all the drawings, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ute was confined to the payment of selling commission on orders placed by the Government companies only. I have taken note of factual submissions made by the learned counsel during the course of hearing as also contained in the written note furnished before me on14th Jan., 1988. 15.6 In my considered opinion the disallowance of Rs. 10,49,660 made by the ITO deserves to be sustained on the ground that it does not pertain in any manner to the asst. yr. 1983-84 under appeal. Under cl. (7) of the agreement dt. 21st Nov., 1973, which has already been reproduced above, it would be clearly seen that selling commission as payable to Intech Engineers on the sales made directly or indirectly in the territories of India. There appears to be no doubt regarding the interpretation to be placed on this clause. The sales made to the Government companies were clearly within the scope of cl. 7 for payment of commission to Intech Engineers. What was the controversy on this issue which made the appellant-company unilaterally reverse the entry in the asst. yr. 1980-81 for reducing the commission liability has not been elucidated by the learned counsel before me. It is thus manifestly clear that the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prolonged consultations lawyers advised payment of the sum, settlement was arrived at. (iii) Even if any benefit is derived by the assessee from the agreement for settlement of the dispute yet the same being incidental no cognizance is required to be taken so as to disallow the claim. (iv) reasonable construction of the document was required to be adopted so as to avoid injustice, as was held in the case of CIT vs. J.H. Gotla (1985) 48 CTR (SC) 363 : (1985) 156 ITR 323 (SC). Besides the Department could not act in a way opposed to natural justice for which reliance was placed on Albert Walker Christopher Smart vs. Reserve Bank of India (1992) 62 Taxman 92 (Cal). When the entry was reversed in asst. yr. 1980-81 the same was offered for taxation and taxed and that has become final. 10.1 The learned Departmental Representative relied upon the appellate order. 10.2 We have considered the material to which our attention was drawn as also various factual findings recorded by the Commissioner(A). The agreement dt.17th Nov., 1980together with relevant annexures and enclosures appear at pages 68 to 75 of the paper book. On going through the said agreement we find that no doubt the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich were the absolute property of Intech earlier and for which necessary agreements were entered into earlier for which there are modifications and alterations in the terms with regard to the use and ownership of the property in the nature of technical know-how. But, as rightly stated by learned Chartered Accountant, Mr. Marwah, that this is only an incidental benefit which the assessee derived. In our opinion, it is a composite agreement settling various disputes between the assessee and M/s Intech. The monetary value of the benefit which the assessee is going to derive from the modified terms in respect of technical know-how, etc., is nowhere stated in the agreement at any place. As against this, it is clearly stated that the impugned amount in dispute is in respect of the commission claimed by Intech in respect of the orders executed and for which the assessee disclaimed the liability in earlier agreement. We, therefore, hold that the assessee is entitled to deduction, as claimed. 11. The next ground is against addition of Rs. 1,45,338. 11.1 With regard to certain transactions of the assessee-company, the subsidiary of the assessee by name M/s Kameni Upasker Ltd. had earned ..... X X X X Extracts X X X X X X X X Extracts X X X X
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