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TMI Blog1988 (2) TMI 137X X X X Extracts X X X X X X X X Extracts X X X X ..... e was a capital expenditure. In the assessment year 1977-78, the CIT (Appeals) by mistake held in his order that the ITAT had allowed this expenses as a revenue expenses in earlier years. The ITAT also for the assessment years 1977-78 took without verifying that the ITAT had allowed the same in the earlier years and thus confirmed the order of the CIT (Appeals). It was thus, argued by the Standing Counsel that according to the earlier history and the orders of the ITAT on the topic, license fee was held to be a capital expenses and according to the said finding, the same should be disallowed and the order of the CIT (Appeals) be reversed on this issue. 3. The AR did not dispute the above facts pointed doubt by the Standing Counsel, but he argued that license fee paid was a revenue expenses. 4. We have considered the facts and the rival contentions. In assessment years 1974-75, 1975-76 and 1976-77, license fee was held to be a capital expense by the ITAT. In 1977-78, it was allowed by the ITAT, it appears, on a misunderstanding that the same was allowed by ITAT in earlier years though it was actually now so allowed. The order of the ITAT for the assessment year 1977-78 thus, in ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng year. It was further stated by the Standing Counsel that the ITAT for the assessment year 1977-78 deleted the disallowance of license fee on the ground that the ITAT in assessment years 1974-75, 1975-76 and 1976-77 had deleted such a disallowance. The correct fact is that there was no such disallowance under consideration of the ITAT for the assessment years 1974-75, 1975-76 and 1976-77. Thus, the ITAT in the order for the assessment year 1977-78 deleted the disallowance under a misunderstanding. It was argued by the Standing Counsel that license fee was not a revenue expenditure and the same should have been disallowed. The Standing Counsel in this connection, relied upon the following cases : 1. Fenner Woodroffe & Co. Ltd. v. CIT [1976] 102 ITR 665 (Mad.). 2. Jonas Woodhead & Sons (India) Ltd. v. CIT [1979] 117 ITR 55 (Mad.) (FB). 3. CIT v. Jyoti Ltd. [1979] 118 ITR 499 (Guj.). 4. Ram Kumar Pharmaceutical Works v. CIT [1979] 119 ITR 33 (All.). 5. Addl. CIT v. Southern Structurals Ltd. [1977] 110 ITR 890 (Mad.). 11. The Authorised Representative of the assessee argued that license fee was allowed by the Department itself in the earlier years and this issued was not there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the IAC. Relief of Rs. 6,436 only should have been allowed by the learned Commissioner of Income-tax (Appeals)." 14. We have considered the facts. It appears that there was a mistake in the order of the CIT (Appeals). The CIT (Appeals) is directed to rectify the mistake, if it has not been done already. 15. The next contention in both the years is that the CIT (Appeals) was not justified in accepting the assessee's claim that deduction under section 80MM shall be calculated with reference to the cross receipts. 16. This contention is covered by the orders of the ITAT in the earlier years. According to the orders of the ITAT in earlier years the contention of the revenue is rejected. 17. The next contention is that CIT (Appeals) was not justified in holding that depreciation was admissible on Rs. 30,06,196 representing the cost of documents. 18. This issue is covered by the orders of the ITAT in earlier years. Following the same, this contention of the Department is rejected. 19. The last contention is that the CIT (Appeals) was not justified in relying on the order of the ITAT for earlier years, as the same were sub judice before the High Court. In our opinion, so long the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . These two agreements were executed to provide necessary know-how and design. These two agreements were subsequently assigned to the assessee-company on 13-9-1973. 2. It took over the assets of Rs. 5.1 crores which included the consultancy wing and united wing as follows : Rs. "1. Consultancy Wing Expenditure on technical know-how, documents, training of engineers, Soviet -----written off 79,08,640 2. United Wing Expenditure on Licence fee, Engineer/ documents etc. not written off 70,90,370 &nb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sp; ----------- Total : 1,66,54,990 ----------- Out of the above total of Rs. 1,66,54,990 the assessee claimed Rs. 1,36,48,796 as revenue expenditure and on balance amount of Rs. 30,06,193 it claimed depreciation. The Income-tax Officer stated that since the assessee was maintaining its books of account on mercantile system, the expenditure incurred in earlier year was not eligible for deduction while computing the income of the assessee for the year. He, therefore, concluded that the claim was not entertainable at least to the extent of Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the basis of know-how are subject matter of sale of the assessee. What the assessee has done is that the assessee has taken know-how, drawings, patents etc. from others and have provided them to others by charging fees. All the decisions either cited before the authorities below or cited before the Bench during the hearing by both the parties are related to know-how which was acquired by the assessee for the manufacture of any of the items by it which was ultimately sold. Therefore, in all these cases the object of the assessee was something else and for fulfilling those objects, the assessee acquired know-how to produce the article. These facts are not in the case of the assessee. The assessee's business is to acquire know-how and to give know-how to others by charging fees. Therefore, on the facts and as admitted by the ITO, the assessee is a dealer in know-how. It purchases know-how from others and it sells know-how to others. Under the circumstances, the cases relied on either by the lower authorities or by the respective parties before the Bench are not applicable on the facts of the present case." 8. It is clear that the Appellate Tribunal in treating the expenditure of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the CIT(A) to hold that the Tribunal had already recorded a finding which he faithfully and truthfully followed. Besides, if the payments of royalty and Engineering fees both incurred for acquiring technical know-how are to be treated as revenue expenditure by the learned Accountant Member to which I have agree, I fail to see any logic in disallowing Licence fee as capital expenditure. Engineering fee also was a constituent of the expenditure of Rs. 1,66,54,990 as indicated above which was considered in the asst. year 1974-75 by the Appellant Tribunal as capital expenditure on which it allowed depreciation. But Engineering fee nevertheless is considered by the learned Accountant Member in his order as an item of revenue expenditure duly qualifying for deduction as revenue outgoing to which also I have agreed. After treating the Engg. fee as revenue expenditure on the facts and in the circumstances of the case there is no justification for treating licence fee as capital expenditure. 10. In my view, the expenditure over licence fee should be also considered qualifying for deduction as revenue expenditure of the year. To be fair, however, to both sides and further ascertain facts wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Accountant Member Shri B. Nath of Patna Bench of the Tribunal. The learned Accountant Member held that the expenditure is capital expenditure. the learned Judicial member differed with this view. He held that it is allowable as revenue expenditure. In view of the above difference of opinion, the matter has been referred to me. 4. The learned departmental representative strongly urged that the payment towards license fee for the technical know-how is a capital expenditure. The CIT (A) was wrong in allowing the same as revenue expenditure. He also pointed out that the Tribunal in the assessee's case in the assessment years 1974-75 to 1976-77 has held that it is capital expenditure and that order should be followed. The learned counsel for the assessee submitted that the agreement itself was for a period of 10 years. The assessee has received only the technical know-how for limited period and the title remained with the foreign collaborator. Thus, it is allowable as revenue expenditure. He relied on several cases. 5. We have considered the rival submissions. It is necessary to refer to certain clause in the agreement with the foreign collaborator, viz., United. Under clause (e) of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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