TMI Blog1992 (8) TMI 155X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the first schedule of the agreement. Article 1 defined " know-how " to mean the Licensor's special skills and technical knowledge relating to manufacturing, installing, using and maintaining the products and the definition of " the information " included detailed manufacturing drawings, general arrangement drawings, materials and components lists, manufacturing procedures, design standards, material specifications, quality control procedures, water treatment standards, testing and commissioning procedures, operational and aftersales service manuals, maintenance procedures and repair procedures relating to the specific examples of products, specified in the first Schedule. As per Article 2.1 the Licensor granted exclusive licence to manufacture, market and sell the products and spare and replacement parts therefor using the information and know-how in the exclusive territory for installation and use therein only and the non-exclusive licence to market and sell the products and spares and replacement parts therefor within the non-exclusive territories for installation and use therein only. Article 8 provides for payment of consideration to Licensor according to which Pounds Ster ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [1987] 165 ITR 347 (Pat.), Antifriction Bearings Corpn. Ltd. v. CIT [1978] 114 ITR 335 (Bom.) and CIT v. Steel Plant (P.) Ltd. [1984] 149 ITR 294 (Bom.) held that even the lump sum payment made for technical know-how was revenue in nature and therefore, the claim was to be allowed. 9. At the time of hearing, the learned departmental representative has reiterated the ground and relied on the decision of the Supreme Court in the case of Scientific Engg. House (P.) Ltd. and supported the decision of the Assessing Officer. According to him, Clause (b) and section 1.3 of Article 1 of the agreement would clearly lead to the conclusion that what has been obtained by the assessee is nothing but drawings, designs, plans, processing data etc. which should be treated as plant as held by the. Supreme Court in the case of Scientific Engg. House (P.) Ltd. . He referred to Article 8 of the agreement providing for lump sum payment and therefore, justified the Assessing Officer's order treating the expenditure as capital in nature. 10. The learned counsel for the assessee, on the other hand, submitted that the company was in existence for the first 15 years and manufacturing its own industrial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce and for all payment of U.S. dollars 50,000 was made. The Tribunal and the High Court held the expenditure as capital, but the Supreme Court held that it is not capital expenditure. 11. The learned departmental representative, in reply, supported the order of the Assessing Officer. 12. We have duly considered the rival submissions. In view of the salient features contained in the agreement extracted above and the assessee is already on the line of manufacturing industrial boilers and only to improve the quality of the product, know-how agreement has been entered into and that too for a short period of 5 years, we hold that the know-how is not an absolute outright purchase, but is subject to various restrictions. In our opinion, the judgments relied upon by the learned counsel for the assessee are applicable and the decision of the Supreme Court in the case of Scientific Engg. House (P.) Ltd. is not applicable at all. On the other hand, the judgment of the Supreme Court in the case of Ciba of India Ltd. and Alembic Chemical Works Co. Ltd. are applicable. The Supreme Court in the case of Ciba of India Ltd. considered the nature of contribution made by the assessee at a certain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o point out that the consideration paid by the assessee consists of not only three instalments of lump sum payments, but also royalties of 5 per cent net sale price of all products and spares and replacement parts therefore manufactured and sold by the assessee. Therefore, the terms and conditions aforesaid clearly show that there was no outright purchase of the technical know-how but the assessee has only obtained licence to make use of the information and therefore, the case fits in with the ratio of the Supreme Court in the case of Ciba of India Ltd. In the case of Alembic Chemical Works Co. Ltd. licence to manufacture Pencillin was obtained by way of acquisition of technical know-how to produce higher yield and sub-culture of high yielding strain of Pencillin for which lump sum payment was made once and for all. Regarding the nature of the payment as to whether it is capital or revenue, the Supreme Court held that it was a case of use of the know-how than to its exclusive acquisition. At page 379 of the Head Notes, it was observed : " It would be unrealistic to ignore the rapid advances in research in antibiotic medical microbiology and to attribute a degree of endurability ..... X X X X Extracts X X X X X X X X Extracts X X X X
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