TMI Blog2006 (10) TMI 128X X X X Extracts X X X X X X X X Extracts X X X X ..... ; and the right or obligation or the effect of the contract may endure for a short or a long period of years. The question then arises whether the sum, which he has paid for that advantage, is a capital or revenue expense. If the asset, which is acquired, is in its intrinsic nature a capital asset, then any sum paid to acquire it must surely be capital outlay; and we do not see how it could matter that the payment was made by sums paid annually or periodically. It appears to us, however, that an asset, which is nothing more than a right to enjoy a certain advantage over a period, is intrinsically of a different character from a thing, which a person buys and can immediately use or consume in any way he chooses. We are dealing with payments made to MMC to secure technical know-how and to sell LCVs under their brand name during the currency of the agreement subject to periodic payment of royalty for using the licence. The Supreme Court in CIT v. Ciba of India Ltd. [1968] 69 ITR 692; AIR 1968 SC 1131 has enunciated the principles applicable to such cases. In that case, the assessee a subsidiary of the Swiss company paid certain payment to Ciba Ltd., Basle (the Swiss company) pursua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome-tax (Appeals) in allowing the depreciation on notional foreign exchange fluctuation ? 3. It is admitted by the parties that the decision on the above questions in this appeal must necessarily govern the other appeals, so we do not propose to say anything about them except to mention that in I. T. A. No. 27 of 2003 the first two questions ; in I. T. A. No. 29 of 2003 last two questions and in I. T. A. No. 43 of 2003 only the third question were formulated at the time of admission of appeals. On that premise, we are deciding this bunch of appeals by the common order. Question No. 1 4. Necessary facts are undisputed. The assessee, a public limited company, is an automobile manufacturer. It entered into a technical assistance agreement with Mitsubishi Motors Corporation (MMC) Japan, for a licence to use and utilize technical know-how and drawings, designs etc. to manufacture the light commercial vehicles (LCVs) and sale thereof under the brand name of MMC in the defined territory during the currency of the licence agreement. It was agreed between the parties that the assessee would pay royalty in periodic instalments at 3 per cent. of MMC FOB Japanese port price, for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y held that royalty payment made by the assessee to MMC was a revenue expenditure. According to him, such finding based upon proper appreciation of facts and law, does not call for interference by this court. He further submitted that the Tribunal arrived at the aforesaid finding of fact on proper appreciation of material and principle of law and as such, this court could not interfere with such finding. On this score, according to him, there is no merit and substance in these appeals. 8. After having heard the arguments at length, we are of the considered view that the legal position is quite clear. 9. The provisions of the Act require the balance of profits and gains to be found. So, a profit and loss account must be prepared setting on one side income receipts and on the other expenses properly chargeable against them. In so far as the Act prohibits a particular kind of deduction, it must receive effect. Section 37 of the Act, provides that any expenditure laid out or expended wholly or exclusively for the purpose of the business or profession shall be allowed in computing the income chargeable under the head Profits and gains of business or profession . Such expenditure, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of situational diversities. However, some broad and general tests have been suggested from time to time. These tests are generally efficacious and serve as useful servants, but as masters, they tend to be overtaxing. The question is ultimately a question of law for the court to decide, but it is a question which must be answered in the light of all the circumstances which it is reasonable to take into account, and the weight which must be given to a particular circumstance in a particular case must depend rather on common sense and business point of view rather than upon the juristic classification of the juristic rights, if any, secured, employed or exhausted in the process 11. When one is dealing with tangible assets, it is generally not very difficult to reach a decision. Things, which the trader uses in his business to produce what he has to sell are part of his fixed capital and their cost is a capital outlay although their useful life may be short. Things, which a trader turns over in the course of his trade, are circulating capital and their cost is a revenue expense. However, when one comes to intangible assets there is much more difficulty. To help the conduct of his b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing considerations may produce a situation where the answer turns on question of emphasis and degree. 14. In this bunch, we are dealing with payments made to MMC to secure technical know-how and to sell LCVs under their brand name during the currency of the agreement subject to periodic payment of royalty for using the licence. The Supreme Court in CIT v. Ciba of India Ltd. [1968] 69 ITR 692; AIR 1968 SC 1131 has enunciated the principles applicable to such cases. In that case, the assessee a subsidiary of the Swiss company paid certain payment to Ciba Ltd., Basle (the Swiss company) pursuant to the agreement dated December 17, 1947, whereby the latter agreed for technical and research contribution in so far as they relate to pharmaceutical products which were manufactured, processed and sold by the assessee in India. It was held that the agreement merely give the right to the assessee, without anything more, to draw upon the technical knowledge of the foreign collaborator for the purpose of carrying on its business and did not acquire an asset or advantage of enduring nature for the benefit of its business. Considering the effect of payment, it was held to be a revenue expend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mco Corporation USA and M/s. KCP Ltd., an Indian company. Promoter companies agreed to pay initially certain sum of money towards their contribution. The foreign collaborator contributed technical know-how consisting of right and licence to commence manufacture and sale of existing Eimco Sedimentation and filtration equipment. The technical know-how was valued at Rs.2,35,000. The board of directors of the assessee-company allotted the equity shares of Rs. 2,35,000 being the value of technical know-how and claimed deduction as revenue expenditure. It was turned down on the ground that in allotting the equity shares, the assessee reimbursed foreign collaborator exclusively for the purpose of the business of the assessee after incorporation and held to be capital expenditure. The factual situation in the case in hand is quite different as pointed out above. Thus, we have no hesitation to hold that the Income-tax Appellate Tribunal rightly decided the issue relating to question No. 1 in favour of the assessee and against the Revenue. Question No. 2 15. It is admitted that this question pertains to the jurisdiction of the Tribunal to allow the assessee to raise additional ground i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view of this, we find no merit and substance in the second question. Question No. 3 18. From the record it is clear that the Commissioner of Income-tax (Appeals) allowed the claim of the assessee following the decision of the Supreme Court in CIT v. Arvind Mills Ltd. [1992] 193 ITR 255, therefore, the answer to the third question, no longer detains us. We also feel that this is not a substantial question of law in view of the decision of the Supreme Court in Santosh Hazari v. Purushottam Tiwari [2001] 251 ITR 84; AIR 2001 SC 965, herein it is held that (page 90 of 251 ITR) : A point of law which admits of no two opinions may be a pro position of law but cannot be a substantial question of law. To be 'substantial' a question of law must be debatable, not previously settled by law of the land or a binding precedent, and must have a material bearing on the decision of the case, if answered either way, in so far as the rights of the parties before it are concerned. . . . . It will, therefore, depend on the facts and circumstances of each case whether a question of law is a substantial one and involved in the case, or not ; the paramount overall consideration being the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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