TMI Blog1984 (8) TMI 22X X X X Extracts X X X X X X X X Extracts X X X X ..... for the assessment year 1967-68 ? (3) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the amount of Rs. 10,578 incurred on the visit of the managing director of the assessee to Germany was revenue expenditure and as such deductible while computing the total income of the assessee for the assessment year 1967-68 ? One of the questions not referred to us is to be found in paragraph 12 of the statement of the case. The Tribunal had declined to refer the said question. Aggrieved by the decision of the Tribunal, the Commissioner took out a notice of motion which was made absolute by us and accordingly a supplemental statement of the case has been submitted by the Tribunal in which the said additional question, which shall be designated as question No. 4, also stands referred to us. The same reads as under: " (4) Whether, on the facts and in the circumstances of the case, having regard to the fact that the assessee had shown the expenditure incurred in paying the first instalment of Rs. 20,000 in the year 1966 and not the whole of Rs. 1,00,000 in its accounts, the Tribunal was justified in allowing the assessee, the deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d our judgment and it would follow that the answer to question No. 1 would have to be given in the affirmative. As far as the remaining three questions are concerned, we are required to consider the agreement between the assessee and its German collaborators. The relevant provisions of the said agreement from its beginning to the end of clause 5 have been extracted by the Tribunal in its appellate order in paragraph 16 thereof. The agreement pertains to the sale and transfer in Germany of technical know-how, workshop drawings and other requirements in connection with the manufacture of continuous centrifugal machines for the sugar industry in India. Under clause 5 of the said agreement, the consideration fixed for sale and transfer of this technical information, knowledge, know-how, experience, workshop drawings and other documents was Rs. 1,00,000 (Rupees one lakh), but the same was to be paid by five equated annual instalments, the first of such instalments was to be paid on or before the first day of October, 1966, and the remaining instalments were payable on or before the first day of October in each succeeding year. As far as question No. 2 is concerned, the same pertains ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acquiring an asset of an enduring nature. If know-how has been acquired unrelated to secret or patented processes or the right to use the trade name or trade mark, then the acquirer of that know-how or even the purchasers of the know-how-since that phrase was repeatedly used or emphasised-would seem to acquire no asset of an enduring nature. If know-how acquired relates to the setting up of the plant or machinery, then perhaps it may have to be held to be capital in nature, although we are not called upon to decide that question in the present reference. If know-how acquired relates to the process of manufacturing, then the payment made for the same would have to be considered as revenue expenditure since the acquirer does not obtain by the expenditure any asset of an enduring nature. It is only the acquisition of information, guidance, or to put it in more familiar terminology, 'payment for consultancy'. That the consultant gives certain diagrams, specifications, list of machinery and estimate of expenses, and explanations as to how the production process is to be carried on and what safeguards are necessary to be ensured for securing a quality product, which would be accepted by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... came to Rs. 20,000 only, but what was submitted before the Appellate Assistant Commissioner, though rejected by him, and later on before the Tribunal, which accepted the contention, was that the assessee's liability to pay the sum of Rs. 1,00,000 (Rupees one lakh) to the German collaborators was crystallised in the assessment year in the amount of Rs. 1,00,000, although the assessee obtained the facility of paying the amount by five annual instalments. It is the admitted position that the assessee keeps its accounts on the mercantile system. It was submitted on behalf of the assessee that if the relevant provisions of the agreement are construed, it will have to be held that the assessee incurred its liability of Rs. 1,00,000 in the assessment year under consideration, though actual payment was spread over five years. It was submitted further that the fact that the assessee had not made an entry in his books for the full amount in the year in question was irrelevant and our attention was drawn to the observations in the Supreme Court's decision in the matter of Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363. It is true that in the above decision, the Supreme Court was consi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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