TMI Blog1983 (7) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... rightly rejected by the Tribunal ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the above payment of the sum of Rs. 24 lakhs was made for the acquisition of a right for the manufacture of a product or an initial outlay for securing rights from Henry Meadows Ltd., U.K., and in consequently making disallowance of Rs. 15 lakhs, Rs. 3 lakhs and Rs. 6 lakhs respectively (out of the sum of Rs. 24 lakhs) paid during the accounting years corresponding to 1962-63, 1963-64 and 1965-66 assessment years ? 1963-64 assessment year : 3. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of Rs. 1 lakh out of the further payment of Rs. 2 1/2 lakhs to Automobile Products of India under the aforesaid agreement was of a capital nature and in consequently disallowing the above sum of Rs. 1 lakh? 1964-65 and 1965-66 assessment years : 4. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of pound 50,000 (Rs. 6,68,990) paid to Henry Meadows Ltd. of U.K. under the agreement dated October 5, 1962, was capital expenditure to be dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany a sum of Rs. 24 lakhs in three instalments, the first instalment of Rs. 15 lakhs being payable on the execution of the agreement, the second instalment of Rs. 3 lakhs being payable on the expiry of twelve months from the date of execution of the agreement and the third and final instalment of Rs. 6 lakhs being payable on the expiry of twenty-four months from the date of execution of the agreement. The consideration for this payment of Rs. 24 lakhs was that the API company had agreed for the cancellation of the licence dated December 9, 1955, granted by the Government of India for the manufacture of Meadows engines. This agreement also provided that the assessee was to take over the machinery, equipment, drawings, specifications and literature from the API company. After the agreement with the API company was entered into, the assessee entered into an agreement on October 5, 1962, with the Meadows company. A copy of the agreement with the Meadows company is annexure " 0 " to the statement of the case. The main and the important term of the agreement is clause 10 thereof. This clause reads as follows: " 10. In consideration of (i) Meadows having furnished to Premier (as Pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he decision by the AAC that the deduction should be given in the assessment year 1962-63, but the Department did file an appeal before the Tribunal challenging the decision of the AAC and the question was whether the amount of Rs. 24 lakhs was deductible as revenue expenditure. The Tribunal took the view that the sum of Rs. 24 lakhs was expenditure incurred for the acquisition of a right to manufacture a particular product or alternatively it was an initial outlay for securing manufacturing right from the Meadows company. According to the Tribunal, the agreement between the assessee and the API company and the agreement between the assessee and the Meadows company could not be considered as independent of each other and according to the Tribunal " the two agreements were dependent on each other ". The Tribunal took the view that though the assessee was already manufacturing some part of the truck, when the assessee undertook to manufacture a fresh item which went to make up a truck, the expenditure incurred would be of a capital nature. The Tribunal rejected the argument raised on behalf of the assessee that the payment made to the API company was intended to remove the obstruction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tled to the write off one-tenth of the amount of pound 50,000 as a revenue expenditure. Obviously, the contention was that since the agreement with Meadows company was for ten years, the assessee was entitled to have such payment spread over a period of ten years with the result that in each assessment year commencing from 1964-65, the assessee would be entitled to a deduction of one-tenth of that amount. We shall first deal with the first part of the question. Mr. S.P. Mehta, appearing on behalf of the applicant-assessee, has invited our attention to clause 10 of the agreement dated October 5, 1962, between the assesseecompany and the Meadows company. We have already reproduced clause 10 above. According to the learned counsel, clause 10 expressly refers to the consideration for which the sum of pound 50,000 is being paid by the assessee. Clause 10 is unambiguous and it clearly states that the sum of pound 50,000 is to be paid by the assessee as consideration for (i) a complete set of up to date drawings, blue prints, process sheets, specifications and technical data in connection with the Meadows engine, (ii) modified drawings, if any, adopted by Meadows, and (iii) of the expor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nto a contract with regard to know-how was entitled to use the know-how even after the agreement had expired, it did not mean that he had acquired the benefit of an enduring nature. It is undoubtedly true that the agreement bad expired but it did not mean that he had acquired the benefit of an enduring nature. It is undoubtedly true that the agreement in question in that case was one of foreign collaboration. The fact that the agreement with Meadows was similar to the one construed in that case does not make any difference to the principle laid down that when payment is made for obtaining know-how with regard to techniques of production, such a payment is of revenue nature and not of capital nature. This decision was later followed in two other decisions of this court in CIT v. Service Station Equipment Pvt. Ltd. [1981] 132 ITR 130 and Cooper Engineering Ltd. v. CIT [1982] 135 ITR 597. In the latter case, the view taken by this court was that technical know-how and technical advice cannot in these days of technological and scientific development and consequent changes in production techniques, be treated as capital asset and technical know-how made available under an agreement does ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt Co. Ltd. v. CIT [1955] 27 ITR 34, in support of his contention that amounts spent for expansion of a business had to be treated as a capital expenditure. There is no dispute in this case that the two agreements dated April 29, 1961, and October 5, 1962, are part of the scheme the object of which was first to free the Meadows company from its obligations towards the API company under the agreement dated March 16, 1956, and then to enable the, assessee, after the field was cleared, to enter into an agreement with the Meadows company for obtaining the necessary know-how for manufacture of Meadows engines in India. It is not well-settled that no comprehensive test can be laid down to determine whether a particular outgoing is of a capital nature or of a revenue nature. As observed by the Supreme Court in Abdul Kayoom v. CIT [1962] 44 ITR 689, each case depends on its own facts and none of the tests is either exhaustive or universal. The Supreme Court pointed out in that case that what is decisive is the nature of the business, the nature of the expenditure, the, nature of the rights acquired and their relations, inter se, and this is the only key to resolve the issue in the light ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore, was that the Meadows company became free to enter into an agreement with the assessee, the API company got its licence cancelled by the Government of India, the Government of India became free to grant a licence to the assessee and the assessee became entitled to enter into a separate new agreement with the Meadows company. Therefore, so far as the assessee was concerned, the only right which it seemed to have acquired as a result of this agreement was a right to enter into an agreement with the Meadows company. . We fail to see how, if this was the limited advantage which the assessee had got, this could be treated as an asset or an advantage of enduring character. This right cannot stand higher than the right flowing from the agreement dated October 5, 1962, between the assessee-company and the Meadows company. We also fail to see how this could be treated as a right to expand the business. Admittedly, the assessee was manufacturing trucks. It used to purchase Meadows engines from the API company and, undoubtedly, it bad decided to manufacture the engines subject to the API company giving up its right under the agreement of March 16, 1956. The agreement of March 16, 1956, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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