TMI Blog1981 (10) TMI 29X X X X Extracts X X X X X X X X Extracts X X X X ..... s business is in the manufacture and sale of air-compressor equipments for automotive vehicles and industrial equipment. It entered into technical collaboration agreement with M/s. Clayton Dewandre Company Ltd., U.K., on 1st July, 1962, and another agreement with M/s. Bendix Westinghouse Automotive Air Brake Company Ltd., USA, on 9th January, 1964. The assessee claimed that the payments made to the respective foreign companies in accordance with the terms of the two agreements should be allowed as deduction in arriving at the taxable income for the years mentioned above. Taking the assessment years 1966-67 as typical, the amounts paid to M/s. Clayton Dewandre Co. Ltd. fall in two parts: (1) royalty, and (2) technical aid fees. Royalty came to Rs. 9,965 and technical aid fees to Rs. 7,473. Similarly, in the case of M/s. Bendix Westinghouse Automotive Airbrake Co., the amount paid as royalty was Rs. 31,302. For the other years, the figures vary, but the nature of the payments is the same. The ITO allowed the royalty paid to M/s. Clayton Dewandre Co. Ltd. as revenue expenditure in each of the assessment years under consideration. However, in respect of payments of technical aid fees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s-TVS Ltd. (No. 1) [1977] 110 ITR 338. The cases proceeded before the Tribunal on the basis that the agreements in the present case were substantially similar to the one considered in the reported decision. It was pointed out by this court in CIT v. Lucas-TVS Ltd. (No. 1) [1977] 110 ITR 338 as follows : " It is not disputed before us that ultimately the question has to be decided on the basis of the terms of the particular agreement and the only general principle that can be derived from the decisions referred to above is that under the terms of the agreement if the assessee acquired a benefit of enduring nature that will constitute 'acquisition of an asset' and any amount paid for the same would constitute 'capital expenditure' and on the other hand if the assessee had acquired merely technical knowledge or knowledge for the manufacture of any particular item for a specified duration then he had acquired only a licence to use the other party's patent and knowledge and the amount would constitute 'revenue expenditure'." In CIT v. Lucas-TVS Ltd. (No. 1) [1977] l10 ITR 338 (Mad), by the agreement similar to the one under consideration, the assessee was granted exclusive right and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is no right to import or export or sell for import or export into other countries such licensed devices. Article IV required the foreign company upon the written request of the Indian company to supply blue prints of assembly and detailed drawings and the results of technical investigations, tests and research. The information has to be kept confidential and has not to be disclosed to any other person at any time. In consideration of the technical services rendered, the foreign company was entitled to be paid a fee amounting to one and a half per cent. of the factory cost of all licensed devices and spare parts for such devices sold by the assessee-company. In consideration of the licence and other rights granted under the agreement in respect of the licensed patents and licensed devices, a royalty amount of 2% of the factory cost of all licensed devices and spare parts was also to be paid to the foreign company. The agreement was to be in force for a period of 10 years, subject to extension for a further period of five years, unless notice was given by either party by registered notice of its intention to terminate the agreement. The notice had to be given at least one year prior ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unreported decision in T.C. No. 254 of 1975 dated July 8, 1981 (M. R. Electronic Components Ltd. v. CIT). In that case, cl. 9(a) of the agreement provided for assistance in the, construction of the factory. Though no separate consideration was provided for in the agreement for such assistance, it was held that a part of the consideration was liable to be ascribed to capital. The significant feature in the present case is that there is no such clause similar to cl. 9(a) in the case mentioned above. We do not, therefore, find any scope for ascribing any portion of the consideration in the present case to capital. Further, in T.C. No. 254 of 1975 (M.R. Electronic Components Ltd. v. CIT) there was also an obligation on the part of the foreign company to give the know-how in relation to the fresh products manufactured by it so as to enable the Indian company to manufacture the said items if it considered it expedient. There is no such clause in the present case. Therefore, it is not possible to attribute any capital element in the consideration. As earlier pointed out, each case has to be decided in accordance with the terms of the agreement concerned, and the agreement considered in T. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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