TMI Blog1979 (2) TMI 89X X X X Extracts X X X X X X X X Extracts X X X X ..... question No. 1 as follows : " Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the payments made to M/s. Calor-Emag, Germany, in respect of drawings, designs, etc., referred to in the agreement between the assessee and M/s. Calor-Emag, Germany, are of a revenue nature ? " The assessment years under reference are assessment years 1962-63, 1963-64, 1964-65, 1965-66 and 1966-67. The assessee before us is a limited company and carries on business of manufacturing oil engines, electric motors, pumps, switchgears, etc. It manufactures, inter alia, water turbines, switchgears and switchboards. The contentions raised by the assessee in these matters related to disallowance of certain payments made by the assessee to two foreign collaborators, namely, M/s. Gilberts Gilkes Gordon Ltd., referred to in the record as the English company, and M/s. Calor-Emag, Germany, referred to in the record as the German company. It must be clarified that the payments in dispute are payments made to these foreign collaborators in respect of drawings, designs, specifications, etc. The collaboration with the English company was in respect of manu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the wide meaning of the term " plant " having regard to the legislative intent to give a wide meaning to the word " plant ", and material record of know-how (even assuming that know-how itself was intangible) was clearly included within the meaning of the word " plant " in s. 32 and it was held that the assessee in that particular case was entitled to depreciation in respect of those assets on the pro rata cost of their acquisition. It is clear that in the light of this decision in CIT v. Elecon Engineering Co. Ltd. [1974] 96 ITR 672 (Guj), once drawings, designs, patterns and specifications and other such embodiments of know-how are treated as capital assets and expenditure incurred for the purpose of acquisition of these capital assets is treated as expenditure of a capital nature, the necessary concomitant of so treating these capital assets, that is, drawings, designs, patterns and specifications, etc., would be to treat them as " plant " and hence to make such expenditure admissible for the purposes of depreciation and development rebate. The same conclusion was reached by this court in CIT v. S.L.M. Maneklal Industries Ltd. [1977] 107 ITR 133 (Guj) in respect of those it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e duration of the licence which was being granted by the Swiss manufacturer and at the end of the period of the licence, the Indian manufacturer could not utilise that know-how any further. The same point was emphasised by this court in CIT v. S. L. M. Maneklal Industries Ltd. [1977] 107 ITR 133 (Guj) and there it was pointed out : " Whether the assessee in the instant case acquired ownership of the workshop drawings, manufacturing instructions, etc., as contemplated by law, and, therefore, whether payment made for acquisition of workshop drawings, etc., was capital expenditure incurred by the assessee depends on whether, by spending this money, the assessee purchased from SLM, and SLM sold to the assessee, the workshop drawings, etc., mentioned in clause (2) of the agreements. To decide whether there was a sale, the main point for consideration is whether the property in these workshop drawings, etc., passed or, was in contemplation of the parties to pass, from SLM to the assessee-company. Normally, when a person purchases any property and there is a completed sale, he gets full title over the property and he can deal with the purchased articles in such manner as he likes, Was i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny for entire or partial manufacture in India, subject to this being necessary and useful and its being suitable to Calor-Emag. Calor-Emag is further prepared to give help to licensee in technical matters in every form, to advise him and to keep him informed of improvements during the continuance of the agreement. This licence is an exclusive one, that is to say, Calor-Emag agrees not to grant such licence or right of manufacture for such equipment to any other party in India. The licensee agrees to manufacture switchgears and switchboards according to the directives of Calor-Emag and to take care that the technical conditions of the parts manufactured in India correspond to those manufactured by Calor-Emag in Germany. Any deviation of the design, etc., requires the approval by Calor-Emag." Article 2 in terms provides that the licensee, that is, the assessee before us, agrees to utilise all documents, experience, etc., furnished to the licensee only by itself or for its suppliers of parts of switchgear. He further agrees to treat them as confidential and not to make such information accessible to any other party. The licensee agrees not to enter into any agreement or contract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any or, at the option of the German company, to be destroyed in the presence of a representative of the German company. Thus, this clause in art. 20 as to what is to happen to the drawings, designs, etc., clearly indicates that the property in these drawings, designs, etc., was not to pass on to the assessee before us. As part of the overall licensing agreement by which facility for the manufacture of switchboards and switchgears developed by the German company in Germany was being placed at the disposal of the assessee-company which is functioning in India, the German company was prepared to furnish to the assessee-company the necessary drawings, designs, patterns, specifications, etc,, but these drawings, designs, etc., were only to be utilised by the assessee-company during the subsistence of the licence and even though payment had been made according to the agreed terms of payment in respect of these drawings, designs, etc., at the end of the period of the licence, the drawings, designs, etc., were required to be returned to the German company or were required to be destroyed at the option of the German company in the presence of a representative of the German company. These pr ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
