TMI Blog1977 (3) TMI 30X X X X Extracts X X X X X X X X Extracts X X X X ..... manufacture of submersible pumps, centrifugal pumps, etc. The relevant clauses of the agreement were as follows : Clause (i) stated that Aturia shall grant a licence to the assessee to manufacture and sell electric submersible pumps up to 12 HP ; clause (ii) dealt with supply to the assessee with a copy of patents deposited in India and in force in various countries such as United States, Germany and England ; clause (iii) provided that the assessee will have exclusive rights to manufacture and sell the above pumps within India and imposed an obligation on the assessee not to assign their rights and duties under the licence, or to grant any sub-licence to third parties for the manufacture of the aforesaid pumps without the permission of A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0,000. The above amount shall be paid to ATURIA year by year in advance starting from the 3rd year of the validity of the contract by instalments of Rs. 30,000 equal to Lires 3,900,000 per year ". Clause (ix) provided that Aturia will do the needful to keep the patents in force or to deposit new patents and will take upon themselves all expenses for the same. Under this clause Aturia undertook not to surrender their patents without the consent of the assessee. This clause further provided that for the period of validity of this contract. in case additional patents with improvements concerning the pumps considered in this contract were to be deposited, Aturia shall extend the benefit to the assessee free of charge. It also provided for the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal. The assessee put forward the contention that the entire payment was allowable as revenue expenditure and the department put forward the contention that 85% of the payment constituted capital expenditure. The Tribunal held that the entire payments constituted revenue expenditure and, therefore, allowed the appeals preferred by the assessee and dismissed the appeals preferred by the department. It is the correctness of this conclusion that is challenged by the Commissioner of Income-tax, by applying for and obtaining a reference of the following questions for the opinion of this court : "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that 85% of the amount paid towards the technic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icer, constituted capital expenditure. In Ciba's case [1968] 69 ITR 692 (SC), the Supreme Court held, on a consideration of the terms of the agreement with which they were dealing in, that case, that the assessee acquired under the agreement merely the right to draw, for the purpose of carrying on its business as a manufacturer and dealer of pharmaceutical products, upon the technical knowledge of the Swiss company for a limited period by making that technical knowledge available and the Swiss company did not part with any asset of its business nor did the assessee acquire any asset or advantage of an enduring nature for the benefit of its business. As against this, in Kirloskar's case [1968] 67 ITR 23 (Mys), the Mysore High Court held on a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, we are clearly of the opinion that the Tribunal was right in its conclusion that the whole of the amount paid by the assessee constitutes revenue expenditure and has to be allowed as a deduction. From the terms of the agreement referred to above, the following facts are clear, (1) The agreement itself provides that what was granted by Aturia to the assessee is merely a licence to use its patents and designs exclusively in India ; (2) The agreement is for a duration of 10 years with the parties having the option to extend the agreement or renew the same subject to the approval of the Government of India ; (3) During the currency of the agreement, Aturia had undertaken not to surrender its patents without the consent of the assessee and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e should not utilise the know-how already acquired by it, the provision of clause (x) makes it absolutely clear that the assessee could not use the said know-how after the agreement came to an end. In this respect the present case is directly in contrast to Kirloskar's case [1968] 67 ITR 23 (Mys), where the Mysore High Court held that the knowledge was available to the assessee for all time to come in the future if the assessee carries out the terms of the agreement. It is again significant that clause ; (viii) of the agreement in the present case dealing with the payment of the amount in question expressly provides for the said payment for the know-how and use of the names and patents, etc., of Aturia and for the manufacture of units comme ..... X X X X Extracts X X X X X X X X Extracts X X X X
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