TMI Blog1985 (12) TMI 79X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,967 2. Rosenblads, Sweden, on 6-6-1975 1,36,020 ---------------------- 2,27,987 ---------------------- The assessee claimed that these amounts were paid as fees for technical know-how given by the foreign companies. A copy of the agreement entered into by the company and Rosenblads dated 17-4-1974 and an application for designs and drawings in respect of technical know-how with Arthur White Process Plant Ltd. were filed before the ITO. There was no agreement with Arthur White Process Plant Ltd. It was claimed that the payments were of a revenue nature. 4. The ITO scrutinised the two payments and concluded that so far as the payment to Arthur White Process Plant Ltd. was concerned, it was for outright purchase of the designs and drawings for improving quality of the existing products manufactured by the assessee. This brought about an advantage of enduring nature. He, therefore, held that it was capital in nature and not entitled to depreciation. 5. As regards the agreement for technical know-how with Rosenblads was concerned, the foreign company was to supply technical know-how concerning evaporators and designs of such evaporators and to supply technical documentat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the expenditure incurred for obtaining drawings and designs from Arthur White is correct and is upheld. 9. This leaves for consideration the payment made to Rosenblads. A copy of the said agreement described as 'Licence Agreement', executed on 17-4-1974, has been placed before us. This is on pages 1 to 14 of the paper book, while the supplementary agreement dated 26-8-1974, varying the amount payable is on pages 15 and 16 of the paper book. The licence agreement records the following facts in the opening clause of the preamble : "Whereas, the Blanden cole is engaged in manufacturing and supplying equipments and plants for chemical, petrochemical, pharmaceutical, fertiliser, pulp and paper and allied industries; and Whereas, the Rosenblads is specialised in calculating and manufacturing thermal equipments, inter alia, tabular evaporators for black liquor from kraft pulp in the cellulose pulp industry. Such evaporator of licensor's design has been supplied to many countries; It is the intention of the parties that AB Rosenblads shall provide Blanden cole with know-how concerning such evaporators and make the calculation and designs of such evaporators and provide Blanden col ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efforts are conducted according to clause 2.4D below. For sales in India, no foreign brand name/trademark will be used. The expenses of trademark registration or any other associated need will be borne by Blanden cole. The parties will execute such documents as may be appropriate to ensure both parties hereto the privilege of using such trademarks. Blanden cole shall affix to each evaporator delivered under this agreement, a clearly visible plate with the text indicating that the product has been manufactured under the technology transferred by Rosenblads. Rosenblads shall be entitled to revoke the right to use their trademark if they consider that the quality of the evaporators manufactured by Blanden cole is not satisfactory." The duration of the agreement was for five years from the date of commencement of production provided production was not delayed beyond three years, i.e., maximum period of eight years from the date of signing of the agreement which could be renewed after the initial period of five years, if the parties so agree, and the Government of India permitted such renewal. These terms have been clearly mentioned in clause 7.1 in article VII of the licence agreemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing with the Supreme Court decision in CIT v. Ciba of India Ltd. [1968] 69 ITR 692, the Bombay High Court decision in Acc Vickers Babcock Ltd. [1976] 103 ITR 321, the Bombay High Court decision in Antifriction Bearings Corpn. Ltd. [1978] 114 ITR 335 and in Tata Engg. Locomotive Co. (P.) Ltd.'s case. It may be pointed out that in Tata Engg. Locomotive Co. (P.) Ltd.'s case the company was manufacturing only locomotives and collaboration agreement with Daimler Benz entitled the company to manufacture trucks and other automotive products. The agreement with Henricot was to enable Telco to secure technical assistance in Europe to bring Telco's steel foundry, when completed into full and efficient operation. While the agreement with Henricot was in connection with the product already manufactured, the agreement with Daimler Benz was totally for the manufacture of new product as a new factory was to be established. The duration of the agreement with Daimler Benz was 15 years and the Telco was entitled to use technical know-how and experience even after that period. The department's case was that it was capital expenditure though no patent or patent rights were claimed to have been tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chemical, petrochemical, pharmaceutical, fertiliser, pulp, paper and allied industries and only added manufacture of another item of equipment to its line of manufacture by obtaining the technical know-how from the foreign company. The agreement was for the period of five years only of effective production and was liable to be extended for another period thereafter. The Indian company had only the right to use the name of the foreign company on its products indicating that it was manufactured under the technology transferred by Rosenblads. This was the same as a right of Telco to use the name of Dailmer Benz for 15 years. We, therefore, hold that the Commissioner (Appeals) was correct in holding that what the assessee obtained under the licence agreement was only a right to use those processes and know-how in the manufacture in India for limited period and the expenditure was, therefore, of revenue nature. The department's appeal on this point fails and the appeal [IT Appeal No. 3000 (Bom.) of 1983] is dismissed. 16 to 18. [These paras are not reproduced here as they involve minor issues.] 19. The next ground pertains to the finding of the Commissioner (Appeals) that if depreci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ided this case by majority judgment of 2 : 1, the only decision of the High Court which was considered was that of the Allahabad High Court in Ascharajlal Ram Parkash's case. Since then, the Madras High Court has also considered the matter and has come to the same conclusion as by the Allahabad High Court. In the Allahabad case, the assessee did not claim depreciation for a truck purchased in the previous year nor gave necessary particulars in the form of return. But the ITO, in the course of assessment proceedings, obtained the particulars from the assessee and allowed depreciation. The High Court held that the deduction by way of depreciation was necessary in order to arrive at true profits and gains of the business or profession. The ITO was bound to arrive at true figure of such profits and gains and if in the course of assessment proceedings, he comes to know all the relevant particulars necessary for the grant of depreciation, he is bound to give effect to it. In the Madras High Court case also, the assessee did not furnish particulars of depreciation and did not claim the same. The ITO, however, obtained necessary particulars by calling upon the assessee to furnish the same ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
