1992 (8) TMI 155 - AT - Income Tax

Summary

Issues Involved:
1. Classification of payment for technical know-how as capital or revenue expenditure.
2. Disallowance of sales-tax liability under section 43B.

Detailed Analysis:

1. Classification of Payment for Technical Know-How:

Background:
The assessee, a resident company engaged in manufacturing and selling steam generating equipment, entered into a technical know-how agreement with M/s NEI COCHRAN Ltd. of Scotland. The agreement involved the transfer of proprietary information and technical knowledge for a specified period.

Assessing Officer's Decision:
The Assessing Officer (AO) classified the payment for technical know-how as capital expenditure, referencing the Supreme Court's decision in Scientific Engg. House (P.) Ltd. v. CIT, which treated similar payments as capital in nature. The AO highlighted that the agreement involved obtaining drawings, designs, plans, and processing data, which were akin to acquiring a plant.

CIT(A)'s Decision:
On appeal, the CIT(A) reversed the AO's decision, citing several judgments, including CIT v. Venkateswara Transmission (P.) Ltd., Tata Robins Frazer Ltd. v. CIT, Antifriction Bearings Corpn. Ltd. v. CIT, and CIT v. Steel Plant (P.) Ltd. These cases established that lump sum payments for technical know-how could be treated as revenue expenditure.

Tribunal's Analysis:
The Tribunal considered the following key points:
- The assessee was already manufacturing industrial boilers and sought technical know-how to improve product quality.
- The agreement was for a limited period of 5 years, with various restrictions, including non-assignment without the licensor's consent.
- The payment included both lump sum amounts and royalties based on net sales.

The Tribunal distinguished this case from Scientific Engg. House (P.) Ltd., emphasizing that the know-how agreement did not result in an outright purchase but rather a temporary license. The Tribunal relied on the Supreme Court's decisions in Ciba of India Ltd. and Alembic Chemical Works Co. Ltd., which treated similar payments as revenue expenditure. The Tribunal concluded that the payment for technical know-how was revenue in nature and upheld the CIT(A)'s decision.

Conclusion:
The Tribunal ruled that the payment for technical know-how was revenue expenditure, not capital expenditure, aligning with the judgments in Ciba of India Ltd. and Alembic Chemical Works Co. Ltd.

2. Disallowance of Sales-Tax Liability under Section 43B:

Background:
The AO disallowed Rs. 7,06,263 as sales-tax liability, stating that the deduction would be allowed when the sums were actually paid.

CIT(A)'s Decision:
The CIT(A) upheld the AO's disallowance.

Tribunal's Analysis:
The Tribunal held that if the outstanding liabilities of sales-tax and other statutory liabilities were paid within the specified time under section 139(1) for filing the return of income, it would be sufficient compliance with the provisions of law, and no disallowance would be required. The Tribunal referenced the judgments of the Patna High Court in Jamshedpur Motor Accessories Stores v. Union of India and the Calcutta High Court in CIT v. Sri Jagannath Steel Corpn., which clarified that the proviso to section 43B related back to the main provisions' effective date, 1-4-1984.

Conclusion:
The Tribunal reversed the CIT(A)'s order and directed the AO to verify the claim and allow it if the payments were made within the specified time under section 139(1).

Final Decision:
The appeal was dismissed regarding the classification of payment for technical know-how, affirming it as revenue expenditure. The disallowance of sales-tax liability was reversed, with directions for the AO to verify and allow the claim if payments were made within the specified time.