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TMI Blog2001 (12) TMI 199X X X X Extracts X X X X X X X X Extracts X X X X ..... ITA No. 1444/Chd/1994, the Revenue has taken the following effective grounds: 1. On the facts and in the circumstances of the case, the learned CIT(A) has erred in deleting the addition of Rs. 13,07,318 made by the AO on account of MODVAT. The AO made the valuation of closing stock by including the amount of MODVAT as against the valuation made by the assessee after excluding the amount of MODVAT from the closing stock. 2. The learned CIT(A) has further erred in allowing relief of Rs. 27,20,440 out of addition of Rs. 32,28,529 made by the AO on account of payment of royalty as that of technical know-how treating the payment under s. 35AB. 4. First, we shall take up ground No. 1 of both the appeals together as the issue involved therein, i.e., whether the closing stock is to be valued by including the amount of MODVAT or after excluding the same, is common. 5. At the outset of the appellate proceedings before us, learned Authorised Representative for the assessee brought to our notice a copy of the order of this Bench passed in the case of Dy. CIT vs. Swaraj Engines in ITA No. 2158/Chd/1992; asst. yr. 1990-91, dt. 24th Oct., 2000, wherein this very issue has been decide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... im of deduction on account of payment of royalty, the assessee relied upon the decision of Andhra Pradesh High Court in Praga Tools Ltd. vs. CIT (1980) 16 CTR (AP) 356 : (1980) 123 ITR 773 (AP). 11. Learned CIT(A) after considering the submissions of the assessee and also after referring to the agreement executed between the assessee and M/s Kirloskar Oil Engine Ltd., referred the order of the AO by making following observations in her order: "I have carefully considered the submissions made before me and also made reference to the agreement with M/s Kirloskar Oil Engine Ltd. The royalty has been paid with reference to invoiced price of the licensed products and hence cannot be termed as a lump sum payment covered within the definition of 'know-how' in Explanation to s. 35AB of IT Act. Considering the submissions of the learned counsel as also the decision of the High Court on this issue, I am of the view that such payment of royalty is admissible as revenue expenditure being related to sales made. Royalty paid on sales works out of Rs. 24,65,340 and this deduction is held to be allowance (sic-allowed). The balance amount of Rs. 2 lakhs which is a lump sum payment for obtaini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... methods recommended by the technicians would in course of time become out of date. The expenditure had not resulted in an advantage of a permanent nature and was not, therefore, capital expenditure. It was allowable under s. 10(2)(xv) of the Indian IT Act, 1922. 12(iii) Alembic Chemical Works Co. Ltd. vs. CIT (1989) 77 CTR (SC) 1 : (1989) 177 ITR 377 (SC), wherein their Lordships of the Supreme Court held reversing the decision of the High Court, (i) that there was no material before the Tribunal to come to the finding that the appellant had obtained under the agreement a 'completely new plant' with a completely new process and a completely new technical know-how from Meiji. The business of the appellant from the commencement of its plant in 1961 was the manufacture of penicillin. Even after the agreement, the product continued to be penicillin and the agreement with Meiji stipulated the supply of the 'most suitable sub-cultures' evolved by Meiji for purpose of augmentation of the yield of penicillin. (ii) That there was no material for the Tribunal to hold that the area of improvisation was not a part of the existing business or that the entire gamut of the existing manuf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ross turnover of the products as royalty. The disallowance of 25 per cent of the sum paid as royalty by the appellant to the English company as capital expenditure not allowable as revenue expenditure under the provisions of the IT Act, 1961, for the asst. yrs. 1967-68 and 1968-69, was correct. 13. On the other hand, learned Authorised Representative for the assessee extensively quoting from the agreement dt. 19th Oct., 1989, submitted that the assessee's company started manufacturing engines from 8th Aug., 1989, for self-consumption and also for sale to others. The company was set up with its plant, machinery and building and all other technical know-how of its own, and for setting up of the said unit, no technical know-how services were availed from the outside agencies. This agreement dt. 19th Oct., 1989, was entered into with M/s Kirloskar Engines (P) Ltd. to achieve the desired level of output and quality for manufacturing the product with the assistant and technical know-how of M/s Kirloskar Engines (P) Ltd. Clause 1(a) of the agreement clearly stipulates that the technical know-how and assistance was being taken by the assessee for achieving the desired level of output an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 562 : (1996) 55 ITD 338 (Cal), Tribunal, Calcutta 'C' Bench, held that prior to introduction of s. 35AB, the consideration paid for acquiring any know-how for the purpose of business was held to be capital expenditure, not allowable as deduction under s. 37(1). The consensus of judicial opinion was that expenditure for acquiring the technical know-how was different from expenditure incurred for obtaining the mere use of the technical know-how and information which was allowable as revenue expenditure. Thus, prior to the introduction of s. 35AB, the law was that payments for acquisition of the technical know-how or information would be capital payments and payments for the mere use of such know-how during the currency of the agreement were revenue payments, deductible while computing the business income. Having regards to the state of law which existed prior to the introduction of s. 35AB, it must be construed that the legislature wanted to provide for writing off of even payments made for the acquisition of technical know-how despite the fact that the judicial interpretation was not in favour of such view. The write off was, however, to be spread over a period of six assessment y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oodyear India Ltd. vs. ITO, the Bench observed that in view of the above discussions, it was not a case of sale of technical know-how but it was a case of transfer of technical know-how and thus the assessee had not acquired ownership of the said technology. The assessee had already been manufacturing tyres. There was also no absolute certainty of its continued use for the business for a long period because of existence of the terms of the agreement for its termination even before 8 years. The assessee had not acquired any advantage in capital field. The advantage consisted merely of facilitating the assessee's manufacturing and operation to be carried on more profitably while leaving other capital untouched. Moreover, every enduring advantage is not of capital nature. 17. The other argument advanced by the learned Authorised Representative for the assessee in this case is that the Department has already allowed claim of similar expenditure of the assessee in the asst. yrs. 1989-90 and 1990-91 as revenue expenditure. The dispute had only arisen in the asst. yrs. 1991-92 to 1992-93 under consideration because even in asst. yr. 1993-94, a similar claim of the assessee has been con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itigations including litigation arising out of the income-tax and an earlier decision on the same question cannot be reopened if that decision is not arbitrary or perverse, if it had been arrived at after due enquiry, if no fresh facts are placed before the Tribunal giving the later decision, and if the Tribunal giving the earlier decision has taken into consideration all material evidence. As it has not been shown in this case that the earlier decisions were either arbitrary or perverse or that by the time of the asst. yr. 1955-56 fresh facts had come into existence and come before the IT authorities, this was not a proper case in which the Revenue should have gone back in its approach adopted in this case for well over a decade. In the case of Radhasoami Satsang vs. CIT, wherein the apex Court held that in the absence of any material change justifying the Department to take a different view from that taken in earlier proceedings, the question of the exemption of the assessee-appellant should not have been reopened. Strictly speaking, res judicata does not apply to IT proceedings. Though, each assessment year being a unit, what was decided in one year might not apply in the follo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l. 6 of the agreement, the total payment was to be made on account of said technical assistance @ 3 per cent of the total sales which means that technical know-how or the assistance given by M/s Kirloskar Oil Engine Ltd. as per terms of the agreement was only relatable to production. It further means that the assistance or technical know-how obtained by the assessee under the agreement pertained to the products already manufactured by the assessee and not for new products, and this agreement further indicated that what was stipulated in the agreement was an improvement in the operation of the existing business and its efficiency and productability. We are further of the opinion that since the agreement was for better conduct and improvement of the existing business of the products already being manufactured by the assessee, so in these facts, the impugned royalty amount paid by the assessee and allowed by the CIT(A) was in the nature of revenue expenditure and so, was allowable as deduction in computing business profits of the assessee, as has been held in the various citations relied upon by both the parties. We have also considered other arguments advanced by the learned Authoris ..... X X X X Extracts X X X X X X X X Extracts X X X X
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