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TMI Blog1987 (7) TMI 152X X X X Extracts X X X X X X X X Extracts X X X X ..... ation system of packaging used for packing of a variety of consumer products. Relevant clauses of the agreement are reproduced below : "1. Licensee shall develop in the Territory the manufacture of the machinery according to a phased programme decided by CMP and Licensee with due regard to availability of Machine shop capacity and consumer demand. The drawings and specifications contemplated for each phase of the programme are those which are now used by CMP for its own manufacture and they are specified in Exhibit 1 hereto. 2. Licensee shall during the continuance of this agreement purchase from CMP at current prices all materials component and spare parts of the products which Licensee is unable to manufacture and which are in the manufacturing programme and described above provided that such current prices shall not in any case be higher than the prices charged by CMP for such materials, component and spare parts supplied by CMP to buyers elsewhere than in the Territory and provided that such materials, component and spare parts as CMP may furnish or cause to be furnished to Licensee therein shall be used by Licensee solely for the manufacture and assembly into complete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall take every reasonable measure in order to ensure that no person shall have access to any drawings, specifications or manufacturing descriptions except such person who necessarily must have such access in order to perform their obligations towards Licensee concerning the manufacturing in accordance with this agreement, and that no such person shall have access to any more of such material than is necessary for such performance and Licensee shall take every precaution adequate or necessary in order to have such person safeguard the confidential nature of such material. 17. Should Licensee become involved in receivership, bankruptcy or insolvency proceedings, this agreement may be terminated at once by CMP. Each party may terminate this agreement at any time upon sixty days written notice to the other party in case of substantial breach of this agreement by such other party, provided, however, that if such is remedied or made good within such sixty days period, the agreement shall not be terminated pursuant to such notice. 18. Upon termination of this agreement, irrespective of any cause, Licensee shall send immediately to CMP all drawings, models and designs, as well as al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on that the ground authorised by the Commissioner does not seek to challenge the issue of admission of additional ground. The ground merely is directed to the merits of the issue decided by the CIT (Appeals). Alternatively the assessee's counsel Shri O.P. Vaish rightly submitted that the additional ground did not require any fresh investigation into facts, the facts being already on record and his reliance on the Supreme Court authority in CIT V. Mahalakshmi Textile Mills Ltd. [1967] 66 ITR 710 and Andhra Pradesh High Court decision in CIT v. Gangappa Cables Ltd. [1979] 116 ITR 778 is well placed. We reject this approach of the Revenue and deal with the issue on merits. 6. The submissions of both the sides on merits have been heard at length. In brief the stand of the Revenue was that CIT (Appeals) had not passed a speaking order and did not apply his mind to the facts of the case and that he had ignored the word ' etc.' used in clause ' 4 ' of the agreement. It was further submitted that facts of the cases relied upon by the CIT (Appeals) namely CIT v. Tata Engg. Locomotive Co. (P.) Ltd. [1980] 123 ITR 538 (Bom.) and Praga Tools Ltd. v. CIT [1980] 123 ITR 773 (AP)(FB) were di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It was submitted that the case fell under the ratio of the Supreme Court decision in CIT v. Ciba of India Ltd. [1968] 69 ITR 692, which has been followed by our High Court in several cases. He cited and relied upon at least four cases of the Delhi High Court, namely Shriram Refrigeration Industries Ltd.'s case, Triveni Engg. Works Ltd.'s case, Addl. CIT v. Shama Engine Valves Ltd. [1982] 138 ITR 216 and CIT v. Bhai Sunder Dass Sons (P.) Ltd. [1986] 158 ITR 195. It was submitted that it was clear from reading of these authorities that in the event of use of technical know-how and drawings and other things of that nature, the expenditure incurred would be in the nature of revenue expenditure. It was also submitted that similar view has been taken by other High Courts in several other cases. Referring to the Supreme Court decision in the case of Elecon Engg. Co. Ltd., it was pointed out that there were two distinguishing features in comparison with the assessee's case. Firstly, as can be seen from the Gujarat High Court judgment, in Elecon Engg. Co. Ltd.'s case at page 677 that during the course of hearing of the appeals, the assessee did not seriously press the contention that ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness, a restricted licence for the limited use of the patent rights of Westinghouse and the use was restricted to the assessee alone and for the duration of the agreement of such technical information as may be supplied by Westinghouse. In the light of these features of the agreement it could be appropriately said that Westinghouse did not part with technical knowledge absolutely in favour of the assessee and that Westinghouse had not ' sold ' their secret processes to the assessee. The period of the agreement was not of much significance. If the nature of the agreement itself was such that it could not be said that the assessee had absolutely acquired any knowledge or asset, it was difficult to see how even a payment made by way of a lump sum to obtain the agreement or to persuade Westinghouse to enter into the agreement could itself have a different character. Further, since the payments were made to have access to the knowledge and information that was necessary to carry on and run the business from day to day, it was not of much significance whether the agreement was entered into at the time of the commencement of a business or in the course of a business which was already b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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