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TMI Blog1986 (1) TMI 169X X X X Extracts X X X X X X X X Extracts X X X X ..... 49A(5). The ld. CIT(A) accepted the assessee's first submission but did not agree with the second submission. Both the Department and the assessee are aggrieved of the aforesaid finding of the ld. CIT (A). The grievance of the Department is contained in ground No. 1 is that medical expenses should have been included in aggregation of perquisites for the purpose of working out the disallowance under s. 40A(5) and that in so far as the CIT (A) did not do so, he erred in law. The submission of the assessee, on the other hand, is that the ld. CIT (A) erred in not accepting its submission that the perquisite value of rent free accommodation should be valued as per r. 3 of the IT Rules, 1962. In this connection, the ld. counsel for the assessee took us through the language of sub-cl. (ii) of cl.(a) of sub-s. (5) of 40A and emphasised that what had to be examined was not merely the expenditure incurred by the employer but the ITO had further to determine as to what part of the said expenditure "resulted" in a perquisite to the assessee. The perquisite could be lesser amount than the expenditure incurred by the employee. It would be clear also from the language of Expln. I to sub-s. (5) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion under s. 40A(5). There is no merit in the assessee's contention that, in view of the language of Expln. 1, what is not included in the total income of the employee cannot be considered for the purpose of s. 40A(5). In fact, the provisions of sub-cl. (ii) of cl. (A) of sub-s. (5) of s. 40A indicate the contrary position. In terms of it, even an expenditure incurred or allowance made in respect of any asset of the assessee used by an employee has to be taken into account for purpose of s. 40A(5), it may never be a perquisite in the hand of the employee. The purpose of Expln. 1 is very limited, viz., to clarity that the addition under s. 40A(5) will not be called into question on the ground of double taxation. To infer any other proposition from its language will not, in our opinion, be justified. 4. Rs.53,979 were added back by the ITO to the total income of the assessee on the ground that the said expenses were entertainment expenses and were, therefore, not allowable in terms of sub-s. (2A) of s. 37 of the IT Act, 1961. The details of such expenses have been given at p. 4 of the assessee's paper book. From a perusal thereof, it appears that the expenses are mostly for cost o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs. 65 representing cost of challans. These amounts totalling in all Rs. 440 should be allowed as a deduction. The remaining addition is hereby sustained. 6. The ITO added Rs. 97,900 to the assessee s total income in terms of sub-s. (1) of s. 41 of the IT Act, 1961. While making the disallowance, the ITO made the following observations in paragraph 8 of his order: "This sum of Rs. 97,900 represents the liabilities created in the past years and the same were allowed as deduction in those years. However, since the said liability did not exist any more, hence they were written back during the year. As these liabilities were allowed as deductions in the past and they had been written back during the year, they are definitely includible in the assessee's income for this year within the meaning of s. 41(1) of the IT Act". 7. The assessee appealed against the said order to the ld. CIT (A) who allowed partial relief to the assessee to the extent of Rs. 13,080 under this head vide his observations in paragraph 4 of his order. His observations may be noted as below: "This amount represents liabilities written back and credited to the P/L account during the year. The amount mainly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been credited back to the accounts this year as, prima facie the assessee did not agree to make the aforesaid payments to the parties concerned and the said parties did not pursue their claims, Similar is the position of payments listed at p. 8 aggregating to Rs. 10,812. Three major items which have been debited at p. 8 are as follows: Party's name Amount Financial year Mineral Metal TradingCo.(I) Ltd. Rs. 953 1978-79 Larsen Toubro Ltd. 2,112 1978-79 I.D.M. (P) Ltd. 7,133 1978-79 At page 9 appear items, which represent the details of liabilities provided for telephone expenses for the financial year 1978-79 written back during the financial year 1979-80 aggregating to Rs. 8,578. Referring to the aforesaid bills, the finding of the ld. CIT (A) as extracted above, is that the above amount represented "cuts in the bills and excess provision made". This finding of fact of the ld. CIT (A) has not been disputed before us. So long as the above finding stands, and by the nature of the items extracted above, we are inclined to accept the correctness of the finding of the ld. CIT (A), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee's income, we have to have regard to the facts obtaining in this year of this purpose. On analysis of the facts of this year, we are of the opinion that the assessee had made excess provision in respect of certain expenses or item earlier and this year he had written them back as the said amounts were no more necessary for making the concerned disbursement. The liability to make the payments had thus ceased and, accordingly, the said items became the assessee's income during the previous year under consideration. The assessee is, in our opinion, the best judge for determining as to when the assessee's liability to make the relevant payment ceased either because of the other party not pressing the claim against the assessee or the assessee having disputed the said claims and the other party not pressing for the said claims or the assessee having provided extra amounts for payment of bonus etc. and the same ultimately were found as not necessary for making the disbursement. Any write backs in the accounts on account of the aforesaid reasons would, in our opinion, be squarely covered by the language of sub-s. (1) of s. 41 of the IT Act, 1961. We, therefore, sustain the addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perused the records, it appears that there is a mis-direction of the argument both on the part of the ITO and by the assessee. The assessee has neither maintained any separate accounts of the new undertaking nor are separate balance sheet consequently available for this unit. The balance-sheet prepared by the assessee an on1st Oct., 1979is merely in the form of certain accounts segregated for the purpose of showing the investment made in this unit. The relief under s. 80J is to be computed with reference to the assets of the undertaking as on the first day of the computation period and not in finances set-apart for the purpose of acquiring the assets at some future date. The facts relating to the new unit set up by the assessee clearly indicate that the finances in the new unit were entirely provided from the self-generated funds belonging to the company. The funds lying surplus with the company were being deposited, under short-term fixed deposits, with the banks from time to time. As on1st April, 1979, such FDs amounted to Rs. 53 lacs. On30th Sept., 1979these deposits amounted Rs. 80 lacs. The existence of these deposits merely indicated the extent of the surplus funds available ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the previous year under consideration. The sum of Rs. 80 lacs which is the bone of contention in the present appeal, appears under the head cash and bank balances, and the said amount is not shown as pertaining either to electronic division or to pneumatic division. Prima facie, the aforesaid amount is available with the assessee company for such deployment as it may deem appropriate to make. On the basis of these facts it is difficult to appreciate the argument of the ld. counsel for the assessee that the aforesaid sum of Rs. 80 lacs represented capital deployed in the electronics division as on the first day of the accounting period which in the present case was1st Oct., 1978. The ld. CIT (A) is justified in presuming that the aforesaid amount represented the surplus funds of the company, and, may be, that the assessee wanted to utilise them for the purpose of the new plant, but it had not used them for the new plant as on the first day of the accounting period. A fund earmarked for future use did not represent the capital employed for electronics division as on1st Oct., 1978. In fact the balance sheet does not show that it was earmarked at all for any specific purpose. It sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder of ld. CIT (A). 19. That brings us to the last controversy in the present appeal pertaining to the payment of Rs. 10 lacs to M/s Sybron Corporation of theUnited States of America. According to the assessee, the aforesaid amount is the Revenue expenditure and should have been allowed in full. The ITO treated the entire amount as capital expenditure. The assessee's plea that depreciation, investment allowance etc. should be allowed with regard to the capital expenditure was also negatived by the ITO. Against the aforesaid order of the ITO the assessee went in appeal to the CIT (A) who, after detailed consideration of the agreement under which the payment in question was made, gave the finding that an expenditure to the extent of Rs. 5 lacs was capital expenditure and the remaining amount of Rs. 5 lacs was revenue expenditure. With regard to the sum which was upheld by him to be capital expenditure, the ld. CIT (A) directed that depreciation and investment allowance be allowed to the assessee in respect of the aforesaid sum of Rs. 5 lacs "after examining the admissibility thereto in accordance with other provisions of law". 20. Both the sides are aggrieved of the aforesaid fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l licenced Instruments inIndiaduring the term of this Agreement, utilising the technical property and Technical Assistance. 4. In consideration of the licences and rights granted pursuant to the provisions of Art. 3 of this Agreement, Taylor-India will make payments in United States dollars, to Sybron, from time to time during the term hereof, royalties with respect to the sale of licensed instruments, computed and paid as indicated in Art. 5. 8. Taylor-India recognizes that the secret data and information supplied by Sybron pursuant to Art. (2) and Art. (3) is being given in confidence and for Taylor-India's use only pursuant to this Agreement and Taylor-India agrees that it will not furnish or divulge and will use all reasonable efforts to prevent its employees from furnishing or divulging any such secret information or details thereof to any other party. (9) (a) This agreement will become effective upon the execution hereof and upon the receipt of Sybron of duly authenticated copies of the official approval of this Agreement by the Government of India. Until such approval is obtained, neither party shall be bound by, nor incur any obligation under this Agreement. Unless ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t; (b) "Technical Property" as used herein shall mean such date reduced to drawings, designs, specifications, instruments or other forms of writing as is necessary to the manufacture of Licensed Instruments in an economical and functional manner including the following secret and confidential data; Factory layout plans, designs, and drawings; Drawings of parts, sub-assemblies, assemblies and test equipment; Material specifications; Performance specifications; Test specifications Manufacturing; operation plants; Operations analysis plants; Test equipment instructions; and in addition thereto, such other written documentation as is necessary to further enable Taylor-India to carry on the manufacture and sales of Licensed Instruments in the most efficient manner, provided, however that Sybron/Taylor owns the Technical Property or is permitted under a license to transmit Technical Property to others. (c) "Technical Assistance" as used herein shall mean the right to Taylor-India to receive, and the obligation of Sybron to furnish from time to time during the life of this Agreement, information and assistance to enable Taylor-India to carry out the manufacture and sale of Licensed I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acquisition of the technical know-how for the aforesaid period could not be regarded as the acquisition of an asset of enduring nature. So far as cl. 10 was concerned it was merely an enabling clause and did not signify that the assessee was the owner of the technical property received by the assessee from Sybron CorporationNew York. The sub-license was subject to the terms to be agreed upon by M/s Sybron Corpn. and it would not be necessary to obtain their consent, if the assessee were the full owner of the technical property received from Sybron Corpn. Our attention is invited in this connection to the observations of their Lordships of the Hon'ble Delhi High Court in the case of Triveni Engg. Works Ltd. vs CIT (1982) 29 CTR (Del) 234 : (1982) 136 ITR 340 (Del) wherein, even though technical know how was obtained for a period of 10 years, the payment made for acquiring the said technical know how treated as revenue expenditure by their Lordships. In the present case, the acquisition of the technical know how was only for a period of five years and so, according to the learned counsel for the assessee it could not be regarded as capital acquisition. Reference is also made to the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee for this purpose. The only other provision which ensures to the advantage of the assessee is the benefit of technical advice by the collaborator training to the employees of the assessee and permission to send visitors on assessee's behalf to the factories of Westinghouse. Taking all these together it is clear that the whole object of the agreement was only to obtain benefits of technical assistance for running the business, a restricted licence to the limited use of the patent rights of Westinghouse and the use 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 can be appropriately said of the agreement as well that it does not attempt to part with technical knowledge absolutely in favour of the assessee and that Westinghouse had not sold their secret processes to the assessee." 26. According to the ld. departmental representative the facts of the present case are materially different from those of Shri Ram Refrigeration. Here the technical property is sold once and for all by M/s Sybron Corpn. to the assessee, and, after the terminat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccording to cl. 10 of the agreement Taylor-India were entitled to give a sub-licence of the technical know-how product design under this agreement to another Indian party, should it become necessary. M/s Sybron Corpn. had no say in the selection of the Indian party by the assessee. The Sybron Corpn. had however, a say in settling the term of the sub-licence to be given by Taylor India to the Indian Party during the continuation of this agreement i.e. during the period of five years. Thereafter, there was no control of M/s Sybron Corpn. on the assessee-company to give a sub-licence of the technical know-how product design etc. obtained by the assessee from M/s Sybron Corpn. Applying the principle laid down by their Lordships of the Hon'ble Delhi High Court in the case of Shri Ram Refrigeration Industries Ltd. (1981) 127 ITR 746 (Del) to the facts to the present case as noted above, we have to ask the crucial question, namely, "what is the amount being paid for?" Part of the amount i.e. 1/3rd of the lump sum was being paid for the transfer of the technical property at the initial stage, on the basis of which the assessee-company had to determine its factory lay out plans, drawings to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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