9911796707
TMI Blog1988 (3) TMI 118X X X X Extracts X X X X X X X X Extracts X X X X ..... Lady Cosmetics (India) Pvt. Ltd., in term of which the assessee company was granted license to use the name of My Fair Lady with regards to the cosmetics manufactured by the assessee company on condition that the license "shall manufacture at any given time only such cosmetic items which may not be manufactured by the first company" (licenser) at that time". It was further provided that "prior information for approval of item to be manufactured by the license would be given and sanction obtained by the first company in writing." The assessee company was to pay royalty @ 2 per cent of the sales on all such items on which the brand name My Fair Lady to be used by the assessee company. 4. Apart from the above, one more agreement was reached ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... below, amounts to an acquisition of a capital asset and, therefore, has to be treated as such. 6. On behalf of the assessee the above finding is disputed as incorrect and it is pointed out that the know-how in the present day scientific world canot be regarded as a permanent and intangible asset in view of vast technical changes that are taking place and that, in any case, the assessee company could make use of the said technical know-how for a period of four years, i.e. 1982, 1983, 1984 and 1985 and that for the fifth year, namely, 1986 the production sharply declined because the manufacturing formula and the product had become out of date by then. It is, therefore, wrong according to the assessee's learned counsel, to hold that, on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said authorities, is simple, namely, as follows: (1) If the expenditure is incurred in order to acquire know-how without any regard as to the number of years for which it can be used by the assessee, the payment in question would be of capital nature; (2) Where the payment is made in order to exploit the trade name, patent, copy right etc., belonging to another person, and for such user or exploitation, amounts are being paid by way of royalty or even in lump-sum, the expenditure would be of revenue nature, because thereby nothing is acquired by way of right over the trade name, patent, copy right etc. The same always remaining with the licenser and only the exploitation of the said trade name being made by the assessee for day to day ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was held to be entirely of revenue character. In the case of CIT vs. Hindustan General Electrical Corporation Ltd., similarly the right to use the brand name Simplex was to be paid for by the assessee company and it was on this head that sum of Rs.13,983 was incurred by the assessee company. This expenditure was held by the Hon'ble High Court to be of revenue nature because, inter alia, according to their Lordships, there was no transfer of fruits of the research and the stipulated payment of royalty was a recurring and entirely dependent on Simplex products actually manufactured by H. In Shriram Refrigeration Industries Ltd. what was acquired was a right to manufacture in India certain specified apparatus and material covered by patent a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld to be capital in nature. The above view of the Hon'ble Madras High Court was followed by the same High Court in Addl. CIT, Madras-II, Another vs. Southern Structurals ltd where the acquisition of the knowledge was for an un-limited period. 11. In view of the facts of the present case falling in category (1) mentioned above, I am of the opinion that the learned CIT(A) was justified in holding that the payment of 5 per cent royalty on sales to the licensor company was for acquisition of a capital asset. It is not of importance in this connection that the acquired asset did not last beyond a period of four years. For that matter, the nature of the payment would not alter, for it was paid to acquire out-right the know-how and not by way of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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