9911796707
TMI Blog1986 (7) TMI 186X X X X Extracts X X X X X X X X Extracts X X X X ..... with reference to isolator from Alpha Ltd. and for manufacturing pantograph isolators for 420 KV capacity as manufactured by Alpha Ltd. As per article 5 of the Technical Assistance Agreement as amended on 3-9-1980, the assessee agreed to pay a total amount of Sfr. 2,47,500 in four installments as stated below towards consideration for the documentation, information and services to be rendered by the Swiss company : Sfr. 90,000 payable not later than 15-8-1980 Sfr. 52,500 payable not later than 15-8-1981 Sfr. 52,500 payable not later than 15-8-1982 Sfr. 52,500 payable not later than 15-8-1983 ----------- 2,47,500 (equivalent to Rs. 13,93,581) ------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provide continuous guidance and selection and purchase of raw material, manufacture and testing of the finished products. It would also arrange for training of the personnel of the assessee. As per article 9, the agreement was to be for a period of five years from the date of commencement of production and as per article 10, the assessee-company should return all the drawings, documents and tools received through the foreign company on the termination of the agreement and should cease to manufacture the contract materials and should not use or disclose the techniques and processes brought to its knowledge by the foreign company. After referring to various cases, he held that the payment of technical know-how fee should be allowed as revenu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nditure. He also urged that since the assessee maintained its accounts on mercantile basis the entire amount of Rs. 13,93,581 is allowable in this year itself. In support of his contention he placed reliance on the decision of the Bombay High Court in Addl. CIT v. Buckau Wolf New India Engg. Works Ltd. [1986] 157 ITR 751. 4. We have considered the rival submissions. The technical know-now agreement dated 31-1-1980 is for a period of five years only. Under article 4 of this agreement the assessee is not entitled to grant sub-licence without the consent of the foreign company. The assessee shall not disclose to any third party any information receivable under this agreement without the consent of the foreign company and it shall not transfe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business of the assessee, it must be regarded as an integral part of the profit-making process and in such a case, it must be held to be a revenue expenditure. It is only where the purpose and object of the expenditure is to acquire an asset or right of an enduring nature or permanent character, it is a capital expenditure. It was further held that there is no property right in the know-now which is transferable and the imparting of special knowledge and technical know-now by the foreign collaborators to the assessee-company would be just like a the Full teacher selling his skill or knowledge to his pupil. In Mysore Kirloskar Ltd. v. CIT [1978] 114 ITR 443 Bench of the Karnataka High Court held that under the agreement the assessee acquire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13,93,581 is allowable in this year or only the instalment payable, i.e., Sfr. 90,000 during this year is allowable. An identical issue was considered by the Bombay High Court in Buckau Wolf New India Engg. Works Ltd.'s case. In that case also technical know-now fees of Rs. 1 lakh was payable in five equal instalments. The entire amount was claimed in the first year. The Bombay High Court held that the entire amount of Rs. 1 lakh was allowable in that year. It was held as under : "The question to be considered is whether there was accrual of liability in the assessment year, though with facility of a deferred payment or annual accrual of limited liability in the assessment year with similar accrual of liability in the following four years ..... X X X X Extracts X X X X X X X X Extracts X X X X
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