9911796707
TMI Blog1979 (4) TMI 80X X X X Extracts X X X X X X X X Extracts X X X X ..... this company. He transferred the assets and liabilities of the proprietary concern i.e. Shri Kandaswamy Enterprises to the assessee-firm, private Ltd. company. The Managing Director was paid salary and other perquisites from the company. In the Board meeting of the company on 27th Sept., 1972 it was resolved to pay a sum of Rs. 34,000 to the Managing Director towards the technical know-how. In the minutes of the Board meeting held on 19th Oct., 1972 the following resolution was passed: "The question of payment of Rs. 34,000 to Mr. V. Kandaswamy towards technical know-how was considered at length. It was resolved without dissent, Mr. V. Kandaswamy abstaining, that Mr. V. Kandaswamy should be requested to impart to the company for a period ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng benefit as the technical know-how formed the basis for the production of sports cum goods and the payment was made in lump though spread over 3 years. In the assessment for 1975-76, the prior assessment of this amount was taken as the basis and this was not allowed. 4. The assessee took the matters on appeals before the AAC of Income-tax, A-Range, Madras. The AAC accepted the assessees contention and treated the payments as revenue expenditure. It was contended before the AAC that the assessee company acquired only the right to draw, for the purpose of carrying on its business as a manufacturer, upon the technical knowledge of Mr. Kandaswamy, and the mere utilisation of such knowledge would not enable the company to acquire any endur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee contended before us that the assessee acquired merely the right to draw for the purpose of carrying on its business of manufacture, upon the technical knowledge of Mr. Kandasamy and that would not enable the company to acquire any enduring asset and that the technology had become obsolete and therefore it had not resulted in an advantage of permanent nature. He also pointed out that these amounts were assessed in the hands of Kandaswamy as business income. He relied on the decisions mentioned in the AAC's order and also referred to by us above and also some other decisions including the Karnataka High Court full Bench decision in Mysore Kirloslkar Ltd. vs. CIT Bangalore(6). 7. On a careful consideration of various pleas and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the manufacture of sports goods. In as much as the assessee company was formed only in June, 1972 and even from its inception manufacturing was done at the instance of the Managing Director, the payment to him was by way of outright purchase of the technical know-how. Even though the know-how was agreed to be imparted to the company for a period of three years, the assessee company had derived an enduring benefit in the manufacture of sports goods and even if the Managing Director does not help the assessee company later the company would have acquired the technical know-how through its other employees and would have produced the sports goods. The Managing Director had not restricted his knowledge of know-how and had abdicated his rights t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the value to the transferee. (6) If the agreement is for the very establishment of the business and the production is to be on the basis of the know-how supplied to it, then the expenditure relates to a business which is not already in existence but that is to come into existence in future. The facts of the present case fit into the facts of the above case. The assessee company was incorporated by the transfer of the technical know-how and it is a fact that his knowledge in the manufacture of the sports goods was utilised by the company and without such technology the assessee company could not have manufactured these sports goods. The transferor did not retain with himself any portion of the technology and he had imparted his knowledge in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee company, the full knowledge had been utilised and the employees of the assessee company could have obtained full knowledge or manufacture of the sports goods with the knowledge imparted by the Managing Director and thereby the assessee company had derived an enduring benefit for all the time to come. As seen from the minutes of the Board's meeting on 27th Sept.,1972, the company paid lump sum of Rs. 34,000 towards the technical know-how even though spread over for 3 years. These is nothing on record to show that the Managing Director had not imparted any secret formula to the assessee company. For the services rendered by the Managing Director, the company had paid him amply. The technical know-how passed is only out right purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X
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