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TMI Blog1988 (2) TMI 137X X X X Extracts X X X X X X X X Extracts X X X X ..... hese expenses on license fee as revenue expenditure and had held that the same was a capital expenditure. In the assessment year 1977-78, the CIT (Appeals) by mistake held in his order that the ITAT had allowed this expenses as a revenue expenses in earlier years. The ITAT also for the assessment years 1977-78 took without verifying that the ITAT had allowed the same in the earlier years and thus confirmed the order of the CIT (Appeals). It was thus, argued by the Standing Counsel that according to the earlier history and the orders of the ITAT on the topic, license fee was held to be a capital expenses and according to the said finding, the same should be disallowed and the order of the CIT (Appeals) be reversed on this issue. 3. The AR did not dispute the above facts pointed doubt by the Standing Counsel, but he argued that license fee paid was a revenue expenses. 4. We have considered the facts and the rival contentions. In assessment years 1974-75, 1975-76 and 1976-77, license fee was held to be a capital expense by the ITAT. In 1977-78, it was allowed by the ITAT, it appears, on a misunderstanding that the same was allowed by ITAT in earlier years though it was actually now ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that similar disallowance was deleted by the ITAT in the immediately preceding year. It was further stated by the Standing Counsel that the ITAT for the assessment year 1977-78 deleted the disallowance of license fee on the ground that the ITAT in assessment years 1974-75, 1975-76 and 1976-77 had deleted such a disallowance. The correct fact is that there was no such disallowance under consideration of the ITAT for the assessment years 1974-75, 1975-76 and 1976-77. Thus, the ITAT in the order for the assessment year 1977-78 deleted the disallowance under a misunderstanding. It was argued by the Standing Counsel that license fee was not a revenue expenditure and the same should have been disallowed. The Standing Counsel in this connection, relied upon the following cases : 1. Fenner Woodroffe & Co. Ltd. v. CIT [1976] 102 ITR 665 (Mad.). 2. Jonas Woodhead & Sons (India) Ltd. v. CIT [1979] 117 ITR 55 (Mad.) (FB). 3. CIT v. Jyoti Ltd. [1979] 118 ITR 499 (Guj.). 4. Ram Kumar Pharmaceutical Works v. CIT [1979] 119 ITR 33 (All.). 5. Addl. CIT v. Southern Structurals Ltd. [1977] 110 ITR 890 (Mad.). 11. The Authorised Representative of the assessee argued that license fee was allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actually claimed deduction of Rs. 6,436 and only that amount was disallowed by the IAC. Relief of Rs. 6,436 only should have been allowed by the learned Commissioner of Income-tax (Appeals)." 14. We have considered the facts. It appears that there was a mistake in the order of the CIT (Appeals). The CIT (Appeals) is directed to rectify the mistake, if it has not been done already. 15. The next contention in both the years is that the CIT (Appeals) was not justified in accepting the assessee's claim that deduction under section 80MM shall be calculated with reference to the cross receipts. 16. This contention is covered by the orders of the ITAT in the earlier years. According to the orders of the ITAT in earlier years the contention of the revenue is rejected. 17. The next contention is that CIT (Appeals) was not justified in holding that depreciation was admissible on Rs. 30,06,196 representing the cost of documents. 18. This issue is covered by the orders of the ITAT in earlier years. Following the same, this contention of the Department is rejected. 19. The last contention is that the CIT (Appeals) was not justified in relying on the order of the ITAT for earlier years, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ween M/s. Hindustan Steel Ltd. and M/s. Tiajomom export of USSR on 27-11-1969. These two agreements were executed to provide necessary know-how and design. These two agreements were subsequently assigned to the assessee-company on 13-9-1973. 2. It took over the assets of Rs. 5.1 crores which included the consultancy wing and united wing as follows : Rs. "1. Consultancy Wing Expenditure on technical know-how, documents, training of engineers, Soviet -----written off 79,08,640 2. United Wing Expenditure on Licence fee, Engineer/ documents etc. not written off 70,90,370 ---------- Total : 1,49,99,010 ---------- The assessee-company, in addition thereto, incurred the total expenses of Rs. 16,55,980, Rs. 17,40,520 and Rs. 19,99,282 on payment to collaborators, engineering and design fees, postage and training expenses during the assessment years 1974-75 to 1976-77." 3. The assessee claimed the revenue expense of Rs. 1,36,48,796 and capital expenses of Rs. 30,06,193 on which it claimed depreciation for the asst. year 1974-75. In 1975-76 and 1976-77 the expenses of Rs. 17,40,529 and Rs. 19,99,282 were claimed as revenue expenditure. It would be relevant to give the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t allowed depreciation. The other portion of the expenditure was treated as revenue expenditure which was allowed to be deducted as business expenditure. 7. But in treating the expenditure for technical know-how as capital expenditure, the Tribunal has recorded a further finding in para 11. An extract of this is reproduced as below : "The lower authorities have considered the expenses of the assessee on know-how, drawing, patents etc., on the footing that the assessee acquired the technical know-how and utilised the same for its business. But the facts are otherwise. The assessee, no doubt, has utilised the technical know-how, drawings, patents etc. but it has not manufactured any article on the basis of those licenses for itself nor the article manufactured on the basis of know-how are subject matter of sale of the assessee. What the assessee has done is that the assessee has taken know-how, drawings, patents etc. from others and have provided them to others by charging fees. All the decisions either cited before the authorities below or cited before the Bench during the hearing by both the parties are related to know-how which was acquired by the assessee for the manufacture of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade in earlier years. The finding of the Tribunal made in earlier years' appeal was on altogether different set of facts. The order of the Appellate Tribunal was based on a finding that the assessee was a dealer in know-how but the finding of the CIT(A) in this year does not suggest that but on the other hand highlights that the payment was made in connection with the equipments to be supplied to its constituents as pointed out in the extract from the finding of the CIT(A) reproduced above. As highlighted in the Tribunal's own finding reproduced above, such an expenditure was to be differentiated from the expenditure incurred to supply the technical know-how as a dealer and was to be treated as revenue expenditure. It was this feature which appears to have led the CIT(A) to hold that the Tribunal had already recorded a finding which he faithfully and truthfully followed. Besides, if the payments of royalty and Engineering fees both incurred for acquiring technical know-how are to be treated as revenue expenditure by the learned Accountant Member to which I have agree, I fail to see any logic in disallowing Licence fee as capital expenditure. Engineering fee also was a constituent o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as a business outgoing for assessment year 1978-79 ?" 2. The dispute is whether the technical know-how fee paid by the assessee in respect of a foreign collaboration agreement is allowable as revenue expenditure or capital expenditure. The assessee is a Government undertaking. Under the agreement the assessee was required to pay 1,00,000 dollars on the execution of agreement and similar amount of 1,00,000 dollars every year for another five years. The IAC held that the expenditure incurred by the assessee is capital expenditure. On appeal, the CIT (A) allowed the assessee's claim as revenue expenditure. 3. The revenue preferred the appeals before the Appellate Tribunal. The appeals were heard by the learned Judicial Member Shri U. S. Dhusia and the learned Accountant Member Shri B. Nath of Patna Bench of the Tribunal. The learned Accountant Member held that the expenditure is capital expenditure. the learned Judicial member differed with this view. He held that it is allowable as revenue expenditure. In view of the above difference of opinion, the matter has been referred to me. 4. The learned departmental representative strongly urged that the payment towards license fee for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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