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TMI Blog2008 (3) TMI 679X X X X Extracts X X X X X X X X Extracts X X X X ..... as its own factory and own machinery but with a view to increase its efficiency and profitability it entered into an agreement with M/s. Stanley Electric Co. Ltd. (SECL) sometime in 1984. The agreement has been annexed to the memorandum of appeal and we have been taken through some relevant clauses of the agreement, particularly clauses 2, 3 and 4 thereof. 3. Under clause 2 of the agreement, SECL grants to the assessee a non-exclusive right and licence to manufacture the licensed products of SECL which are patented and also to receive technical information. Article 3 deals with technical assistance which is to be provided by SECL to the assessee and includes assistance in relation to the licensed products from time to time such as technica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 6. The CIT(A) noted that the Assessing Officer had relied upon the case of Jonas Woodhead & Sons (India) Ltd. v. CIT [1997] 224 ITR 342 1 (SC) but unfortunately the Assessing Officer had relied upon a newspaper report giving the gist of the decision. 7. However, the CIT(A) considered the decision from the report and noted the view of the Supreme Court, which is to the following effect: - "The question whether a particular payment made by an assessee under the terms of the agreement forms a part of capital expenditure or revenue expenditure would depend upon several factors, namely, whether the assessee obtained a completely new plan with a complete new process and completely new technology for manufacture of the product or the payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ese two decisions and on the facts of the case, the Commissioner concluded that the expenditure incurred by the assessee was a recurring expenditure and not a capital expenditure. 10. The CIT(A) also referred to Circular No. 21 of 1969 dated 9-7-1969 issued by the Central Board of Direct Taxes. This Circular dealt with foreign collaboration and technical know-how, etc. The relevant portion of the circular has been extracted by the CIT(A) and this reads as follows:- "It can also happen in some cases that the receipts might be regarded as a capital receipt in the hands of the foreign participant but the payment may be regarded as revenue expenditure in the assessment of the Indian participant." 11. However, before disallowing the expenditu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pital expenditure but would amount to a revenue expenditure. 13. The CIT(A) also noted that from the financial years 1985-86 till 1993-94, the assessee had been paying the licence fee every year and for each of these years it had been incurring expenses claimed as revenue expenditure and this was being allowed by the Assessing Officer. Therefore, there was no reason why after a gap of almost 10 years, the Assessing Officer should suddenly change his mind and decide to treat the expenditure incurred by the assessee as a capital expenditure. 14. On the basis of these three conclusions, the CIT(A) held in favour of the assessee and held that the expenditure incurred was a revenue expenditure. The revenue then preferred an appeal which was re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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