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TMI Blog1998 (1) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... on, we refer to the facts in T. C. No. 1465 of 1986, and it is unnecessary to repeat the facts in all other tax cases. The assessee during the assessment year 1977-78 claimed a deduction of a sum of Rs. 21,490 paid as royalty to India Radiators Ltd., for providing technical know-how for the manufacture of automobile air cleaners. The agreement was for a period of five years. The assessee under the agreement was obliged to pay a royalty of Rs. 2 per air cleaner manufactured with the assistance received from India Radiators Ltd. The claim of the assessee was that the sum paid was revenue expenditure and allowable in the computation of business income. The Income-tax Officer, however rejected the claim of the assessee on the ground that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcumstances of the case, the Appellate Tribunal was right in holding that the sum of Rs. 21,490 paid to India Radiators Ltd. under the collaboration agreement dated December 10, 1975, should be allowed as a revenue expenditure Tax Case No. 1536 of 1986: "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the technical know-how fees paid to India Radiators Ltd. is an admissible deduction while computing the income of the assessee ?" In Tax Cases Nos. 982 and 985 of 1986, the Tribunal has referred the following common question of law under section 256(1) of the Income-tax Act, 1961, for our consideration : "Whether, on the facts and in the circumstances of the case, the Appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the agreement and the period of five years cannot be regarded as a long period to confer an enduring benefit on the assessee. Further, the assessee obtained the technical knowledge for the manufacture of air cleaners in the automobile field and it is a common knowledge that fast changes are taking place in the automobile field and the rapid technological change in the field of automobile is evident from the new types of vehicles coming to the market. The Appellate Tribunal also perused the terms of the agreement and gave its finding that the assessee was given a licence to use the technical assistance received from India Radiators Ltd. Though the Appellate Tribunal found that under the collaboration agreement there is no specific prohibitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is no single definitive criterion which by itself is determinative whether a particular outlay is capital or revenue and the "once for all" payment test is also inconclusive and what is relevant is the purpose of the outlay and its intended object and effect considered in a common sense way having regard to the business realities. In the light of the tests laid down by the Supreme Court, we are of the view that the purpose of the outlay in the instant case was for the use of the technical know-how during the period of the agreement, and the object of the agreement was the better production of the product and when the business reality in the automobile field is taken into account, the payment made by the assessee cannot be regarded as capit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the expenditure can be regarded as capital expenditure or revenue expenditure in the case of payment made for supply of technical know-how. The test laid down by the Supreme Court reads as under : "The question whether a particular payment made by an assessee under the terms of an agreement forms a part of capital expenditure or revenue expenditure, would depend upon several factors, namely, whether the assessee obtained completely new plant with a complete new process and completely new technology for manufacture of the product or the payment was made for the technical know-how which was for the betterment of the product in question which was already being produced ; whether the improvisation made is part and parcel of the existing busin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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