9911796707
TMI Blog1998 (12) TMI 66X X X X Extracts X X X X X X X X Extracts X X X X ..... ng to the conclusion that the sum of Rs. 89,722 paid as know-how fees to the foreign collaborator by the assessee was an allowable expenditure for the assessment year in question ?" The facts and circumstances in which the aforesaid question has been referred to this court are that a sum of Rs. 89,722 paid by the assessee to its foreign collaborator as technical know-how fees during the previous year relevant to the assessment year 1976-77 was not allowed as deduction by the Assessing Officer on the ground that the liability to pay hall arisen during the previous year relevant to the assessment year 1975-76 and the assessee is not entitled to claim the same on the payment basis for the assessment year 1976-77 as he is maintaining his acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accounting". On the close reading of the order of the Commissioner of Income-tax (Appeals) we do not find any such finding reached by the Commissioner of Income-tax (Appeals). We find from the order that the assessee has raised this contention that the appellant was maintaining the accounts on cash system basis which was contested by the Income-tax Officer and the finding was that "it could not be said that the appellant maintained the accounts on cash system basis so far as this year". It was the case of the assessee that only for the purpose of the entry in question and for the year in question, he has followed the cash accounting system, otherwise he is following the mercantile system. This plea did not find favour with the Assessing Of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of the provisions of the FERA. The liability of the assessee to pay "know-how fee" to the technical collaborator arises under the collaboration agreements. The consideration for which such agreement was entered into is not governed by the FERA. The liability to pay, and the right of the recipient of consideration to receive the same, and on failure of promisor to pay the right to enforce, does not depend on the permission or grant of exemption of the Reserve Bank of India under the Foreign Exchange Regulation Act. The fact that before actual payment is made permission of the Reserve Bank of India is to be obtained, does not make the account and enforceability of liability subject to it. On the contrary it prima facie supports that there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of expenses required to be incurred for earning income from that source, a different method of accounting can be employed. Agreement to acquire technical know-how for its business is not by itself a source of income for which different system of accounting could be maintained. It was very curious that the assessee had urged maintenance of cash system of accounting only for the transaction in question for the year in question and that too by pleading difficulty in making payment in the earlier year. The difficulty or time taken in following the procedure prescribed for making actual payment is hardly relevant for the purpose of maintenance of account on mercantile system. It often happens that there is a gap between accrual of liability and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound that the contract was contingent as its performance was dependant on permission to be granted by the Collector. As to the obligation of the parties to the contract, the court said : "That the contract was not a contingent contract and that the parties had agreed to bind themselves by the terms of the document executed between them. The court had got to enforce the terms of the contract and to enjoin upon the vendor to make the necessary application for permission." In our opinion, the principle fully applies. The parties have entered into agreement on transfer of technical know-how with the permission of the Government of India. Under it the liability of the assessee to pay the fee for technical know-how accrued. The fact that actu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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