9911796707
TMI Blog1995 (12) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... cal charges of Rs. 56,657 paid to Zenith Carburettors Limited, U. K., for obtaining drawings for manufacturing carburettors required by the Defence Ministry of the Government of India. The second item is with reference to a sum of Rs. 15,000 being the travelling expenses for procuring the drawings. The assessee claimed these two items of expenditure as revenue expenditure in this assessment year. But, the Income-tax Officer disallowed the same. On appeal, the Commissioner of Income-tax (Appeals) pointed out that the assessee had acquired the drawings from the foreign collaborator for the manufacturing of a special type of automobile component on the specific orders of the Defence Department. According to the Commissioner of Income-tax (Appeals), as there was no possibility of such orders being repeated in future and as in the modern days of day-to-day technological improvements, the designs that are in use at a particular time may not be of use after some years. Therefore, according to the Commissioner of Income-tax (Appeals), the acquisition of the information in the form of drawings would not be of a permanent value to the assessee so as to treat such expenditure as capital exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent, etc., to meet the exigencies of the business, the assessee purchased the drawings. It is a one time contract for supply of a special variety of carburettors to the Defence Department. The assessee was compelled to purchase the drawings. Thus, in order to meet the one time order given by the Government of India, the assessee required the drawings which were purchased outright. The fact that the documents were purchased outright would not in any way conclude that the expenditure incurred for purchasing the drawings is capital in nature. Learned counsel further pointed out that in order to understand whether a particular expenditure is revenue or capital, the aim and object of purchase should be ascertained. Therefore, according to learned counsel for the assessee, the facts on record would reveal that the expenditure incurred for purchasing the drawings outright would go to show that the expenditure was incurred for the purpose of meeting the requirement of the assessee so as to satisfy the one time purchaser. Learned counsel appearing for the assessee submitted that the decisions cited by learned standing counsel would not be applicable to the facts arising in the present case. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held under (headnote) : "(ii) that the various documents such as drawings, designs, charts, plans, processing data and other literature included in documentation service, the supply whereof was undertaken by the foreign collaborator, more or less formed the tools by using which the business of manufacturing the instruments was to be done by the appellant and for acquiring such technical know-how through these documents, a lump sum payment was made. This expenditure was incurred by the appellant as and by way of purchase price of the drawings, designs, charts, plans, processing data and other literature, etc., comprised in ' documentation service ' and was of a capital nature as a result whereof a capital asset of technical knowhow in the shape of drawings, designs, charts, plans, processing data and other literature was acquired by the appellant." Thus, the facts arising in the abovesaid decision would go to show that apart from purchasing the documentation outright the assessee also received training and imparting knowledge of technical know-how under a collaboration agreement. Thus, under a package deal, the assessee obtained the benefit of documentation and imparting knowl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could deal with it as if it were their own asset, and amounts paid are not admissible as business expenditure under the Income-tax Act." Thus, according to the facts in the abovesaid decision also, the assessee incurred expenditure under a collaboration agreement as a package deal the technical know-how and imparting the technical training from the foreigners in the foreign country. The expenditure was incurred which was linked with the ex-factory invoice price of the Indian company. The aim and object of the assessee-company in incurring the abovesaid expenditure was said to be for obtaining enduring benefit. It is on the basis of these facts this court held that the expenditure incurred by the assessee-company is capital in nature. In order to support the contention that the expenditure incurred by the assessee in the present case is capital in nature, reliance was placed on a decision of this court rendered in the case of CIT v. Southern Switchgear Ltd. [1984] 148 ITR 272. According to the facts arising in this case, the assessee-company entered into a collaboration agreement with a foreign company under the terms of which the foreign company agreed to provide the assessee- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase out of the ratio of the decision in Fenner Woodroffe and Co. Ltd. v. CIT [1976] 102 ITR 665". This conclusion was arrived at by this court in view of the fact that under clause 4 of the agreement after the expiration of the agreement, the assessee would be free from any further obligation to pay any amount to the foreign company while the assessee-company would have the continued use, free of charge, of all information made available by the foreign company during the period of the validity of the agreement. Lastly, learned standing counsel relied upon a decision of the Bombay High Court rendered in the case of Kirloskar Oil Engines Ltd. v. CIT [1994] 206 ITR 13. According to the facts arising in that case, the assessee entered into an agreement with a foreign company, for the exclusive right of manufacture in India of a particular type of diesel engine. The designs, drawings and specifications were to be given by the foreign company to the assessee-company and under the agreement, the assessee-company was entitled to manufacture the abovesaid engines in India and to sell the same in India. The drawings and other information received by the assessee-company, under the terms an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny engaged in manufacturing of antibiotics and pharmaceuticals, was granted a licence for the manufacture of penicillin. By the year 1963, it had already made an outlay of more than Rs. 66 lakhs for setting up a plant for the production of penicillin. In the initial years, the assessee was able to achieve only moderate yields of penicillin. With a view to increasing the yield, the assessee started negotiations in 1963, with Meiji, a reputed Japanese enterprise engaged in the manufacture of antibiotics, which culminated in an agreement dated October 9, 1963, whereunder Meiji, in consideration of a " once for all payment " of U. S. $50,000 agreed to supply to the assessee the " sub-cultures of Meiji's most suitable penicillin producing strains ", " in a pilot plant, the technical information, know-how and written description of Meiji's process for fermentation of penicillin along with a flow-sheet of the process in the pilot plant, and the design and specifications of the main equipment in such pilot plant, and to arrange for the training of the assessee's representatives in Meiji's plant in Japan at the assessee's expense and advise the assessee in large-scale manufacture of penicil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , some broad and general tests have been suggested from time to time to ascertain on which side of the line the outlay in any particular case might reasonably be held to fall. These tests are generally efficacious and serve as useful servants ; but as masters they tend to be overexacting.' (iii) ' The question in each case would necessarily be whether the tests relevant and significant in one set of circumstances are relevant and significant in the case on hand also judicial metaphors are narrowly to be watched, for, starting as devices to liberate thought, they end often by enslaving it '." According to the facts arising in the present case, the assessee purchased drawings from the foreign company for the purpose of manufacture of a special type of carburettors in order to meet the order placed by the Defence Department. The order was only for a particular period. It is not under a package deal the expenditure was incurred in the present case. Though it is outright purchase, the plan would be useful only up to the period of fulfilling the order placed by the Defence Department. In order to meet the exigencies of the business, the assessee purchased the drawings. On facts both ..... X X X X Extracts X X X X X X X X Extracts X X X X
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