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TMI Blog1979 (3) TMI 36X X X X Extracts X X X X X X X X Extracts X X X X ..... ent the assessee shall be allowed a deduction from such income of an amount equal to forty per cent, thereof in computing his total income. The expression " provision of technical know-how ", inter alia, means the imparting of any information concerning the working of or the use of a design or information concerning commercial or scientific knowledge, experience or skill. The question before us is whether the agreement at annex. I of the writ petition between the petitioner-company and the Hindustan Steel Ltd. qualifies for such approval by the Government and whether the refusal by the Government by the impugned order of 27th August, 1975, at annex. VIII should be quashed. Let us first analyse the relevant parts of the agreement with a view to consider if they show that technical know-how was passed on by the petitioner thereby. The petitioner was to design, construct and instal a plant for the manufacture of sulphuric acid as per specifications and deliver the contract drawings for a total consideration of Rs. 74,19,670. The contract price included a know-how and design fee of Rs. 4,65,000. Under cl. 5(a)(iv) the petitioner was to supply all contract drawings and documents in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... know-how of the contractor is used by the con- tractor for the execution of the contract, but the know-how remains with the contractor because the contract is executed by the contractor itself. Unless the contractor parts with the know-how alone so that the said know-how is used by the other party for erection, installation of a plant or manufacture of goods or materials no question arises of the contractor supplying the know-how to the other party. The emphasis of the contractor on cl. 4 of the contract stating that, the contract price includes a know-how and design fee of Rs. 4,65,000 is completely misplaced. For, the know-how and the design fee is paid to the contractor not for the supply of the know-how but because the know-how has been used by the contractor itself for making the design. It is only if the know-how of how the plant should be erected and installed had been transferred by the petitioner to the Hindustan Steel Ltd. leaving the latter to use the know-how for the erection and installation of the plant then only the contract would have been one for the supply of know-how in respect of the installation and erection of the machinery and plant. The answer to para. 9( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manufacture or processing of materials for which manufacture or processing the plant or machinery was installed or erected. In considering this question the point to be remembered is that the know-how must assist the manufacture or processing of goods directly. It would appear that the reason why the erection or installation of plant or machinery for such manufacture or processing is mentioned expressly in s. 80MM is to show that even the erection of plant or machinery would be covered by s. 80MM and would not be regarded as too remote in its connection with the manufacture or processing of goods or materials. In answering cl. 9(ii) the petitioner has stated in annex. 1 to the application that the technical know-how is imparted by the petitioner by closely associating the Hindustan Steel Ltd. and by communication with it in various stages of project implementation like design, planning, erection, commissioning and maintenance of the plant and also by the training of personnel in these fields. Further, information concerning industrial, commercial or scientific knowledge was provided by the delivery of drawings, data sheets, technical specifications, order specifications, test pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... things according to the context. It may, firstly, mean a design drawn on paper as a drawing. It may, secondly, mean the design which is actually prepared by constructing the thing itself which had been designed on paper. If the mere paper design is transferred the only object of such transfer would be to convey information as to how the thing which is designed on paper could be made. That would be technical know-how. Such a transfer has not been effected by the agreement of the petitioner with the Hindustan Steel Ltd., inasmuch as the petitioner used its own paper design to make the thing designed. The other meaning of design is, however, relevant. The petitioner has installed and erected the plant and machinery which is to manufacture or process goods or materials. Do the contract drawings directly assist in the manufacture or processing of sulphuric acid ? The petitioner has filed an affidavit sworn by its officer, one Mr. Banerjee, to support this claim. Such a claim was not explicitly made even in the original application for approval much less in the writ petition filed before us. The additional affidavit by Mr. Banerjee making a claim that the contract drawings are of direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elivered to the Hindustan Steel. The subsequent operation of the plant has to be by the Hindustan Steel Ltd. and not by the petitioner. If, for such operation the contract drawings are necessary, then the supply of the contract drawings is for being used by the Hindustan Steel and is thus outside the scope of the turnkey part of the contract. (3) Clause 3 also says that it is in consideration of the contractor fulfilling his obligation which includes the supply of the contract drawings that the purchaser has to pay to the contractor the contract price. (4) Clause 4 says that the total net price for the work specified in cl. 3(a) is Rs. 74,19,670. The supply of necessary drawings is included in cl. 3(a) and is, therefore, included in the work for which the total contract price is payable under cl. 4(a). It is in this context that cl. 25 has to be read. It says that inasmuch as the contractor is required to supply drawings he shall furnish them free of charge to the purchaser. Then it goes on to say that the listed drawings, three prints each, shall be sent to the purchaser for approval. It also goes on to say that the number of drawings submitted at a time under each of the activi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or, in the working, or use of a designed plant. We have already referred in the penultimate paragraph of our judgment in J. K. (Bombay) Ltd. v. CBDT, C.W.P. No. 901 of 1975, delivered on January 17, 1979 (since reported in [1979] 118 ITR 312 (Delhi)) to the classification of three questions considered by administrative tribunals, namely, (i) questions of law, (ii) questions of fact, and (iii) questions of judgment (Administrative Law, Cases and Materials, 4th edn. (1976), last Chapter, by Prof. Louis L. Jaffe and Prof. Nathaniel L. Nathanson). A reasonable view expressed by the Board on a question of fact or of judgment would not ordinarily be reviewable by this court. This question will have to be very carefully considered by the Board. For, on an analogous question even judicial decisions have not unanimous in the United Kingdom (J. A. Farmer ; Tribunals and Government,(1974) Chap. VI, s. 4). The question there was whether designing was a separate activity preparatory to manufacture or whether it was the beginning of the manufacture itself. A consulting firm which designed machines in a wide range of industry which consulted and engaged them for that purpose was held not to be c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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