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TMI Blog1976 (11) TMI 20X X X X Extracts X X X X X X X X Extracts X X X X ..... w York (hereinafter referred to as " Seymour "), was the agent of Messrs. General Time Corporation of U.S.A. A representative of the assessee entered into negotiations with Seymour in U.S.A. some time in January, 1959, and an oral agreement was reached between them on January 29, 1959. This was followed by an agreement between Seymour and the assessee for the collaboration which is described as " Heads of agreement " and which is dated New York, January 7, 1960. Seymour agreed under the agreement to pass on to the assessee certain technical know-how to enable them to manufacture one day alarm clocks in India and the assessee agreed to pay a sum of Rs. 75,000 or $15,000 in instalments spread over five years. There were also other clauses under which certain other payments such as royalty at 5% of the sale price of products were to be made by the assessee to Seymour in consideration of certain facilities and supply of tools and dies, technical knowledge, information advice, etc. The assessee required the approval of the Government of India for the agreement for collaboration with Seymour. There was correspondence in this regard consisting of letters from the assessee to the Ministry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 03,420 for five years in question. Similarly, the assessee paid a sum of Rs. 41,638 towards $10,000 agreed to be paid as technical know-how fees spread over a period of five years. The assessee in respect of the assessment years in question claimed both these payments as deductible items. The Income-tax Officer as well as the Appellate Assistant Commissioner allowed the payment of royalty only as deductible but held that the sum of Rs. 41,638 paid during the five years in question by way of technical know-how fees was in the nature of capital expenditure, and, therefore, could not be deducted. The appeal to the Income-tax Appellate Tribunal also failed. It is the correctness of this conclusion of the Tribunal in respect of the payment of Rs. 41,638 that is challenged in the form of the question extracted already and referred to this court : The findings of the Tribunal in this behalf were : (1) The assessee which was incorporated with the object of carrying on the business of manufacture of alarm clocks did not have the necessary background knowledge for commencing the business and set about acquiring the whole apparatus from abroad and as a result entered into an agreement w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow-how, etc. In the present reference we are concerned with the technical know-how only and for that purpose, paragraphs 3(c) and 4 are important." Paragraph 3(c) stated : " For the purpose of enabling Time-Aids (assessee) manufacture in India for the time being one-day alarm clocks under the brand names of Hustler and Big Ben, Seymour will supply Time-Aids directly or through their principals, the following :...... (c) Technical know-how initially for the assembly of clocks and subsequently for the progressive manufacture of the majority of the parts in India. This would be accomplished by providing blue prints of various parts, technical instructions and quality control and tests for durability of the various parts made in India. " Paragraph 4 stated : " In respect of the above technical know-how information and advice that will be imported to Time-Aids to enable them to manufacture one-day alarm clocks in India, a sum of Rs. 75,000 or $ 15,000 to be paid to Seymour as follows......." (The manner of payment was indicated). From these two paragraphs it is clear that the payment of $ 15,000 was referable to the supply of technical know-how, information and advice origin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation, the position was the same in the case of Ciba of India Ltd. [1968] 69 ITR 692 (SC), and that, therefore, it should be held that the expenditure was in the nature of revenue expenditure. It was further urged that the arrangement was that a trained employee of Seymour should come to India to train the Indian officers and the staff in the art of assembly and manufacture of parts, that the quality of clocks thus manufactured was not very satisfactory, that in the result the arrangement was not renewed and a different kind of arrangement was entered into with the General Time Corporation at a later stage and that all this itself shows that the assessee had not acquired anything of enduring benefit. " The Tribunal itself did not in its order find that the agreement was not a licensing agreement as contended for by the assessee-company. All that it pointed out was that the assessee was incorporated with the object of carrying on the business of the manufacture of alarm clocks, that in the instant case, the kind of " know-how " acquired by the assessee by the payment of $ 10,000 consisted of the initial knowledge passed through blue prints, technical instructions, etc., for launchin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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