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TMI Blog2001 (3) TMI 228X X X X Extracts X X X X X X X X Extracts X X X X ..... in their meeting held on 26th October, 1995, as communicated vide Circular dated 1st November, 1995 is as under:-- "Item No. 5.--Permission to pursue appeal in ITAT by Indian Petrochemicals Corporation Limited regarding payment of know-how and Technical Fees for increasing production capacities and products range, involving an amount of Rs.464 lakhs and 1053 lakhs for assessment years 1984-85 and 1985-86 respectively. (Note No. Nil dated 16-5-1995 circulated by the Department of Indian Petrochemicals Corporation Limited) The committee, having regard to the fact that the amount involved in the dispute was substantial and question of law involved in the dispute, permitted Indian Petrochemicals Corporation Limited to pursue the appeal in ITAT." 4. Shri J.P. Shah, learned Senior Advocate submitted that the assessee claimed deduction of Rs.4,78,49,147 on account of know-how and technical fees paid during the year of account under review. This claim was made by the assessee by filing a revised return along with letter dated 4-6-1986. It was stated in the said letter that the revision of income has been done by the company due to the crystallization of legal position on admissibi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; fees Engg. fees 15312326.47 Rights & Licence of process &nbs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsp; Licence and sion furnishing Engg. -------------- Total 47849146.84 design" ------------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tools Ltd. v. CIT[1999] 237 ITR 684 (Mad.) 7. CIT v. Kirloskar Tractors Ltd. [1998] 231 ITR 849 (Bom.) Shri Shah was however fair enough to state that on denial of the deduction in respect of the aforesaid amounts as revenue expenditure, the assessee was granted depreciation, investment allowance etc., on the aforesaid lump sum payments made for acquiring technical know-how in the year under consideration as well as in the subsequent years. If the amount in question is allowed as deduction as a revenue expenditure in the year under consideration, the depreciation and investment allowance allowed thereon in the year under consideration as well as in subsequent years will have to be withdrawn. He submitted that the assessee has no objection if the deduction by way of depreciation, investment allowance granted to the assessee in the year under consideration as well as in subsequent years on the aforesaid amount of lump sum payment made for technical know-how, is simultaneously withdrawn in all the relevant years. The assessee will not raise any objection against such withdrawal of depreciation and investment allowance in the year under consideration as well as in subsequent year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ical assistance services for a plant for the manufacture of 25,000 MT/Y of Propylene Polymers to be implemented at Baroda. IPCL was interested in the production and sale of products and for that purpose they were willing to obtain rights and licences under the Technology for use in a plant to be constructed by IPCL for manufacture of products. Technomont who has wide experience in design of petrochemical plants agreed to provide the technical know-how, grant licence, provide engineering, procurement and technical assistance services for the implementation of the said plant under the aforesaid agreement dated 11-7-1983. Technomont granted a licence for an exclusive right to employ the technology in the design, construction and operation of the plant, expansion of the plant and also to grant sub-licence during the term of the said agreement for the use of the technology in India at reasonable terms and conditions to be agreed upon, which terms and conditions shall not be less favourable than those granted to the other licensees of licensor. There are clauses relating to confidentiality (Article-9), termination by Licensor (Article 18.1), Termination by IPCL (Article 18.2) and relatin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h. Each of them agreed to subscribe Rs.4,70,000 out of which each would have to pay initially a sum of Rs.2,80,000 towards its contribution. Towards its share, EIMCO contributed technical know-how. It valued the know-how etc. at a sum of Rs.2,35,000 and paid the balance in cash as its contribution. The board of directors of the appellant allotted equity shares of Rs.2,35,000 being the value of the know-how, to EIMCO by resolution passed on April, 29, 1968. In the assessment year 1969-70, the appellant claimed deduction of Rs.2,35,000 as revenue expenditure paid to EIMCO towards consideration for supply of technical know-how. The Income-tax Officer treated that amount as a capital expenditure and allowed 1/14th of the said amount as allowable expenditure under section 35A of the Act. The appellant challenged that order before the Appellate Assistant Commissioner on the ground that the whole expenditure ought to have been allowed as revenue expenditure. While so, the Commissioner of Income-tax in exercise of his power under section 263(1) of the Act revised the said order of the Income-tax Officer dated March 25, 1970, holding that the amount in question could not be treated as expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were undertaken to see whether a plant for manufacture of ammonia could be established in India, for which the foreign travelling expenditure was incurred. On these facts, the Hon'ble Gujarat High Court held that the CIT(Appeals) rightly held that assessee was not entitled to deduction. The facts of this case are also clearly distinguishable with the facts of assessee's case. 12. Let us now go through judgments relied upon by the learned counsel appearing on behalf of the assessee. 13. The Hon'ble Gujarat High Court in the case of Suhrid Geigy Ltd. as under:-- "Held, that the purpose of production of cyanuric chloride was found by the Tribunal, to be the manufacture of raw material for production of Tinopal, that is to say, the purpose was in the area of existing business of the assessee for carrying on the existing business with more profitability and was not for the purpose of entering into a new adventure for operating in a new area of business. Even applying the test of 'acquisition of assets' it could be said that under the agreement the assessee did not acquire the capital asset itself, namely, the technical know-how as a proprietor thereof. What it acquired under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... having received a written authorisation from the foreign company. The High Court held that these features of the agreement clearly established that what was obtained by the assessee was only a licence and what was paid by the assessee to the foreign company was only a licence fee and not the price for acquisition of any capital asset. On appeal by the Department to the Supreme Court: Held, affirming the decision of the High Court, that the High Court had applied the proper principles of law and had rightly held that the expenditure incurred by the assessee was only revenue expenditure." It is not necessary to make a detailed reference to all the judgments cited by the learned counsel. However, after a careful reading of all the judgments relied upon by the learned counsel, we are of the considered opinion that the lump sum payment made by the assessee for acquiring technical know-how for improving its existing products and for extending the range of its existing business and/or for expanding the said business is clearly allowable as revenue expenditure. We, therefore, direct the Assessing Officer to allow deduction of Rs.4,64,31,317 incurred by the assessee in respect of paymen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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