9911796707
TMI Blog2007 (4) TMI 280X X X X Extracts X X X X X X X X Extracts X X X X ..... 55,06,413 made by the Assessing Officer on account of contract receipt and technical consultancy fees. On the facts and in the circumstances of the case, the Ld. CIT(A) ought to have upheld the order of the Assessing Officer. It is therefore prayed that the order of the Ld. CIT(A) be set aside and that of the Assessing Officer be restored to the above extent. 2. Since both these appeals of the revenue relates to same assessee and involved common issues, we, for the sake of convenience, have decided to dispose of these two appeals by this common/consolidated order. 3. We have heard the parties. 4. Since assessment order for assessment year 1997-98 is the leading order, so, we shall decide the issues on the basis of facts and circumstances as revealed from the records for the assessment year 1997-98. 5. The brief facts, as have been revealed from the records are that the assessee-company had furnished its return of income for assessment years 1997-98 1998-99 declaring NIL income (in both the returns) on 20-11-1997 and 17-3-1999. respectively. In the statement of income filed along with returns, the assessee had put the following Note under the head "Business Income":- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Hon'ble Supreme Court in the case of CIT v. Bokaro Steel Ltd. [1999] 236 ITR 315 wherein the Hon'ble Supreme Court, according to assessee, distinguished certain cases just like as that of the company and has held that if certain income are of such nature, which goes to reduce the project cost, it has necessarily to be deducted from the computation of the project cost and it is not in the nature of income at all. 9.2 As per reply letter dated 24-3-2000, the assessee submitted that the receipt of technical fees from Gujarat Maritime Board is only because of the fact that the technical know-how was supplied to them by the assessee-company. According to assessee, the Gujarat Maritime Board being also the development of Port (small and medium size) through the State of Gujarat had required the assessee to supply the technical know-how, which the assessee had acquired for development of Government Port at Mundra. 10. The Assessing Officer, considered the assessee's submissions and came to the conclusion that the assessee's case was not covered by the decision of Hon'ble Supreme Court in the case of Bokaro Steel Ltd., rather was covered against it by the decision of Hon'ble Supreme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been elaborately addressed by the Hon'ble Supreme Court in its decision in the case of Tuticorin Alkali Chemicals - Fertilizers Ltd. v. CIT reported in [1997] 227 ITR 172. In that case the Hon'ble Supreme Court has held that such receipts of interest from short-term deposits, when the company is in the process of setting up of its project is a receipt of revenue in nature and it could not be set off against capital expenditure and should be treated as 'Income from other sources'. The assessee's reliance on the decision of the Hon'ble Supreme Court in the case of Bokaro Steel Ltd. reported in 102 Taxman 94 is not found acceptable as the facts of that case is entirely different from that of the case of the assessee. Further while deciding the issue in the case of Bokaro Steel Ltd. the Hon'ble Supreme Court has merely referred the case of Tuticorin Alkali Chemicals Fertilizers Ltd. and not reviewed or reversed its earlier decision. On the contrary, while deciding the case of Bokaro Steel Ltd., the Hon'ble Supreme Court in its order at paragraph 4 has observed as under: 'During the assessment year, the respondent assessee had invested the amounts borrowed by it for the construct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny is of setting up of a port, and since no P L a/c is drawn, the contract receipt is necessarily and income from independent source and it can never be said as inextricably linked with setting up of a port. Therefore, on the basis of the facts of this case the decision of Bokaro Steel Ltd. is not applicable here. The claim of the assessee to set off huge expenses incurred against these receipts is also not correct. The expenses incurred are capital expenses in nature which is very correctly being capitalized as pre-operative expenses. In view of the above facts, since the contract receipt is revenue receipt in nature, and as there is no business activity during the year as claimed by the assessee, there cannot be any business income, these receipts is, therefore, required to be tax as "income from other source" respectfully following the spirit of the order of the Hon'ble Supreme Court in the case of Tuticorin Alkali Chemicals Fertilizers Ltd. which is squarely covered in this case, I tax the amount of Rs. 55,06,413 as 'income from other sources'. The expenses incurred for getting access of such technical knowhow by the company is connected with the setting up of the project ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant. The fees received from such services was credited by the pap is a separate account GMB Consultancy Works. Thus, the fees were received for use of knowledge/data/information which was collected by the appellant by engaging the services of various entities for which huge expenses are incurred by it. Thus, such fees were, in fact, recovery of such expenses incurred by the appellant from the Government organization namely GMB. Therefore, I am of the firm opinion that such receipts should go to reduce the cost by way of such expenditure or otherwise the expenditure incurred by the appellant for obtaining such report/data/information has to be considered as deduction against such income because it has direct relation with the receipts of the appellant. The appellant has specifically maintained separate account which suggest that there was no taxable income. It is not the main activity of the assessee to provide such services. The assessee has in fact undertaken the development and construction of the port at Navinal Island. The Assessing Officer was confused that the development of Mundra was different from that of Navinal Island. Since the whole area was to be developed by GM ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 's own body which was also in the business of development of ports in Gujarat approached the assessee to provide the "technical know-how" procured by it for the development of Gujarat Maritime Board's Ports and for this purpose, the assessee was to pay amounts which the assessee has termed as 'fees for supply of technical know-how and consultancy'. 16. In view of agreement between the assessee and Gujarat Maritime Board, the assessee supplied the consultancy/technical know-how procured by it from offshore parties for the use of development of Gujarat Maritime Board's ports and for that received an amount of Rs. 55,06,413 during the period relevant to assessment year 1997-98 and Rs. 69,26,956 during the period relevant to assessment year 1998-99. 17. It was in view of the above facts and circumstances of the case that the ld. counsel for the assessee, first of all, reiterated the submissions made before the CIT(Appeals) - copy of which has been placed at page Nos. 1 to 10 of the assessee's paper-book and read as under:- "1. Submissions- The appellant had filed return of income for total income of Rs. Nil on 20-11-1997. The said return was processed under section 143(1)(a) wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Officer says that since the business of the company is of setting up of a port and no profit and loss account is drawn, the contract received is necessarily income from independent source and it cannot be linked with setting up of a port. Hence according to him the Bokaro decision is not applicable. This income is taxed by him as income from other sources. He says that the expenses incurred for getting access to such technical know-how by the company has connection with the setting up of the project, which is capital in nature and hence any part thereof cannot be said to be in connection with the earning of income. 3. In this connection the appellant may refer to the following clarifications given in our appeal against intimation under section 143(1)(a) which may be considered. '2.1 Regarding addition of Rs. 74,236- The Assessing Officer, Companies Ward-7(1) while issuing intimation under section 143(1)(a) of the Income-tax Act has carried out the adjustment in respect of the amount of Rs. 74,236 being the interest earned by the assessee following the Supreme Court decision in the case of Tuticorin Alkali Chemical and Fertilizers Ltd. v. CIT reported in [1997] 227 ITR 172. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Income-tax Officer was upheld by the Commissioner of Income-tax (Appeals). The company's further appeal to the Income-tax Appellate Tribunal was dismissed. In view of the conflict of decisions between the Madras and Andhra Pradesh High Courts, the Tribunal referred the question, regarding taxability of income, directly to the Supreme Court:"' On these facts it was held: "Held, that the company had surplus funds in its hands. In order to earn income out of the surplus funds, it had invested the amount for the purpose of earning interest. The interest thus earned was clearly of revenue nature and would have to be taxed accordingly. The accountants might have taken some other view but accountancy practice was not necessarily good law. This was not a case of diversion of income by overriding title. The assessee was entirely at liberty to deal with the interest amount as it liked. The application of the income for payment of interest would not affect its taxability in any way. The company could not claim any relief under section 70 or section 71 since its business had not started and there could not be any computation of business income or loss incurred by the assessee in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT, Calcutta (54 ITR 82) (Cal.). Since in the present case the issue is not identical with that in the case before the Supreme Court in Tuticorin's case there is no justification in making the adjustment as made by the Assessing Officer. 2.2 Regarding addition of Rs. 55,06,413 (i) In connection with this issue the appellant may point out that the impugned amount of consultancy fees never forms part of the P L account of the appellant company which was attached to the return of income. On the contrary in the notes on accounts it was clearly reported that the expenditure incurred during the construction period is carried forward and will be apportioned to the fixed assets on commencing of the project. It was further clearly pointed out that since the project is under implementation and the commercial activities are yet to commence, no P L account has been prepared. In these circumstances, there was no reason for the Assessing Officer to presume that the appellant had earned any income by way of consultancy fees. It is possible that this presumption is arrived at by the Assessing Officer for the reason that the appellant had submitted certificates for T.D.S. issued by Government ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the payments received from GMB is absolutely for the development of Mundra port and other ports. The development of the whole area of Mundra is the main object and that has to be satisfied. It is an admitted fact that is not the main activity of the appellant at all for providing such services. On the other hand, during these years the only activity undertaken is development and construction of port and the development of Navinal Island area which is part and parcel of Mundra port. The Assessing Officer has confused that the development of Mundra (i.e., Port of Mundra) is different from that of Navinal Island. In view of the fact that the whole area has to be developed, GMB instead of incurring expenditure of consultancy asked the Adani Port Ltd. to provide information collected and gathered by Adani Port Ltd. to it which will also ultimately be helpful in development of port of Mundra which includes Navinal area. It may be noted that Navinal area is part of Mundra Port and this fact has not been taken into consideration. (2) Moreover, it may be noted that the entire Jetty is owned by GMB and only licence has been granted to Adani Port Ltd. This fact has been grossly overlo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e requested to allow the expenditure if the view is taken that the receipt is taxable either under income from other sources or business income under the head 'Income from profits and gains of business'. 4. Regarding interest under section 234B. It may be noted that now the Supreme Court has decided the issue of levy of interest under sections 234A, 234B and 234C. In view of the Supreme Court judgment in the case of Ranchi Club Ltd. [2000] 164 CTR (SC) 200 no interest under section 234B is chargeable. The addition which your goodselves are proposing to make is absolutely on the basis of change of opinion and therefore there is no question of initiating the proceedings for the levy of penalty under section 271 (1)(c)." 17.1 In addition to above, the ld. counsel for the assessee tried to make out his case by way of an example relating to working textile industry and by submitting that if the assessee starts a project of establishing a textile industry and for that purpose it establishes utility facilities such as providing steam, etc. required for the purpose of textile fabrics and that utility facility is already established but the assessee could not start own its project and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew of the above facts and circumstances of the case, that the ld. counsel for the assessee submitted the orders of the CIT(Appeals). Reliance was, definitely, placed on the decision of Hon'ble Supreme Court in the cases of Bokaro Steel Ltd. and decision of CIT v. Karnal Co-operative Sugar Mills Ltd. [2000] 243 ITR 2. 20. The ld. DR, on the other hand, in addition to relying on the assessment order, submitted that so far as nature of receipt was concerned, the Assessing Officer was quite justified in considering the same as income from other sources. Coming to the assessee's claim of reimbursement of the expenses, the ld. counsel for the assessee submitted that it was not the case of reimbursement, because the know-how was procured by the assessee mainly and solely for the purpose of use in its own business; i.e., for development of its own port called as Adani Port and if the assessee had used that the technical know-how for development of other's port, the amount received for use of technical knowhow for that purpose, cannot be reimbursement, rather is a revenue receipt and since the assessee's business was not of supply of technical know-how, the receipt was from other sources ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the work of construction. The assessee charged the contractors for the use of the quarters so given to the contractors for the residence of his workmen who were engaged in the construction activity of the assessee's plant. (ii) Secondly, during the assessment years in question the assessee had entered into supplementary agreements with its contractors under which the assessee had made certain advances to the contractors to enable them to execute the large scale construction work smoothly. The assessee had agreed to advance these advances to the contractors on payment of interest. The contractors thus did not have to raise funds from outside agencies. For the assessee-company, this arrangement primarily meant payment in advance of the amounts of the contractors' bills for which the assessee-company had charged interest. This interest was later adjusted against the dues of the contractors. (iii) For the purpose of the construction work, the assessee had given on hire certain plant and machinery to the contractors. Against the letting of plant and machinery the assessee received from the contractors income in the form of hire charges. It was not the business of the assessee-compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstruction work for the assessee and of interest charged on advances given to the contractor for the purpose of facilitating the work of construction for the assessee. A. (d) The Hon'ble Supreme Court, in the above facts and circumstances of the case, dismissed the revenue's appeal with respect to taxability of receipt from aforesaid three sources by holding as under:- "...that the first three heads of income were (i) the rent charged by the assessee to its contractors for housing workers and staff employed by the contractor for the construction work of the assessee including certain amenities granted to the staff by the assessee, (ii) hire charges for plant and machinery which was given to the contractors by the assessee for use in the construction work of the assessee, and (iii) interest from advances made to the contractors by the assessee for the purpose of facilitating the work of construction. The activities of the assessee in connection with all these three receipts were directly connected with or incidental to the work of construction of its plant undertaken by the assessee. The advances which the assessee made to the contractors to facilitate the construction activity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urpose of earning interest. Since the deposit of money was found to be directly linked with the purchase of Plant Machinery, the Hon'ble Supreme Court held that the ratio laid down in Tuticorin Alkali Chemicals Fertilizers Ltd.'s case was not applicable. B. After careful consideration of aforesaid decision, we are of the opinion that this decision is applicable only to the taxability of interest from L/C or any other source where the deposit is directly linked to the purchase of machinery or plant, but in no case can be applied to the issue of taxability of receipts for the supply of technical know-how in the case before us; meaning thereby that this decision is also not helpful to the assessee - so far as taxability of receipt from Gujarat Maritime Board are concerned. 3. Decision of Hon'ble Supreme Court in the case of Tuticorin Alkali Chemicals Fertilizers Ltd. (A)(a) From the aforesaid two decisions of Hon'ble Supreme Court, it is very clear that decision in the case of Tuticorin Alkali Chemicals Fertilizers Ltd. has not been overrules; meaning thereby, that ratio laid down in that decision is still hold good. (B) So far as facts and ratio laid down is concerned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rsement of the expenditure incurred for acquiring those capital assets. 25. Next question for consideration is as to what was the nature of expenditure incurred by the assessee for procuring the know-how under reference and for answering this question, we are of the opinion that the consideration of the decisions of Hon'ble Supreme Court in the case of Scientific Engineering House (P.) Ltd. on which reliance has been placed by the ld. DR for the proposition that expenditure incurred for procuring 'technical know-how' was of capital nature and cannot be said of against revenue receipt, is very important and, therefore, we proceed to consider the same as under:- (i) The brief facts in this case, as have been revealed from the reported decision were as under:- M/s. Scientific Engineering House (P.) Ltd. (hereinafter called "the assessee") was manufacturing scientific instruments and apparatus like dumpy levellers, levelling staves, prismatic compass, etc. It entered into two separate collaboration agreements, one dated March 15, 1961, and the other dated March 31, 1961, with M/s. Metrimpex Hungarian Trading Company, Budapest, for undertaking the manufacture of microscopes and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le or depreciable asset was brought into existence, no depreciation allowance could be claimed. On appeal preferred by the assessee, however, the Appellate Assistant Commissioner held that what the assessee had done was to make an outright purchase of certain specimen drawings, charts, plans, etc., on special papers, that these documents when collected together constituted a book on which depreciation, as in the case of plant and machinery, would, at the appropriate rate, be allowable and he directed the Income-tax Officer to allow the depreciation claimed. In the further appeal preferred by the Department, the Tribunal took the view that clauses 2, 3, 4, 5 and 10 of the agreements did not lend support to the stand taken by the assessee that payments (Rs. 80,000 each) had been made mainly for the supply of designs, drawings, charts, etc., that the services to be rendered by the foreign collaborator covered a wide field and that the supply of designs, charts, drawings, etc., was incidental and only in furtherance of other services which the foreign collaborator was expected to render. It further took the view that since the supply of designs, drawings, charts, etc., was only inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly when no point was urged before it that the same was an item of revenue expenditure and sought to raise proper questions covering these contentions. (ii) The Tribunal, however, behalf of assessee, referred the following question for the opinion of the Hon'ble High Court:- "Whether, on the facts and in the circumstances of the case, and on a true interpretation of the collaboration agreements between the assessee and M/s. Metrimpex Hungarian Trading Company, Budapest, the payment of Rs. 1,60,000 was attributable partly to the acquisition of depreciable asset and partly to revenue expenditure or wholly towards the acquisition of a depreciable asset?" (iii) The Hon'ble High Court, after considering the facts and circumstances of the case, took the view that the payment of Rs. 1,60,000 did not mainly represent the purchase price of the designs, drawings, charts, etc., as contended by the assessee, that the rendering of "documentation service" was incidental, and that no part of the expenditure was on revenue account but the whole of it was of a capital nature bringing into existence an asset of enduring benefit to the assessee, but what was brought into existence was a non-depr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... strial business. But in order to quality as "plant", the particular article had to have some degree of durability. The test to be applied was: Did the article fulfil the function of a plant in the assessee's trading activity? Was it a tool of his trade with which he carried on his business? If the answer was in the affirmative, it would be a "plant". (iv) That the drawings, designs, charts, plans, processing data and other literature comprised in the "documentation service" as specified in clause 3 constituted a "book" and fell within the definition of "plant" in section 43(3) of the Income-tax Act, 1961. The purpose of rendering such documentation service by supplying these documents to the appellant was to enable it to undertake its trading activity of manufacturing the odolites ann microscopes and these documents had a vital function to perform in the manufacture of these instruments; in fact, it was with the aid of these complete and up-to-date set of documents that the appellant was able to commence its manufacturing activity and these documents really formed the basis of the business of manufacturing the instruments in question. That by themselves these documents did not pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the deduction of whole of the expenditure incurred for procuring 'technical know-how', though that the same was used for meeting its business contractual obligation by supplying the same to Gujarat Maritime Board also, however, a question arises as to whether the technical know-how being a capital assets (Plant), the assessee can be granted any depreciation or not. 29. So far as provisions of section 32 of the Act are concerned, its clear that the tangible assets have been made entitled to depreciation only with effect from 1-4-1999 and if strict interpretation of these provisions is considered, the assessee may not be entitled to depreciation also, but for the decisions in the case of Scientific Engineering House (P.) Ltd. wherein the Hon'ble Supreme Court has specifically held the technical know-how to be plant and of depreciable nature, we are of the opinion that the assessee is entitled to depreciation at the rate applicable to Plant Machinery for such type of business. 30. Without prejudice to the above, we are of the opinion that such a strict interpretation of these provisions should not be taken for the reasons as explained below:- (i) If the taxing organ of a Dem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt made in section 32 of the Act for granting depreciation on intangible asset can be extended for grant of depreciation in years prior to coming of this amendment on the statute. It is, therefore, on this account also that we are of the opinion that the assessee is entitled to depreciation on the cost of knowhow procured by it and used for fulfilling its business contractual obligation for development of Ports of Gujarat Maritime Board. 31. So far as any other direct expenditure incurred by the assessee in meeting this obligation are concerned, we are of the opinion that the assessee is entitled to that expenditure subject to restriction as per provisions of income-tax, if any. 32. To conclude, we direct the Assessing Officer to allow the assessee following expenses: (i) Any expenditure directly incurred for meeting its business contractual obligation during the course of providing technical know-how for the development of Ports of Gujarat Maritime Board. (ii) Any expenditure incurred for acquiring know-how which was procured solely for meeting assessee's business contractual obligation for development of Gujarat Maritime Board's Port and not for the purpose of assessee's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s technical services, consultancy fees, technical know-how, etc.), being already in its possession, so as stipulate for the provision of reimbursement of expenses, or at cost to cost basis (for which rendering of accounts - to justify costs - also becomes incumbent). The argument, thus, goes against the grain of the whole premise of the transaction. No doubt, some fresh/incidental cost may have to be incurred for the purpose, i.e., of the delivery of the services, or for effecting such modification (to the source data/information, etc.), as may be warranted as per the specific requirement(s) of the assignment/contract. But for that, i.e., to be construed as such, again, two things become essential: (a) identification of such fresh costs/expenses, required to be incurred; (b) basis of their measurement, e. g. an Engineer's visit to the site would have to be at an agreed cost covering his cost 10 his parent company, et. al. 5. And, further, agreed apriori, to be met on a statement being provided, separately, i.e., distinct from the balance contractual consideration. In the facts of the case, I do not find such essential elements present to pursue this proposition any further. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vices, so that one can only try to decipher what that may mean. At least at two places it is stated to be a project report, (i.e., in the agreement with GMB, and the TDS certificates issued by it to the assessee-company, though it may include something beyond that considering that the total charges for the two years aggregate to Rs. 124.33 lakhs. That, however, cannot remain in the realm of speculation, and would need to be specified in no uncertain terms, if not actually examined. Nevertheless, one thing that is sure is, if not wholly, it is also towards a project report, containing the technical details for the development and construction of port at Mundra, and which required collection, tabulation, collation of data/information, apart from the technical skills required to do so, and which the company had procured for its own purposes, i.e., development of the Adani port (at Mundra) at considerable cost thro' engaging the services of, inter alia, international agencies. And which likewise, i.e., but for the Agreement (with the assessee-company), would also be required (to be engaged) by GMB, again, at similar costs. As such, entering into a subsidiary arrangement as the present ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be raised, i.e., under the contract between the two. The preparation of the project report cannot possibly take two years, i.e., the period over which the charges are spread, suggesting either additional services, or large scale amendments to the one which the one the company had procured for itself. Either way, in principle, it boils down to incurring of specific costs, and/or charge against costs already borne; even as the example of boiler (being only used as such) becomes inappropriate/invalid. The accounts as presented by the company in this respect, which are trumped up by the ld. CIT(A) in his order, as also emphasized by the ld. AR before us, do not inspire much confidence as the basis of charging would have only to be/been fixed before-hand, i.e., at the time the contract is entered, while the costs would only be incurred subsequently, and given the dynamics of the business situations, cannot be predicated/predetermined, except only in broad terms. The accounts as prepared, match the two, i.e., the charges and the costs, suggesting only an allocation of costs to the extent of the charges raised, basis of which is, again, not spelt out. Another important aspect to this is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y; each project being distinct with its own job profile. 5.8 Expanding further, for the sake of clarity, to a more specific level, we find that the assessee-company states in respect of the services provided to have prepared the Project Report (PR) for GMB. Clearly, the said report is not a general Feasibility Report (FR), which examines the desirability or otherwise of setting-up the project from technical and economic angles. The cost and time scale involved in its preparation impel this statement, and is subject to being controverted. However, even such a preliminary report would require a separate study, entailing incurring of separate costs. Project Reports, starting with the FR, could be drawn to increasingly higher level of details, covering technology selection, basic engineering, detailed engineering, etc. Whatever the extent and scope of the PR contracted to the assessee-company, the same would require considerable inputs in terms of resources. In fact, given the peculiarities of each area/site, and the operational parameters, viz., design, specialized commodity I material handling at the proposed jetty, etc., each project becomes unique in itself. Further, the contract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contractually required to be so done, is not clear, in spite of the same being the center-piece of the controversy; any reference to the services contracted to EGL (by the assessee) is conspicuous by its absence. Also, it being referred variously at different places is confusing and misleading, and gives an impression that it is so done only to fit its case to the requirements of the particular argument being advanced, some of which clearly clothe it with a revenue character, as against of a capital receipt as claimed by it in its accounts as well as the return(s) of income. Further, the fact that the revenue has not highlighted this issue (in this manner) is not very material; it being basic to not only the character of the receipt on which, as aforesaid, we find no serious dispute, but also its taxable quantum, and the Tribunal being fully competent to do so. (b) the finding as to the cost incurred by the assessee as constituting a technical know-how (with it) is contrary/inconsistent with the facts/material on record, as I have taken pains to bring forth in the earlier part of my order. In fact, it is contrary to what the assessee itself says of it. While it may be, and which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, would not similarly require the acquisition of the technical know-how, the essence of its transfer being that it enables the acquirer to apply the same? Translated, for better assimilation, to an analogous question relatable to the assessee's example; why would not the contractee require the boiler [i.e., the same capital asset(s) on which the depreciation is being claimed], its project (textile unit) being similar to that of the assessee, but only steam? Needless to add, the user of such a right, being an exclusive/protective right, would necessarily require a consent from the person(s) from whom the same stands acquired, or a tripatriate arrangement between the three, i.e., the grantor, the assessee (contractor) and GMB/EGL (contractee), and of which there is no evidence (and/or claim). (c) Finally, my ld. Brother has emphasized, on the basis of the decision of the Hon'ble Apex Court in the case of Scientific Engineering House (P.) Ltd. that the technical knowhow is a capital asset subject to depreciation, so that depreciation under section 32 of the Act is allowable, even as the same is not recognized as a capital asset exigible to depreciation under the Act. In this regard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment?" THIRD MEMBER ORDER Per R.P. Garg, Vice President.- A difference of opinion has arisen between the Members over appeals by the Revenue and therefore a reference was made to the Third Member, on the following point:- "Whether on the facts and circumstances of the case, the Tribunal would be justified in giving the directions to allow specific expenditure/allowance or the assessment requires setting aside for making de novo assessment?" 2. In the years under consideration, the assessee was in the process of setting up a Port at Mundra in Kutch District of Gujarat. It has receipts from interest and contract receipts and technical fee received from Gujarat Maritime Board and also from Eastern Generation Limited. It did not declare any income to tax on the plea that its Port project was under implementation and it had not started any commercial activity. 3. The Assessing Officer, however, held both interest and contract receipts of technical fees are income liable to tax under the head "Income from other sources". He did not allow any expenditure against these receipts as the expenses were capital expenditure pertaining to project under implementation and not for e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e between two Members. The Judicial Member says that the assessee had incurred the expenditure on acquiring know-how which was of capital in nature; that know-how is a plant; that such know-how was used for assessee's business as well as for the project of Gujarat Maritime Board the assessee would be entitled to depreciation on cost incurred for acquiring the same. He concluded and directed the Assessing Officer to allow the assessee (i) the expenditure directly incurred for meeting its business contractual obligation during the course of providing technical know-how for the development of Ports of Gujarat Maritime Board, (ii) the expenditure incurred for acquiring know-how which was procured solely for meeting assessee's business contractual obligation for development of Gujarat Maritime Board's Port and not for the purpose of assessee's own use in these years or in subsequent years, and (iii) allow depreciation on the capitalized value relatable to know-how used for meeting its business contractual obligation towards Gujarat Maritime Board, i.e., on the expenditure incurred for acquiring know-how, which, even after having been used for development of Gujarat Maritime Board's Port ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee may in the course of its own project execution, be transferred knowledge/plan/design, etc., which may be considered as a technical know-how. But it is only that cost, and to the extent it is of a nature that could be used independent of its location or other variable parameter in relation to the development of a port that can be considered as a technical know-how, as it is only this that can be applied for designing/planning/setting-up any other port project. Needless to add, the user of such aright, being an exclusive/protective right, would necessarily require a consent from the person(s) from whom the same stands acquired, or a tripatriate arrangement between the three, i.e., the grantor, the assessee and Gujarat Maritime Board/Eastern Generation Limited, and of which there is no evidence (and/or claim); and (c) the decision in Scientific Engineering House (P.) Ltd., to be given effect to, according to him, would require, apriori, a factual determination of the matter and supported by any factual finding in its respect and possibly can not be given in the highly tenuous/uncertain state of the factual edifice and therefore such a direction would not be consistent with the fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of allowing expenditure including depreciation. The Judicial Member has given specific direction to allow depreciation, if used for consultancy as well own project, in addition to full cost, if exclusively used for Gujarat Maritime Board and the other related expenditure. Each of these allowances by the Judicial Member also require verification and determination by the Assessing Officer. The Accountant Member instead of being specific, had opined for setting aside the assessment for de novo determination by Assessing Officer without specifying the item of expenditure. Assessing Officer has to determine the expenditure allowable including depreciation and cost of know-how exclusively used and transferred to Gujarat Maritime Board and/or Eastern Generation Limited. In my opinion, therefore, the matter is to be set aside with a direction to the Assessing Officer for determination afresh the allowable expenditure including specific expenditure narrated by Judicial Member and subject to the rider put up by the Accountant Member as to the allowability of depreciation i.e. only that part of know-how which was used in imparting consultancy to Gujarat Maritime Board and Eastern Generation L ..... X X X X Extracts X X X X X X X X Extracts X X X X
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