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TMI Blog1980 (1) TMI 112X X X X Extracts X X X X X X X X Extracts X X X X ..... and documentation. The ITO proposed to treat it as a capital expenditure. The assessee contended that it is only a revenue item and relied on the following decisions: (i) Sayaji Iron Engineering Works (P) Ltd. vs. CIT (1) (ii) CIT, West Bengal vs. Associated Electric Industries (India) (P) Ltd (2). (Iii) AAC Vickers Baboock Ltd. vs. CIT (3). Based on there decisions it was claimed by the assessee that the company was already engaged in the business of electronic time distribution system and that the amount paid for acquiring the know-how must, therefore, be treated as a revenue expenditure. The ITO distinguished these cases and held that they are not applicable. Noticing the supply of similar items prior to this agreement by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment besides a royalty at 2 per cent to be worked out on the net ex-factory sale price of the product less the landed cost of the imported components. He also noticed that the assessee was to get all technical know-how, drawings specifications and all other things that may be essential and ancillary for the purpose of manufacturing in India wrist watches, electronic wrist watches and electronic master clocks. All the benefits of research and development obtained by the foreign company were to be passed on to the assessee. After noticing the terms of the agreement the AAC states that there was already an agreement with the same foreign collaborator dt. 27th Sept., 1967 according to which the assessee was to be given technical assistance f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to get all these free of cost under the 1967 agreement and this sum was not for any particular drawings. He dismissed this contention. He also upheld the disallowance of Rs.2,000 as capital expenditure. 3. The assessee has come on second appeal. The learned counsel, after giving a history of the company, submitted that the decision of the AAC is erroneous. The AAC, after having held that the assessee was already in this line of business of manufacturing clocks and watches, he should have allowed the claim of the assessee for the reduction of Rs. 26 lakhs, as a revenue expenditure especially in view of the decisions in the following cases: (i) Mysore Kirloskar Ltd. vs. CIT.(7) (ii) Ravi Machine Tools Pvt. Ltd. vs. CIT (8) (iii ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the first agreement. The second agreement also permitted the assessee to sub-licence on the basis of the second agreement they received income and that has been taxed. In view of these, the sum of Rs. 26 lakhs is a revenue expenditure and should be treated as such. Alternatively, it was submitted that development rebate and depreciation has to be given and he relied on a decision in the case of Nippon Electronics (P) Ltd. vs. CIT (10). 4. The departmental representative, on the other hand, relied on the orders below. He submitted that the crux of the question is whether similar business was being carried on earlier or not. The assembly of mechanical watches and electronic watches has different technology and as such this is a new busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... base. The 1972 agreement is for the manufacture of wrist watches, electronic wrist watches and electronic master clocks. When the parties have agreed in a later agreement for this payment the AAC cannot, in the circumstances of the case, find that the assessee is entitled to those free of cost on the basis of the 1967 agreement. It is only on the basis of this interpretation that the AAC came to the conclusion that the payment was not made for any business consideration. The learned counsel has also filed papers to show that on the basis of the agreement in 1972 trainees were sent abroad and accordingly it cannot be said that the second agreement was not for any purpose of the business of the assessee. Even apart from this, in view of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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