2000 (6) TMI 122 - AT - Income Tax

Appeal Allowed: Rs. 40 lakhs Deemed Capital Receipt

The Tribunal allowed the appeal, overturning the Assessing Officer and CIT(A) findings. The Rs. 40 lakhs received by the appellant was deemed a capital ... Income Chargable As Issues Involved:1. Prohibition in the agreement and its impact on the transaction's nature.2. Nature of the technical know-how transaction: capital or revenue.3. Assessment of the Rs. 40 lakhs received by the appellant.4. Application of relevant case laws and legal principles.Analysis:Issue 1: Prohibition in the AgreementThe appellant argued that the prohibition contained in the agreement dated 18th January 1993 prevented him from imparting his technical knowledge to others. The Appellate Officer concluded that this prohibition had no bearing on the nature of the transaction, whether 'capital' or 'revenue'. The Tribunal disagreed with the Appellate Officer, emphasizing that the prohibition effectively restricted the appellant from using or transferring the know-how, thus impacting the transaction's nature.Issue 2: Nature of the Technical Know-How TransactionThe appellant contended that the technical know-how was sold outright to M/s. Recon Pharma (P.) Ltd. and thus should be considered a capital receipt. The Appellate Officer had concluded that the appellant continued to avail himself of the special knowledge and thus treated the transaction as a revenue receipt. The Tribunal found that the technical know-how was indeed sold outright, with the appellant losing the right to the invention, making the transaction a capital receipt. The Tribunal cited various judgments, including Oberoi Hotel (P.) Ltd v. CIT and CIT v. Ralliwolf Ltd., to support this view.Issue 3: Assessment of Rs. 40 Lakhs ReceivedThe Appellate Officer had assessed the Rs. 40 lakhs received by the appellant as revenue receipt, considering it as payment for services rendered. The Tribunal rejected this view, stating that the amount was received as consideration for the outright sale of technical know-how, thus making it a capital receipt. The Tribunal emphasized that the nature of the transaction and the context in which the receipts were received should determine whether it is capital or revenue.Issue 4: Application of Relevant Case Laws and Legal PrinciplesThe Tribunal referred to several case laws to support its decision:- Oberoi Hotel (P.) Ltd v. CIT: Payment received for giving up the right to manage a hotel was considered a capital receipt.- CIT v. Ralliwolf Ltd: Held that know-how is not strictly a fixed asset, and the nature of receipts from know-how depends on the context of the transaction.- Dr. K.P. Karanth: Payment received for giving up the right to manufacture drugs was considered a capital receipt.- Chander Mohan: Consideration received for the irrevocable assignment of patent rights was a capital receipt.The Tribunal concluded that the receipt in question was a capital receipt and directed the Assessing Officer to reassess the matter accordingly.Conclusion:The Tribunal allowed the appeal, setting aside the findings of the Assessing Officer and the CIT(A). The Rs. 40 lakhs received by the appellant was deemed a capital receipt, not a revenue receipt. The Tribunal directed the Assessing Officer to treat the amount as a capital receipt in the reassessment.