TaxTMI 
TaxTMI 
1986 (7) TMI 186
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....rmation and services with reference to isolator from Alpha Ltd. and for manufacturing pantograph isolators for 420 KV capacity as manufactured by Alpha Ltd. As per article 5 of the Technical Assistance Agreement as amended on 3-9-1980, the assessee agreed to pay a total amount of Sfr. 2,47,500 in four installments as stated below towards consideration for the documentation, information and services to be rendered by the Swiss company : Sfr. 90,000 payable not later than 15-8-1980 Sfr. 52,500 payable not later than 15-8-1981 Sfr. 52,500 &n....
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.... held that the technical know-how fees payable to the Swiss Company should be treated as revenue expenditure. As per article 1 of the agreement dated 31-1-1980 the foreign company was to provide the drawings, know-how and manufacturing methods for manufacturing pantograph isolators for all rated voltages of Alpha manufacturing programme especially for 420 KV rated voltage. It would provide continuous guidance and selection and purchase of raw material, manufacture and testing of the finished products. It would also arrange for training of the personnel of the assessee. As per article 9, the agreement was to be for a period of five years from the date of commencement of production and as per article 10, the assessee-company should return all....
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....ngly urged that the period of agreement was only for five years. The assessee has not acquired any asset or any advantage of enduring nature. It is only in respect of the existing business that the technical know-now has been received. The assessee has manufactured the products as per the technical know-now agreement. Thus the technical know-now fee paid is allowable as revenue expenditure. He also urged that since the assessee maintained its accounts on mercantile basis the entire amount of Rs. 13,93,581 is allowable in this year itself. In support of his contention he placed reliance on the decision of the Bombay High Court in Addl. CIT v. Buckau Wolf New India Engg. Works Ltd. [1986] 157 ITR 751. 4. We have considered the rival submis....
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.... components valued at Rs. 76,486 and finished goods of the value of about Rs. 98,000. The ITO is not correct in holding that the technical know-now has been used in this year. 6. In Praga Tools Ltd. v. CIT [1980] 123 ITR 773 a Full Bench of the Andhra Pradesh High Court held that where the expenditure has a direct nexus, connection or relation to the carrying on of or conducting the business of the assessee, it must be regarded as an integral part of the profit-making process and in such a case, it must be held to be a revenue expenditure. It is only where the purpose and object of the expenditure is to acquire an asset or right of an enduring nature or permanent character, it is a capital expenditure. It was further held that there is n....
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..... In fact no new unit has been set up and no new machinery or plant has been installed. The technical know-now acquired relates only to the process of manufacture. Hence the assessee did not obtain any asset of an enduring nature. Thus the technical know-now fee is allowable as revenue expenditure. 8. The next question that arises for consideration is whether the entire amount of Rs. 13,93,581 is allowable in this year or only the instalment payable, i.e., Sfr. 90,000 during this year is allowable. An identical issue was considered by the Bombay High Court in Buckau Wolf New India Engg. Works Ltd.'s case. In that case also technical know-now fees of Rs. 1 lakh was payable in five equal instalments. The entire amount was claimed in the fi....