TaxTMI 
TaxTMI 
2009 (10) TMI 116
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....chnology owned by Ford Company, USA .According to the appellant, it was already in the business of manufacturing of radiators since 1992, and the said technical collaboration agreement was entered into for the purpose of the upgrading and manufacturing of radiators of new technology. Under the said agreement, the appellant was permitted to be a mere user of the technology regarding the manufacturing of upgraded radiators for which the appellant was obliged to make lump sum payment of US$ 1 million to Ford Motor Company, USA which was capitalized in the appellant's books of account. Under the same agreement, the appellant was obliged to pay royalty at 3 per cent. of domestic sales and at 5 per cent, of export sales, to Ford Motor Company....
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....ring benefit. (ii) Technical services and technology which the licensor has to provide to the assessee is not on continuous basis but it is one time affair. Nothing was brought on record, to show that any technical service was to be provided on day-to-day or on regular basis at any specified interval to support the claim of the assessee and thus it was the case of outright transfer of technical know-how. (iii) That the case of the assessee was covered against it by two decisions of the Kerala High Court in the case of CIT v. Jacobs P. Ltd. [1979] 120 ITR 197 and CIT v. Polyformalin P. Ltd. [1986] 161 ITR 36 and by the decision of the hon'ble Supreme Court in the case of Scientific Engineering House P. Ltd. v. CIT [1986....
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.... provided an opportunity to study the designs and manufacture, consultation, trading and engineering assistance and services of trained staff of the licensor in connection with manufacture and sale. Such services are mentioned in article 3, clause (2) of the agreement. He also explained that technology and technical services mentioned in sub-clause (b) of clause (2) of article 2 of the agreement, for which consideration was paid, are the services in nature of product specification, process details, testing, training, quality control, etc., which require continuity in rendering of services by their very technological nature. According to the learned counsel the Tribunal failed to appreciate that the assessee was already in the business of ra....
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....royalty expenditure was capital in nature. 6. We have given our due consideration to the aforesaid submissions made by the learned counsel for both the parties. Since the answer to the question formulated above depends on the construction of technical collaboration agreement dated May 25, 1999, entered into between the assessee and the foreign collaborators, viz., Ford Motors Company, we have scanned the said agreement as well, minutely'. As per article 2 of the agreement, the licensor has granted to the assessee non-exclusive rights and licences during the term of the agreement in the contract territory to manufacture, sell, retail and service license products, using technical information furnished by the licensor and under the Indu....
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....r a period of seven years from the date of the commencement of commercial production." 7. Thus, for transfer of technology, the assessee agreed to pay a lump sum amount of US $ 1 million. This payment is admittedly treated as capital expenditure by the assessee and has been shown as such. However in so far as payment of royalty is concerned which is an issue before us, that depends on the domestic as well as export sales. Quantum of the said sales would determine the extent of royalty to be paid and it will decrease or increase every year depending upon the decrease or increase in the sales. Significantly, this payment is not because of "transfer" of technology, but for providing "technical services". In such circumstance, we are of the ....
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.... is annual expenditure depending upon the quantum of production in the relevant year. 5. In CIT v. J. K. Synthetics Ltd. [2009] 309 ITR 371 (Delhi), after elaborately discussing the entire case law on the subject, the court culled out the broad principles to determine as to whether expenditure in a particular case would be capital or revenue expenditure. One of the principles enumerated therein reads as under (pages 412-413 of 309 IIR): '(v) expenditure incurred for grant of licence which accords "access" to technical knowledge, as against, "absolute" transfer of technical knowledge and information would ordinarily be treated as revenue expenditure. In order to sift, in a manner of speaking, the grain from the chaff, o....