TaxTMI 
TaxTMI 
TaxTMI 
2010 (9) TMI 121
X X X X Extracts X X X X
X X X X Extracts X X X X
....g to Indian technician as Revenue expenditure instead of capital expenditure?" 2. The basic facts which are requisite to be stated are that the assessee - respondent is engaged in the business of manufacture of shock absorbers used in automobile vehicles. It incurred expenses on travel and stay of foreign technical personnel of M/s Showa Corporation, Japan and also on design and drawing charges payable to M/s Showa Corporation, Japan. The assessee treated the same as deferred revenue expenditure in the accounts but while filing the return claimed the entire expenses as revenue expenditure. Originally, the assessing officer allowed the claim on the basis of entries in the books of accounts. The said order of assessment was framed under Section 143(3) of the Income Tax Act, 1961. 3. The said original assessment came to be dealt with by the CIT(A) who treated the same as capital expenditure. The assessee carried the matter before the tribunal. The tribunal by its earlier order remitted the matter to the file of the assessing officer to examine whether the expenses were actually capital or revenue. After the remit, the assessing officer treated the expenses as capital expenditure whi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....icle 19 below, provide LICENSEE with the following license, technical information, assistance and services necessary for the manufacture of the Products and the Parts to be procured in the Territory of the extent that LICENSOR shall does necessary advisable after consultation with the LICENSEE. 1. License to use the Industrial Property Rights. 2. Following technical documents in English in LICENSOR‟s standard form (by reproducible copy plus two printed copies). a. Parts drawing b. Parts list c. Materials list d. Process control sheet e. Quality inspection standard and procedures including those for bought-out parts. f. Operation standard. g. Tools, jigs and gauges specification, and catalogues. h. Product performance data. i. Personnel requirement planning sheets. j. Product final inspection, standard and procedures including functional tests, endurance tests etc. 3. Following information on the procurement of the manufacturing facilities: a) Manufacturing facilities lists and catalogues. b) Plant layout for use in manufacturing facilities installation. c) Advice related to manufacturing facilities and on the construction of factory building including it....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... and the same also required training of the assessee's personnel. This training was provided by the licensor's personnel. The amount that was paid by the assessee only enabled the assessee to facilitate the manufacturing process but he did not acquire the proprietary right in such drawings and designs. Thereafter, the tribunal referred to its order passed in DCIT v. Bharat Seats Ltd. in ITA No.2394/Del of 2004 wherein the tribunal relied on the decision in ACIT v. TEI Technologies P. Ltd. in ITA No.5079/Del/04. The decision rendered in TEI Technologies P. Ltd. (supra) travelled to this Court and the same was given the stamp of approval in CIT v. T.E.I. Technologies P. Ltd., (2008) 304 ITR 262 (Delhi). The tribunal eventually came to hold that the expenses were incurred for training the personnel of the assessee and for availing drawings and designs to manufacture the shock absorbers but not for acquiring technology itself and, therefore, it could not be held to be capital expenditure. 7. We have heard Mr. Sanjeev Sabharwal, learned counsel for the revenue, and Ms. Kavita Jha, learned counsel for the respondent - assessee. The hub of the matter is whether the tribunal is justified ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Cal), held thus: "It would thus appear that the courts have applied different tests like starting of a new business on the basis of technical know-how received from the foreign firm, the exclusive right of the company to use the patent or trademark which it receives from the foreign firm, the payment made by the company to the foreign firm whether a definite one or dependant upon certain contingencies, the right to use the technical know how of production or the activity even after the completion of the agreement, obtaining enduring benefit for a considerable part on account of the technical informations received from a foreign firm, payment whether made "once for all" or in different instalments co-relatable to the percentage of gross turnover of the product to ultimately find out whether the expenditure or payment thus made makes an accretion to the capital asset and after the court comes to the conclusion that it does so, then it has to be held to be a capital expenditure. As has been held by this court and already indicated in Alembic Chemical Works" case [1989] 177 ITR 377 no single definitive criterion by itself could be determinative and, therefore, bearing in mind the chan....
X X X X Extracts X X X X
X X X X Extracts X X X X
....elates to the process of manufacture, then any payment made for the said purpose would have to be considered as a revenue expenditure since the acquirer does not obtain any asset of an enduring nature because it is more in the nature of a payment for consultancy. The Bench referred to the decision in Empire Jute Co. Ltd. v. CIT (supra) and came to hold that it is not every advantage of an enduring nature that can be classified as a capital expenditure. One has to take a pragmatic and commercial view of the matter and if that is done, there can be no doubt that the assessee acquired technical know-how to enable it to manufacture the products and this was more in the nature of information guidance or payment for consultancy. Being of this view, the Bench concurred with the conclusion arrived at by the tribunal. 11. In Shriram Pistons And Rings Ltd. v. Commissioner of Income-Tax, [2008] 307 ITR 363 (Delhi), the Division Bench was dealing with the fact where the assessee had entered into a technical collaboration agreement with a foreign company of Japan for the manufacture of piston rings. The agreement was in two parts : one, to provide comprehensive technical know-how and the secon....