TaxTMI 
TaxTMI 
2015 (9) TMI 1362
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....re was no such transfer in association with disposal of the appellant's business/capital asset; (iv) such technical know-how was not a capital asset; (v) the said sum was revenue receipt and not a capital receipt outside the purview of taxation; and its purported findings in that behalf are without and/or in excess of jurisdiction, arbitrary, unreasonable and perverse? (b) Whether the Tribunal was justified in law in holding that transfer of the capital asset took place not during the previous year relevant to the assessment year 1997-98 but during the previous year relevant to the assessment year 1998-99 or that the sum of Rs. 59 lakhs was chargeable to capital gains tax in the assessment year 1998-99 in view of the amended provisions of section 55 of the Income Tax Act, 1961 and its purported findings in that behalf are arbitrary, unreasonable and perverse?" The facts in brief are as follows:- The appellant, the assessee was engaged in the manufacture of closure systems required for plastic bottles at Silvassa. The moulds required for the manufacture of the said goods were imported. In the course of carrying on the said business over a period of 13 years, the a....
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....ed into between the appellant and Truepack in terms of which the appellant agreed not to compete in the manufacture and/or sale and/or trading of the goods or similar products for a period of four years for a consideration of Rs. 10,000/-. The appellant on March 31, 1997 made over the self-developed technical know-how comprising drawings, designs, manuals, process know-how, technical information and guidelines, etc. to Truepack and became entitled to a sum of Rs. 15 lakhs out of the agreed consideration of Rs. 59 lakhs. It appears upon request by Truepack, the appellant agreed to a short postponement in the payment of the said sum of Rs. 15 lakhs. Subsequently Truepack paid the sum of Rs. 15 lakhs in May, 1997 along with interest @18% p.a. for the delay in payment. The balance sum of Rs. 44 lakhs was subsequently paid by Truepack after the trial production along with interest for the delay in payment. The case of the appellant is as the appellant had not incurred any cost in respect of the technical know-how self-developed by it in the course of its business and such self-developed technical know-how was its capital asset, the sum of Rs. 59 lakhs receivable by upon transfer t....
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....ppellate order suffered from several mistakes apparent on the face of the record, which has not yet been dealt with by the Commissioner of Income Tax (Appeals). Being aggrieved, the appellant preferred further appeal before the Income Tax Appellate Tribunal. However, the Tribunal by order dated 23rd April, 2004 upheld the order of the CIT (A) and dismissed the appeal, holding that the sum of Rs. 59 lakhs received by the appellant was a revenue receipt. The Tribunal held that even if there was a transfer of any capital asset, such transfer took place finally during the previous year ended 31st March, 1998 relevant to the assessment year 1998-99 and the appellant was liable for capital gains tax in view of the amendment made in section 55 of the Act with effect from the assessment year 1998-99. Mr. J.P. Khaitan, learned senior advocate appearing for the appellant submitted that the real issue is whether there was transfer of technical knowhow by the appellant to Truepack which took place on 31st March, 1997. Referring to the first and subsequent agreement between the appellant and Truepack for transfer of technical know-how and the non-competitive agreement respectively and the....
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.... Moreover the Tribunal exceeded its jurisdiction in holding that the sum of Rs. 59 lakhs was a revenue receipt or that the technical knowhow was not a capital asset, as no such case was made out either before the Assessing Officer or the CIT(A). The Tribunal failed to consider that the selfdeveloped technical know-how was undoubtedly appellant's capital asset and was not stock-in-trade and the amount received upon transfer thereof constituted a capital receipt. Though the Tribunal in its order held that the appellant did not provide details regarding the nature of the own designs and how it was developed, however, the Tribunal failed to consider that the appellant was never required by the adjudicating authorities below to furnish details of the nature of the selfdeveloped designs, know-how, mechanism, secret process, and it was accepted that the appellant had in fact developed such know-how in course of its business and the same was transferred by the appellant for valuable consideration. Submission was the Tribunal failed to consider that Truepack would not have paid a sum of Rs. 59 lakhs without receiving the value thereof and there could be no manner of doubt that the ap....
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....tles. 2) The TRANSFEROR shall on request of the TRANSFEREE depute a technical person for providing supervision, guidance and assistance in the areas pertaining to manufacture of Tampsafe Dropper Bottles and also to guide, assist train designated staff of the TRANSFEREE in running/operating and maintaining the machines and associated facilities and for optimisation of methods of operation as required for manufacturing the Dropper Bottles. It is agreed that the expenses for travel lodging and boarding as also remuneration on per day basis of such person as may be agreed upon shall be borne by Transferee. 3) The TRANSFEROR shall provide all the relevant information, date, documents, drawings, design, manuals pertaining to technical know-how for the product and manufacture of Tampsafe Dropper Bottles and shall provide its expert advice on all aspects so as to enable the Transferee to have the sufficient information to run the operation of manufacturing Dropper Bottles. 4) The TRANSFEROR shall not divulge, convey or inform at all times during and after cessasion of this agreement of any information relating to such technical know-how, trade secrets, date, meth....
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....nded by the Transferor and shall be treated as loan by the Transferor to the Transferee. The said amount of loan shall carry the interest at the rate of 18% per annum and shall be repayable within a period of 3 years". In this regard it is also appropriate to refer to the relevant clauses of the subsequent Agreement between the appellant and M/s Truepack Pvt Ltd. which are as under:- "WHEREAS the TRANSFEREE has agreed to purchase the plant, machinery and equipment for the manufacture of Dropper Bottles as per separate Asset Acquisition Agreement arrived at and executed by and between the SPBP Tea (India) Ltd. of the one part and the TRANSFEREE herein of the other part. AND WHEREAS the TRANSFEROR has agreed to provide technical know how to the Transferee for the consideration and on the terms & conditions agreed to by and between the parties hereto as recorded in a separate agreement AND WHEREAS the Transferor has agreed not to compete in the manufacture and/or sale of the said products and the Transferor has agreed to the said arrangement for the consideration and on the terms and conditions agreed to by and between the parties hereto as hereinafter appearing; ....
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....how to the transferee. The assessee-company has also failed to provide and furnish details, particulars and nature of alleged fool-proof mechanism of manufacturing plastic bottles and has also failed to describe and specify those designs and know-how that were developed by it. The assessee has also not been able to specify and describe the secret process of manufacturing plastic bottles that were claimed to have been developed by it. The technical knowledge acquired in the course of carrying on business activities, which is overgrowing and everchanging, cannot be held in the nature of a capital asset. The assessee has not been able to establish and prove that alleged technical know-how was in the nature of a capital asset and it was transferred absolutely once for all. It is also not the assessee's case that the assessee's right to manufacture, produce or process the plastic bottles was transferred. The facts of the case as discussed above clearly show that there was no transfer of assessee's right to manufacture, produce or process the plastic bottles in any way or manner. Since there was no absolute transfer of any capital asset in the nature of alleged technical know....
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....reement in question has to be read as a whole. So read, it is clear that the transfer had taken place in the financial year 1997-98. In this connection, we may refer to the balance-sheet of the transferee company. It can be seen from the statement of account for the financial year 1997-98 that process of installing plant and machinery has been completed in the financial year 1997-98 and the transferee company started its production of plastic bottles and sets in the financial year 1997-98. This position has been given by the assessee-company in its written submission filed before us. In this view of the matter, even otherwise the assessee is not entitled to exemption from capital gain in view of the amendment made in section 55 of the Act effective from assessment year 1998- 99". As the Tribunal, relying on the agreements had denied the claim of the appellant, the agreements require examination. The crucial question which requires consideration is whether the first agreement is a composite agreement or taking the said agreement as a whole, whether the clauses in it are severable. It is to be noted in order to derive the meaning of any particular expression, the agreement has ....
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....eve maximum production. The extent of the said renovation required was to be conveyed to Truepack, the transferee, and renovation was to be completed at a total cost of Rs. 28,00,000/- which included dismantling, transportation, installation and commissioning in consultation with each other. Significantly under Clause 8(b) the balance amount of Rs. 44,00,000/- lakhs for transfer of know-how was payable on installation and commissioning of the plant and trial production. Therefore, Clause 4 of the first agreement regarding transfer of technology at a cost of Rs. 59 lakhs cannot be read in isolation and has to be read as a whole as correctly interpreted by the Tribunal. From an analysis of the Clauses of the first agreement we find that mere parting by the appellant of the technical know-how to Truepack was not the sole object with which the said agreement was entered into but was also to assist the transferee in renovation, in installing and in commissioning the plant. It is clear from the language of the Clauses of the first agreement that the sale of know-how and the renovation, installation and commissioning of the plant were interlinked. Significantly it is to be noted that the ....