TaxTMI 
TaxTMI 
2001 (11) TMI 48
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....e claimed deduction on the following items in its return of income: (i) royalty payment of Rs.12,16,694 paid to Jyoti Ltd. under agreement dated September 1, 1972, as revenue expenditure. (ii) Rs.3 lakhs know-how fees and Rs.1,03,068 being royalty paid to Jyoti Ltd. under another agreement dated January 1, 1981, as revenue expenditure, and (iii) Rs.50,000 as technical report fees as revenue expenditure. We have heard Mr. B.B. Naik, learned standing counsel for the Revenue-applicant, and Mr. J.P. Shah, the learned advocate appearing on behalf of the assessee-respondent. In so far as question No.2 is concerned, it is common ground between the parties that the said question is concluded in the assessee's favour by a decision dated November 3, 1999, rendered by this court in Income-tax Application No. 269 of 1999 between the same parties. In so far as the third question is concerned, the Assessing Officer disallowed the sum of Rs.50,000 holding that the technical report fees were paid to Jyoti Consultants Ltd. for ascertaining the feasibility of manufacturing motors of different kinds than the motors which were already being manufactured by the assessee-company. In ap....
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....---------------------------------------------------------- (1) 389 of 1984 1-2-2000 1979-80 (2) 374, 374A and 26-12-2000 1982-83, 1983-84 374B of 1992 and 1984-85 (3) 192 of 1994 26-12-2000 1985-86 and &n....
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....e purposes of acquisition of an advantage in the capital field. It was further submitted that even after the termination of the agreement, the assessee-company was not required to stop manufacturing the said products nor was it stipulated that the technical knowledge acquired by the assessee-company was not to be utilised by the assessee-company in manufacturing the products which it was entitled to manufacture under the agreement. As against this, our attention was invited by Mr. Shah to the preamble of the agreement as well as various articles in support of his submission that the assessee was merely a licensee under the agreement and the rights to manufacture the specified products which were acquired under the agreement were only in relation to user of an asset and were not exclusively assigned to the assessee-company. The preamble of the agreement dated September 1, 1972, as well as article 1 specifically make it clear that Jyoti Ltd., with whom the assessee-company has entered into an agreement, has only granted the licence to manufacture electric motors which were being manufactured by Jyoti Ltd. and for this purpose Jyoti shall render technical and other experienced g....
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.... the sales made by the assessee-company. Having considered the terms of the agreement in the light of the law laid down by various decisions cited by both the sides, we feel that the assessee-company did not acquire any enduring advantage in the capital field in view of the terms and conditions stipulated in the agreement. The assessee-company has been merely granted a non-exclusive licence for the use of an asset and under the agreement, there is no acquisition of any asset which would render the payment in question to be treated as capital in nature. The royalty is payable on the basis of the sales which the licensee would make solely through the sole selling agent appointed by the licensor and thus the payment is strictly linked with the quantum of sales and would vary with the quantum of sales. The decision rendered in Jyoti Electric Motors Ltd. v. CIT [1999] 237 ITR 280 (Guj) was rendered in the context of the following question which was there before the court: "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the Commissioner was justified in passing the order under section 263 of the Act in setting aside the assessm....