TaxTMI 
TaxTMI 
1993 (3) TMI 60
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....d in the circumstances of the case and on an interpretation of the agreement, (i) the assessee is entitled to capitalise the entire technical fees paid to Messrs. Engine Valves ? (ii) the Tribunal is justified in interfering with the order of the Officer confirming the capitalisation to 50 per cent. of the technical fees?" The respondent-assessee is a limited company formerly known as Cochin State Power and Light Corporation Ltd. They were engaged in the business of distribution of electricity in Ernakulam town. After take-over of the undertaking on December 2, 1970, the assessee-company started plant for the manufacture of automobile engine valves. The income assessable for the assessment year 1974-75 was only interest and dividend and t....
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....ly 50 per cent. of the amount. On appeal, the Commissioner of Income-tax (Appeals) allowed the claim in full. The Tribunal confirmed the view of the Commissioner in the second appeal. Interpreting the relevant clauses in the agreement entered into between the assessee-company and Messrs. Engine Valves Ltd., the Tribunal held that when fees were paid for supplying and imparting of know-how, the assessee has rightly capitalised the entire technical fees paid to Messrs. Engine Valves. Question No. 3 proposed by the Commissioner of Income-tax before the Tribunal arises from this finding of the Tribunal and which has been referred to this court as question No. 2. The Tribunal declined to refer question No. 1 proposed by the Revenue for the reaso....
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.... error in the order of the Tribunal in allowing the entire amount claimed towards fees paid for technical know-how as capital expenditure. Clause 3-A of annexure "E" agreement provides that the licensor, Messrs. Engine Valves Ltd., shall give to the licensee (assessee) the technical data, designs, specifications and such other documents as may be necessary which will enable the licensee to commence the manufacture and continue the production of valves. The information or services to be rendered or provided by the licensor in consideration of the technical fees to be paid by the licensee are enumerated in that paragraph. Clause 7 stipulates for payment of a sum of Rs. 5,50,000 as technical fees. This amount was to be paid in five instalment....
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....ensee complied with all the requirements of the licensor as to the quality of valves. The licensee has further undertaken to provide samples of the valves, raw materials used and detailed technical/test reports to the licensor as and when required. The fees were therefore paid for commencing the business and to continue the same. The payment therefore formed the basis of the business of manufacturing valves. A question arises as to whether the amount so paid goes into the capital cost and if so, whether the full amount paid by the assessee should be capitalised. In this connection, learned counsel for the respondent draws our attention to the decision of the Supreme Court in Scientific Engineering House P. Ltd. v. CIT [1986] 157 ITR 86. Th....
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....h these documents that the assessee was able to commence its manufacturing activity. The Supreme Court held that these documents really formed the basis of the business of manufacturing the instruments in question. The expenditure incurred by the assessee by way of purchase price of the drawings, designs, etc., comprised in the "documentation service" specified in clause 3 of the agreement was held to be of capital nature as a result whereof a capital asset of technical know-how In the shape of drawings, designs, etc., was acquired by the assessee. The Supreme Court further held that the capital/asset acquired by the assessee, viz., the technical know-how in the shape of drawings, designs, etc., is depreciable asset. In the light of the pr....
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....actual cost of the assets. The Commissioner of Income-tax (Appeals) allowed this deduction. On further appeal, the Tribunal declined to interfere holding that the assessee had actually capitalised the amount and included it in the cost of the assets. According to learned counsel for the Revenue, this finding of the Tribunal was rendered on a wrong interpretation of the finding given by the Tribunal in annexure-F order. As rightly pointed out by him, there is nothing in the order, annexure-F, to show that the balance amount of Rs. 25,215 had to be treated as capital expenditure. The Tribunal, in annexure "D" order, would observe that the finding of the Tribunal in annexure-F order meant that the amount to be capitalised was not 80 per cent. ....