TaxTMI 
TaxTMI 
1993 (1) TMI 36
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.... Messrs. Cummins Engine Company of U. S. A. in accordance with the terms of the agreement dated March 15, 1962, constituted revenue expenditure ?" The assessee is a public limited company engaged in the manufacture and sale of oil engines, etc. The assessment year under reference is 1973-74, the relevant previous year being year ended September 30, 1972. In the above previous year, the assessee paid to one Messrs. Cummins Engine Company incorporated in the U. S. A. (" Cummins ") an amount of Rs. 20,79,513 as consideration for the following services: (i) Technical assistance for products to be manufactured and assembly thereof. (ii) Supply of drawings, specifications for procedures and operating and maintenance manuals for Cummins dies....
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.... terms and conditions of the collaboration agreement and the case-law on the subject, held that the entire expenditure of Rs. 20,79,513 (and not 1/4th thereof, as held by the Income-tax Officer and the Appellate Assistant Commissioner) constituted revenue expenditure. Hence, this reference at the instance of the Revenue. We have heard learned counsel for the Revenue, Mr. G. S. Jetley, and also learned counsel for the assessee, Mr. G. Krishnan. We have carefully perused the foreign collaboration agreement dated March 15, 1962, between the assessee and Cummins. Under the agreement, the assessee is given exclusive manufacturing rights and licence under the patent rights of Cummins. For that purpose, Cummins had to give the following assista....
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.... and the relevant terms of the collaboration agreement, it is evident that the assessee wanted to avail of the benefit of the technical know-how possessed by Cummins for the manufacture and assembly in India of diesel engines and the various components thereof in accordance with specified designs which had been developed by Cummins. For that, the assessee entered into a collaboration agreement under which the assessee was to get exclusive rights and licence under the patent rights of Cummins and technical information to manufacture and assemble in India Cummins diesel engines and parts and accessories thereof, It was also to get non-exclusive rights and licence to sell the said products in any part of the world. It was, however, stated in c....
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....t the assessee was already engaged in the business of manufacturing oil engines. The technical assistance obtained under the collaboration agreement was not for the purpose of setting up any new industry or manufacturing any new product as such. It was only to get the latest technology. The Income-tax Officer held that only 25 per cent. of this payment was revenue expenditure whereas the Tribunal came to a finding that the entire expenditure was revenue expenditure. The Revenue has challenged this finding of the Tribunal. Learned counsel for the Revenue placed before us the terms of the agreement quoted in the order of the Tribunal and stated that though the payments in question were not for obtaining technical know-how for setting up of....
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....ctors clearly indicate that the various services under the collaboration agreement were for improvement in the operation of the existing business and its efficiency and profitability. Another fact which is also relevant is that there was no once for all payment. The payment was related to the sales of the product and it was calculated at 21/2 per cent. of the sale value of the product. Besides, the agreement, though for a period of ten years, was liable to be terminated by either party at one year's notice. On termination of the agreement, the assessee was required to return all plans, designs, drawings, as well as patent rights, trade marks, etc., to the foreign company. There was also a secrecy clause in the agreement which precluded the ....