TaxTMI 
TaxTMI 
1980 (2) TMI 29
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....he manufacture of non-linear resistor compound. This compound is useful for the purpose of manufacture of lightning arresters. Under cl. 1 of the agreement, the licence was granted for a term of 14 years from the 1st day of October, 1964, and comprised the right to use the invention for non-linear -resistor compound from conducting and semi-conducting materials such as graphite and silicon carbide covered, by Indian Patent No. 55282 at the grantee's own factory, and to sell the product manufactured in accordance with the said invention. This was in consideration of a payment of Rs. 5,000 by way of premium and payment of royalty as specified in the agreement. Under cl. 3(i) it was provided that a royalty of 2% on the net ex-factory sales of ....
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....ustries Private Ltd., which is the assessee. N.R.D.C. accepted the transfer of the licence to the assessee-company along with all the assets and liabilities. The assessee paid a sum of Rs. 72,055 towards royalty to N.R.D.C. in terms of the original agreement. It claimed a deduction of this amount, but the ITO negatived it on the ground that there was no privity of contract between the assessee and N.R.D.C. and the expenditure was capital in nature. On appeal, the AAC held that there was a privity of contract, but he took the view that the claim for deduction should be made under s. 35A relating to the expenditure on acquisition of patent rights or copyrights. In accordance with this provision, he allowed the claim pro rata for 14 years. As ....
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....ion, to consider the various circumstances including the nature of business, the object for which the expenditure has been incurred and has to look into not only the record but to the surrounding circumstances to find out what is the real nature of the transaction from the commercial point of view. For this purpose different tests have been applied from time to time. It is sufficient if we refer to a recent decision of the Full Bench of this court in R.C. No. 11 5/76 dated November 19, 1979 (Praga Tools Ltd. v. CIT [1980] 123 ITR 773), in which there is an exhaustive discussion on this subject. In that case also, the assessee entered into a licence agreement with a foreign collaborator for the manufacture of a particular type of tool and cu....
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....ral part of the profit-making process, it must be held to be a revenue expenditure. Where, however, the purpose and object of the expenditure is to acquire an asset or right of an enduring nature or of a permanent character it is a capital expenditure. The Full Bench referred to the leading decision of the Supreme Court in Ciba's case [1968] 69 ITR 692, wherein the Swiss company had granted to the assessee the full and sole right of licence under the patent to make use, exercise and vend the inventions specified in the agreement in India and also a licence to use some specified trade marks and deliver to the assessee all processes, formulae, scientific data, working rules, etc., and supply all scientific and technical know-how and assistanc....