TaxTMI 
TaxTMI 
1984 (8) TMI 111
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.... that were and might, during the term of the licence, come in existence or be available and/or obtained for in connection with the operation of the factory. The leave and licence was for an initial period of ten years from 1-12-1976. The ITO found that by paying the annual fee mentioned above, the assessee had acquired the right to sell, transfer and/or dispose of all or any part of the machinery and that the assessee had also acquired the right to use and utilise the trade name and trade mark of Everlite besides acquiring the right to purchase the Everlite factory on the expiry of the licence period, or, prior to that, on payment of Rs. 12 lakhs only. He was, therefore, of the opinion that such rights acquired by the assessee were benefits of an enduring nature. Moreover, the assessee also got an absolute right to purchase the factory at a fixed price of Rs. 12 lakhs, the annual licence fee of which was fixed at Rs. 8,25,000. During the previous year relevant to the assessment year 1977-78, the assessee paid a licence fee of Rs. 2,75,000 which was debited to its accounts under the head 'Rent' and next year that fee amounted to Rs. 8,25,000 being rent for the whole year. Since the ....
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....the licence fee. The agreement cannot, in any way, be said to be conferring any enduring advantage or for acquisition of any capital asset. The ITO's view is that since the licence was for a period of ten years, the right to use the factory and trade mark for such a long period is an advantage of enduring nature. This view is not tenable. No payment has been made for acquiring any right. The payment is being made actually for the use. Where the payment is related to the user and is for rent or licence fee, the length of the period is of no consequence. After considering all the facts and circumstances of the case and in view of the decision of the Calcutta High Court cited by the authorised representative. I hold that the disallowance of Rs. 2,75,000 and Rs. 8,25,000 are unjustified. They are, therefore, deleted." 4. Against the said orders of the Commissioner (Appeals), the revenue preferred the present appeals before us. It was contended by the learned departmental representative that the Commissioner (Appeals) was wrong in holding that the expenses incurred by the assessee towards payment of licence fees were in the nature of revenue expenditure. He urged that the assessee, b....
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....ok us through the contents of clause (x) of the agreement and pointed out that the ITO had not taken into consideration the entirety of the terms and conditions enumerated in the said agreement. He also pointed out that in case the assessee decided to purchase the Everlite factory prior to the expiry of the licence period, it would have not only to pay Rs. 12 lakhs but also to meet all the outstanding of the financial institutions and banks as on that date including interest accrued up to that date. He, therefore, urged that the ITO was wrong in coming to the conclusion that the assessee was entitled to purchase the assets of Everlite (P.) Ltd. at a nominal consideration of Rs. 12 lakhs only. The learned counsel for the assessee took us through the observations made by the Calcutta High Court in the case of Agarwal Hardware Works (P.) Ltd. and contended that by incurring expenditure towards payment of licence fee, the assessee had acquired a mere benefit which could not be regarded as capital expenditure. 5. We have heard the rival submissions, gone through the various clauses of the agreement entered into between the assessee and Everlite (P.) Ltd. and considered the facts on r....
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.... this point. 6. The next common ground pertains to the allowability of the assessee's claim for relief under section 80J of the Income-tax Act, 1961 ('the Act') in respect of new range relay department. The relay department was established in the year 1970 and production began in 1970-71. Up to March 1976, very limited types of relays were manufactured to cover the requirement of the distribution system ranging between 11 kv. and 33 kv. For this, a collaboration agreement was entered with Melco of Japan on 30-7-1968. Another agreement (entitled 'Extension of Technical Assistance Agreement for Relay Project') was made on 2-12-1975 between Melco and the assessee. By this agreement, the original agreement was extended for a further period of five years. The extension agreement dated 2-12-1975 covered both the old range relays and the new range relays. As a consequence of this agreement, the existing relay department had been expanded to enable the company to manufacture more sophisticated new types of relays. The ITO found that the industrial licence previously taken by the assessee for the manufacture of old range relays was also utilised for the manufacture of new range relays an....
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....sioner (Appeals) that what had to be judged was whether the assessee had made substantial capital expenditure on new plant and machinery and building for producing additional goods by substantial expansion employing fresh capital. The detail of the total expenditure incurred on buildings, plant and machinery, etc., showed that substantial expenditure was incurred by the assessee. Similarly, the reason that under the old agreement with the collaborator new range relays could be made and that there was no independent agreement, could not, in any way, affect the existence of the new industrial undertaking. In fact, under the same agreement, at different times different undertakings could be set up and started. It was submitted that similarly, the assessee's claim could not be disallowed merely because during the relevant accounting year, independent power supply was not there. It was not necessary for an industrial unit to have its own independent power supply. The unit could always take such power from other sources. It was further submitted that the ITO had referred to the utilisation of some air-compressor and pneumatic machine in the new undertaking but he had completely ignored t....
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....ecting the assessee's claim. He also urged that there was no substantial expansion. The learned counsel for the assessee, on the other hand, reiterated the same contentions as were advanced before the Commissioner (Appeals) and placed reliance on the decision of the Calcutta High Court in Indian Aluminium Co. Ltd.'s case and the decision of Supreme Court in Indian Aluminium Co. Ltd.'s case and the cases of Indian Aluminium Co. Ltd. v. CIT [1983] 140 ITR 114 (Cal.) and CIT v. Shree Digvijay Cement Co. Ltd. [1983] 144 ITR 532 (Guj.). 9. There is no dispute about the fact that the assessee incurred substantial capital expenditure on installation of plant and machinery for the manufacture of new range relay. The Commissioner (Appeals) has recorded a finding of fact that such machinery was installed in a new building. New range relay was a new type of production that was achieved by the assessee by installation of new machinery. In the case of Indian Aluminium Co. Ltd., the assessee made extension to the existing centres at Belur and Alupuram and installed new plant and machinery there, as a result of which production of aluminium ingots went up by double. On these facts the Calcutta....