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7. Again in para. 10 it proceeded to find :

" Unlike in Ciba of India Ltd.'s case , the assessee in the case before us became the owner of the designs and the know-how for the manufacture of the machinery patented by the collaborators and that the collaborators permanently parted with the technical know-how in favour of the assessees which enures to the benefit of the assessee even after the expiry of the agreement. Again, it is not the case of the assessee that the payments in question were made for the purpose of acquiring a new technical know-how for the manufacture of the items of machinery which was already in its production range."

19. As pointed out earlier, the Tribunal, in arriving at its conclusion that the payment of royalties by the assessee to the foreign collaborators was made to secure an enduring advantage for permanent benefit, relied upon the decision of this court in Hylam's case and distinguished the decision of the Supreme Court in Ciba's case .

20. We may usefully refer at this stage to Ciba's case , which is the leading case on this aspect. The respondent-assessee therein was an Indian subsidiary of Ciba Ltd. of Basle, a Swiss company whose pharmaceutical section in India was taken over by the assessee from January 1, 1948. The Swiss company under an agreement dated December 17, 1949, granted to the assessee full and sole right of licence under the patent listed in the agreement to make use, exercise and vend the inventions specified therein in India and also a licence to use some specified trade marks and deliver to the assessee all processes, formulae, scientific data, working rules and prescription^ pertaining to the manufacture or processing of products discovered and developed in the Swiss company's laboratories and supply all scientific and technical know-how and assistance. The assessee in consideration of the aforesaid right to receive scientific and technical know-how and assistance from the foreign collaborator, agreed to make contributions of 5%, 3% and 2% of the net sale price of the products sold by the assessee for a period of five years from January 1, 1948, (i) technical consultancy, and technical service rendered and research work done ; (ii) cost of raw material used for experimental work; and (iii) royalties on trade marks used by the assessee. By a supplemental agreement dated July 15, 1949, the contribution under Article III payable by the assessee was reduced from 10 per cent. to 6 per cent. of the net selling price of the pharmaceuticals. The payments made by the assessee to the Swiss company during the accounting years corresponding to the assessment years 1949-50 to 1953-54 were claimed as deductions under Section 10(2)(xii) of the Indian I.T. Act, 1922. The ITO himself allowed the amount of 2% paid towards royalty of trade marks but disallowed the contributions made towards technical consultancy and technical service and the cost of raw material used for experimental work. The AAC agreed with the assessing authorities. But the Income-tax Appellate Tribunal allowed the deductions under Section 10(2)(xii) or, in any event, under Section 10(2)(xv). The High Court of Bombay affirmed the view of the Tribunal that the expenditure was admissible under Section 10(2)(xv). On appeal by the department, the Supreme Court noted the following facts that emerged from the agreement entered into in that case, viz., (1) the licence was for a period of five years, liable to be terminated in certain eventualities even before the expiry of the period ; (2) the object of the agreement was to obtain the benefit of the technical assistance for running the business ; (3) the licence was granted to the assessee subject to the rights actually granted or which may be granted after the date of the agreement to other persons ; (4) the assessee was expressly prohibited from divulging confidential information to third parties without the consent of the Swiss company ; (5) there was no transfer of the fruits of research once for all; and (6) the stipulated payment was recurrent, dependent upon the sales, and only for the period of the agreement. The Supreme Court, on a consideration of the facts, agreed with the view of the High Court that the payments were admissible under Section 10(2Xxv) and held that the assessee did not acquire any asset or advantage of an enduring nature for the benefit of its business except acquiring the right to draw for the purpose of carrying on its business as a manufacturer and dealer of pharmaceutical products, upon the technical knowledge and know-how of the Swiss company for a limited period, nor did the Swiss company part with any asset of its business.

32. On the other hand, the facts of the present case do squarely fall within the decision in Ciba's case . We do not find any rationale or basis to distinguish Ciba's case from the present one as pointed out earlier.

33. On a close reading of the facts and circumstances we are of the view that the expenditure, with which we are concerned in the present case, is having direct nexus, connection or relation to the very carrying on or conducting of the business of the assessee which must be regarded as an integral part of the profit-making process. The very aim and object of the payment of royalty, which is based on the production and sale of the products manufactured by the assessee-company, is with the sole purpose of securing from the foreign collaborators manufacturing licence and all the necessary technical know-how including designs, drawings, specifications and other technical information to enable the assessee-company to make and sell the products indicated in the agreements. This is amply proved by Clause (1) of the earlier agreement dated 26th October, 1960, between the assessee-company and Kearney & Trecker-C.V.A. Ltd., which reads thus : ' " The object of this agreement is to enable Praga to manufacture under licence Drill chucks contained in the manufacturing range of C.V.A. and for this purpose the two parties agree to collaborate to the utmost."

36. The Tribunal is more obsessed by the fact that the two types of machinery to be manufactured by the assessee under the agreements were entirely new items which were patented by the collaborators, that the assessee became the owner of the designs and the know-how for the manufacture of the machinery patented by the collaborators and that the collaborators permanently parted with the technical know-how in favour of the assessee which enures to the benefit of the assessee even after the expiry of the agreement. The assessee's counsel complains that the Tribunal had erroneously assumed that it is not the case of the assessee that the payments in question were made for the purpose of acquiring a new technical know-how for the manufacture of an item of machinery which was already in its production range since it is their main plea. When once the assessee had the advantage of utilising the special knowledge and technical know-how along with the specific drawings, designs and other information during the period under agreements, it does not alter the true state of affairs by agreeing that the assessee would be free to make use of the aforesaid technical know-how and knowledge even after the expiry of the period of agreements. There is no property right in the know-how which is transferable. The imparting of special knowledge and technical know-how by the foreign collaborators to the assessee-company would be just like a teacher selling his skill or knowledge to his pupil.