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2. The facts leading to the reference are as follows :

The assessee has business of manufacturing oil engines, agricultural equipments and machine tools. The year of assessment is 1963-64, for which the previous year ended on 31st June, 1962. During the accounting period relevant to the assessment year, the assessee incurred an expenditure, of Rs. 23,308 towards the foreign tour of its technical director one V. L. Doshi. According to the minutes of the meeting of the board of directors held on 22nd August, 1961, the said visit to Europe, the U.K. and the U.S.A. as also the Damascus was for further discussions with the company's existing collaborators and the proposed collaborators. The said tour included the programme of negotiation with Scottish Machine, i.e., the assessee's technical collaborators, for the manufacture of their planning machines at the assessee's machine tool division at Chinchwad; with Schiess Aktiengesellschaft, Dusseldorf, Germany, the assessee's technical collaborators for the manufacture of Vertical Turrent Lathes, and with Strojimport, Czechoslovakia, who were the assessee's collaborators for manufacture of Slotting Machines. The tour also included a visit to the Draper Corporation of U.S.A. to finalise a technical collaboration for the manufacture of their Automatic Looms in their factory at Satara Road. He was also further to discuss collaboration agreement for the manufacture of PFAUTER Gear Hobbing Machines at their machine tool division at Chinchwad. It also further appears that the said technical director was to attend the International Levant Trade Fair, Bari, Italy, and to visit the exhibition at Brussels and a fair at Damascus. In the application made to the Reserve Bank of India for the release of foreign exchange for the said tour, it was stated that the visit was primarily planned to study the modern development made in the manufacture of machine tools, diesel engines and precision tools with a view to incorporate the same in the machine tools and diesel engines manufactured by the assessee at Chinchwad and Satara Road factories; to finalise the purchase of machinery required for the expansion of the said two factories; to finalise the technical collaboration agreement with M/s. Draper Corporation, U.S.A.; to study the various technicalities connected with the manufacture of automatic looms; to discuss collaboration agreement for the manufacture of PFAUTER gear hobbing machines; to explore the possibilities of export market for the products of the assessee and to find our possibilities of entering into technical collaboration with the foreign firms for the manufacture of new items of machine tools in the newly built machine tool division of the assessee. The ITO was of the opinion that according to the said application made to the Reserve Bank, the technical director was also to study modern developments in the manufacture of various products of the company and explore the possibilities of export markets for them. There was, therefore, according to him, a clear emphasis on negotiation for technical collaboration and purchase of machinery in the said tour. He, therefore, attributed 2/3rds of the total expenditure, viz Rs. 15,536, to the said aspects of the tour and held that the said sum of Rs. 15,536 was in the nature of capital expenditure, and, therefore, liable to be disallowed from the expenses claimed for the relevant year.

5. The Tribunal, in appeal, confirmed the finding of the lower authorities on both the points. With regard to the expenses on tour it was held that the same was primarily for the purposes of finalising the purchase of machinery required for the factory of the assessee, for technical collaboration agreement in respect of the new items of machinery to be manufactured by the assessee and for finding out possibilities of entering into technical collaboration with the foreign firms for the manufacture of new items of machine tools. According to the Tribunal, "this agreement when finalised or fructified into benefit agreement of technical collaboration would have resulted in bringing into existence the very framework of profit-making apparatus and as such the expenditure in that connection was capital in nature." With regard to the amount of Rs. 16,029 paid by the assessee to G. Perry & Sons Ltd., the Tribunal held that the case was not covered by CIT v. Ciba of India Ltd. . because under the present agreement it was proposed to build a pattern shop in India for the assessee for the purpose of establishing an industry for the construction and manufacture of patterns and other articles manufactured by M/s. G. Perry & Sons Ltd. The know-how, etc., was made available to the assessee against a lump sum payment of Pound 300 payable by the assessee in the manner indicated in the agreement. The Tribunal held, therefore, that it was a case of outright sale of know-how supply of information, etc., for a lump sum payment. According to the Tribunal, the case was more appropriately covered by the decision in Mysore Kirloskar Ltd. v. CIT [1968] 67 ITR 23 (Mys). In this view of the matter, the Tribunal held that the expenditure being of a capital nature, the assessee was not entitled to the allowance of the said amount as an expenditure for the relevant year. Thereafter, at the instance of the assessee, the Tribunal has referred the question to this court as stated at the outset, under s. 256(1) of the Act.

6. On the first question, viz., the expenditure incurred on the foreign tour of the technical director of the assessee, Shri Mehta, on behalf of the assessee, contended that the Tribunal had come to the conclusion that the expense incurred was in the nature of a capital expense because, according to the Tribunal, the tour was undertaken for finalising the purchase of the machinery required for the factory of the assessee and also for technical collaboration agreement in respect of the new items of machinery and further to find out possibilities of entering into technical collaboration with the foreign firms. Shri Mehta submitted that the reason given by the Tribunal for arriving at the said conclusion was not correct inasmuch as, on the facts and circumstances of the case, it cannot be said that the purpose of finalisation of the purchase of the machinery or technical collaboration or even the entering into agreement for technical collaboration added to the assets of the assessee. According to us, it is not necessary to go into the said question because the AAC has in terms recorded that admittedly the technical director had not submitted his report in respect of the said tour. There was also no other evidence on record to show as to what actual activities were carried on by the said technical director when he went on the said tour. This is, therefore, a case where there is no evidence on record to show as to the purpose for which the said expenses were actually incurred. In the circumstances, this was a case where the ITO would have been competent to disallow the whole of the said expenditure as a revenue expenditure. However, the ITO has only disallowed 2/3rds of the said expenses by apportioning the entire expenses into two parts, the 2/3rds being appropriated towards the cost of acquisition of capital asset or assets in the nature of capital asset and the remaining 1/3rd as revenue expenses. The AAC did not think it necessary to disturb the said finding of the ITO for the reasons reproduced hereinabove. In the circumstances, it was not necessary for the Tribunal to go into the question whether in the fact the said expenses could be said to have been incurred for the acquisition of a capital asset or not, since admittedly the assessee had not cared to place on record the evidence with regard to the purpose for which the expenses were actually incurred. Shri Mehta has, however, submitted that the resolution passed by the board of directors as well as the application made to the Reserve Bank of India showed the purpose for which the tour was undertaken, and, therefore, it should be held that the expenses which were incurred were also for the said purpose. We are not impressed by this argument. It is one thing to mention the purpose for which the tour is sought to be undertaken in documents which are prepared prior to the commencement of the tour. It is a different thing to attribute the expenses actually incurred to the said purpose or purposes. For, the purpose for which the tour is undertaken may not actually be achieved and the moneys may be spent for a different purpose. It is necessary, therefore, that the relevant evidence is placed on record to prove the purpose for which the expense is actually incurred. As pointed out by the AAC, there is admittedly no such evidence on record. In the circumstances, we are more than satisfied that the ITO could not be said to be wrong in disallowing 2/3rds of the said expense as revenue expenditure.

THE purchaser may not without the previous consent in writing of the vendor assign this deed or the benefit thereof or any right thereunder".

8. It is, therefore, apparent from the aforesaid clauses of the agreement that what the said M/s. G. Perry & Sons Ltd. agreed to give to the assessee was only the knowledge and information on technical know-how. They also further agreed to give from time to time such information as was necessary for the setting up of the said pattern shop. They further agreed to make arrangements for the training of the necessary personnel during the period of four years and it is in consideration of this supplying of the technical knowledge, rendering service and imparting training that the purchaser agreed to pay the said sum of money. The present case, therefore, is covered squarely by the ratio of the decision of the Supreme Court in Ciba's case [1968] 69 ITR 692. The latest decision of this court on the point is CIT v. Tata Engineering & Locomotive Co. Ltd. [1980] 123 ITR 538, which has also taken note of the case of Ciba of India Ltd. It has been held by this court in this case that technical know-how cannot be called a tangible asset. Technical know-how and technical advice cannot in these days of technological and scientific development and consequent change in production techniques, be treated as a capital asset. The length of the period of agreement is not of much consequence, if the nature of the advice made available, is such that it cannot be called a capital asset. Merely because an assessee, who has entered into a contract with regard to know-how, is entitled to use the know-how even after the agreement has expired, it does not mean that he has acquired a benefit of an enduring nature. Agreement of foreign collaboration where foreign know-how is availed of in lieu of payment, is in substance a transaction of acquiring the necessary technical information with regard to the technique of production. Instead of employing persons having knowledge of technique and utilising their knowledge, technical know-how is acquired. Technical know-how made available by a party to such an agreement does not stand on the same footing as protected right under a registered patent. It may be stated that in that case, the assessee, Telco, entered into two agreements, one with Daimler Benz and another with Henricot. Under the first agreement, Daimler Benz were to provide drawing s and designs and full technical information required for the manufacture of automotive products. They were to provide training facilities for Indian personnel in their German plants. Telco could use the name and trade mark of Daimler Benz. The period of agreement was fifteen years but one of the parties could terminate the agreement by six months' notice in case of a serious breach of its terms and conditions. After the agreement came to an end, Telco was entitled to continue its manufacture but they could not use the trade was entitled to continue its manufacture but they could not us the trade name of Tata-Mercedez-Benz. Under the second agreement, Henricot agreed to give technical advice, information and assistance to Telco steel factory and provide facilities for training Indian personnel in their Belgian plant. The agreements provided for payment of royalty and a percentage of profits for the provision of know-how. Telco had to bear the expenditure of training it s personnel in the foreign factories. Telco claimed the amounts paid under the collaboration agreements and expenses incurred in training its personnel for the assessment year 1959-60 as deductible expenditure. It was held, firstly, that, on the facts, in essence, the agreements were for acquitting technical knowledge regarding methods of production and in the case of Daimler Benz for use of the trade name. The assessee had not acquired any asset or advantage of an enduring nature for the benefit of its business. The amounts paid for provision of know-how and licence to use the trade name were revenue expenditure. Secondly, it was held that the expenditure on training of personnel was incurred with a view to achieving maximum and efficient production, The expenditure incurred on such training was closely related to the profit-earning process and was allowable as revenue expenditure.