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3. The brief facts of the case are follows:

Assessee respondent (hereinafter referred to as "Assessee") is a company and engaged in the business of manufacture and sale of sugar machinery parts. The assessee entered into an agreement on 11.04.1984 with a company in West Germany (herein-after referred to as "BMA"). The said company was engaged in the manufacture of machinery and equipment for the sugar industry. In the course of the assessment proceedings the assessing officer came across a claim for deduction to the tune of Rs. 15,16,766/- being the amount payable to M/s BMA "on account of acquisition of technical know-how." The assessing officer after an examination of the various clauses/articles of the agreement between the parties came to the conclusion that the assessee had acquired "a benefit of enduring nature" and, the same represented capital expenditure. According to him the net result of the aforesaid agreement between the parties resulted in "absolute transfer of technical knowledge" and the assessee was free to manufacture the machinery specified in the said agreement even after its expiry. The assessing officer also held that the assessee became the absolute owner of technical know-how relating to the manufacture of cane sugar mills vis-a-vis the specifications described in the agreement. In coming to the aforesaid conclusions the assessing officer placed reliance on the decision of the Hon'ble Supreme Court in the case of Scientific Engineering House P. Ltd. v. CIT, 157 ITR 86.

ii) That the cane sugar machinery manufactured by the assessee was its stock-in-trade and any expenditure related thereto was revenue in nature;

iii) That the agreement was for a limited period of 7 years and in the present times when "technologies" were changing fast and becoming obsolete after a short period it could not be said that what the assessee had acquired had in any way resulted in benefit of enduring nature;

iv) That M/s BMA had not patented any rights in India either at the time of the agreement or till date and Article 12 had been included only by way of abundant precaution

11. We have given our anxious considerations on the submissions of learned counsel for the parties and have perused the order of the assessing authority, Commissioner of Income-tax (Appeals) and the Tribunal.

12. Assessing authority in its order has referred the nature of the agreement between the assessee and M/s BMA of West Germany, in pursuance of which the payment was made for acquiring technical knowhow, which reads as follows:

"The assessee company entered into an agreement on 11.04.1984 with BMA of West Germany. M/s BMA is specialised in the manufacture of machinery and equipment for the cane sugar industry. The assessee company was interested in acquiring the BMA knowhow on case sugar mills 36" x 72" nominal size, able to accommodate rollers upto 1000 MM outside diameters (hereinafter referred as Mill). As per the said agreement BMA agreed to supply to the assessee company technical knowhow in terms of Article 1 of the said agreement, in the form of workshop drawings, documentation for basic engineering on structural components and individual parts not manufactured by BMA himself, data on necessary special tools and special manufacturing techniques, assemply instructions, arrangement drawing of the mill, foundation and loading plan, operation and maintenance instructions, information on the storage of spare parts etc. In terms of Article 2 of the said agreement, the assessee company was allowed to make use of the technical knowhow to manufacture the mill at its workshops in India, to sell the mill within India without any limitation and also to export the mill countries other than Indonesia, Thailand, Srilanks, Iraq, Iran and Kenya as in these countries BMA had made licencing agreements. In terms of Article 4 of the agreement, the assessee company was entitled to use the knowhow for the purpose of performing this agreement only and keep such documentation confidential even after termination of the agreement. In terms of Article 12 of the agreement, in case the item of manufacture is one which is patented in India, the payments of lumpsum payments made by the assessee company to BMA during the period of agreement shall also constitute full compensation for use of the patent rights till the expiry of life of the patent and the assessee company shall be free to manufacture that item even after the expiry of this agreement without making any additional payments. In terms of Article 13, BMA is ready to train one engineer of the assessee company in general workshop and machinery fabrication and design work for a period of maximum one month in Germany. IN terms of Article 14, BMA is ready to assist the assessee company in manufacturing the mill in assessee's workshop and will delegate upon assessee's request technical personnel as specified in Article 14."

13. Article 16 of the agreement also provides that the duration of the agreement shall be of seven years.

14. Perusal of the agreement thus clearly shows that it was for a period of seven years only for providing technical knowhow of workshop, drawings, , documentation for basic engineering on structural components and individual parts not manufactured by BMA himself, data on necessary special tools and special manufacturing techniques, assembly instructions, arrangement drawing of the mill, foundation and loading plan, operation and maintenance instructions, information on the storage or. spare parts etc. It was for the manufacturing of machinery and equipment for cane sugar industry, and not for the establishment of the factory itself. On these facts, we are of the opinion that the decision of Patna High Court in the case of Tata Robins Frazer Ltd v. CIT (supra) is squarely applicable. In the said case under the second set of the agreement, the foreign companies agreed to give the assessee technical services and technical assistance as well as the benefit of their research in order to enable the assessee to sell and provide in India the specified equipment and services. The foreign companies agreed to supply drawings of project to be undertaken by the assessee for its customers. The agreement was for ten years and royalty was payable for that period. It was also provided that the agreement will continue after the specified period but either party could terminate it by six months' notice in writing. The agreement provided that even after the contract was terminated, the assessee could continue to manufacture and sell the specified equipment and services according to the patents and other technical information which had been communicated to the assessee but the assessee was prohibited from using the trade marks of the foreign companies after the termination of the agreement. The assessee claimed the payment of royalty as revenue expenditure, which was disallowed by the assessing authority and also by the Tribunal. Division Bench of the Patna High Court treated the payment of royalty as revenue expenditure and not capital expenditure. Patna High Court had also considered the decision of the Apex Court in the case of Scientific Engineering House (P.) Ltd. v. CIT, reported in 157 ITR, 86 and distinguished the same as not applicable to the facts of the case.