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37. We now come to a very important decision which is the principal foundation on which the assessee's case before us is based. That is the decision of this High Court in CIT v. Tata Engineering & Locomotive Co. Pvt. Ltd. [1980] 123 ITR 538. In our opinion, a detailed reference to the facts on which the said decision has been given would be necessary.

38. In TELCO's case [1980] 123 ITR 538 (Bom), the court was considering two collaboration agreements, one with Messrs Daimler Benz and the other with Messrs Henricot, and the nature of payments to be made by the assessee to the collaborators thereunder. It is pertinent to note that the assessee company was upto that time manufacturing locomotives only. The agreement with Messrs. Daimler Benz was arrived at in order to enable the assessee to establish a factory for the manufacture in India of Daimler Benz trucks and other automotive products. The agreement with Messrs Henricot was to enable TELCO to secure competent technical assistance in Europe to bring the Telco Steel foundry when completed into full and efficient operation as early as possible and to design and manufacture therein on an economical and efficient basis the maximum possible tonnage of sound steel casings of all sizes, shapes and specifications, including particularly heavy and complicated casings for the steam locomotives building industry. The latter agreement was thus in connection with the product already being manufactured, whereas the first agreement with Messrs Daimler Benz was for a totally new product, as a new factory was to be established. It is the first agreement, therefore, with which we are particularly concerned

39. It would appear from a perusal of the said decision that the services which were to be rendered by Messrs Daimler Benz under the collaboration agreement and the payments to be made to the foreign collaborators were summarised in an affidavit filed by the Director-in-charge before the Income-tax Officer. The duration of the agreement with Messrs Daimler Benz was 15 years and the said agreement enabled Telco to continue to use the technical information and the experience acquired by it under the agreement even after the agreement had come to an end on the expiry of the fixed period. It was submitted on behalf of the Revenue that since the benefit of the technical know-how made available by Messrs Daimler Benz could be utilised by the assessee even after the period of agreement was over, and since the know-how and technical knowledge could be drawn upon for a long period of 15 years, Telco must be deemed to have acquired a capital asset. Accordingly, it was claimed by the Revenue that the expenditure incurred in the form of payment to Messrs Daimler Benz must be regarded as being capital in nature.

40. It may be mentioned that in the affidavit of the director it had been stated that no patent or patent rights or licences had been transferred or assigned to Telco by either Messrs Henricot or Messrs Daimler Benz. It was further stated in the affidavit that Messrs Daimler Benz had not given any technical advice, information or assistance to Telco concerning the layout of the factory and buildings, extensions, etc., for the automotive division. It was further stated that the plant and machinery required for the automotive division had been supplied to Telco by Messrs Daimler Benz, but these assets had been separately paid for as also jigs, tools and fixtures as well as parts and components required by Telco for the manufacture of automotive products. We may pause here and point out that even under the two technical collaboration agreements between the die company and the assessee it has been found that no payment is envisaged for the obligation undertaken in Part II of the same. We have also noted that separate consideration was provided under a separate agreement for reconditioned machinery to be supplied by the die company to the assessee. The technical collaboration agreement in Telco's case [1980] 123 ITR 538 (Bom) provided that after the stipulated term of 15 years was over, Telco would not use the trade name of Messrs Daimler Benz. The Division Bench observed (at page 549) :

"..... If the transaction embodied in the agreement is looked at commercially, it looks to us as nothing more than obtaining the services of a consultancy so far as the supply of know-how is concerned, and in the nature of a licence to use the trade name so far as permission to use the trade name of M/s. Daimler Benz was concerned. The payment was not, therefore, for acquisition of any capital asset. Though the production of trucks was to be continued by Telco even after the expiry of agreement, the use of the trade mark of M/s. Daimler Benz could not be used by Telco as the licence to use the name had come to an end. So far as the payments made under the agreement were concerned, they were to be made partly in the nature of royalty and partly in the nature of share in the profit but they were only intended to secure the use of the trade name and acquire necessary know-how. Technical know-how can in no sense of the term be called a tangible asset. Mr. Moolgaonkar has clearly stated that in this case no patent rights were granted. It is not as if know-how in technical production remains stagnant and remains the same. In the present day conditions of technological and scientific development, all technical know-how changes from time to time and with it the production methods also change. In our view, acquiring technical know-how and technical advice, for the time being, cannot in these days of technological and scientific development and consequent change in production techniques, be treated as a capital asset."