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"Whether, on the facts and in the circumstances of the case, the expenditure in question has been rightly allowed as revenue expenditure ?"

11. Mr. Joshi appearing on behalf of the revenue has contended that the payments made to M/s. Daimler Benz and M/s. Henricot, if properly understood in the light of the terms of the relevant agreements, would be clearly in the nature of capital expenditure and our attention was particularly invited to certain terms of the agreement with M/s. Daimler Benz and the preamble thereof. It is contended that the agreement of M/s. Daimler Benz showed that Telco had to establish the manufacture in India of Daimler Benz motor trucks and that an automotive division was agreed to be set up at the Telco works at Tatanager. Thus, according to Mr. Joshi, the payments made must be related to the initial setting up of the business of manufacturing of Daimler Benz Motor trucks, since the advice to be given by M/s. Daimler Benz and the technical assistance was in respect of setting up such business. Reliance was also placed on clause (3) of the agreement, which has referred to the fact that along with drawings and designs and full technical information to be made available by M/s. Daimler Benz "Daimler Benz will grant to Telco on an exclusive basis for India the manufacturing rights together with patents, patent rights, secret and other processes relating to manufacturing programmes for the time being in force under this agreement."

15. In respect of both these companies it is stated by Mr. Moolgaonkar that no patent or patent rights or licences have been transferred or assigned to Telco by either M/s. Henricot or M/s. Daimler Benz. With regard to the services rendered by M/s. Daimler Benz, it is stated in the affidavit that M/s. Daimler Benz have not given any technical advice, information or assistance to Telco concerning the layout of the factory and buildings, extensions, etc., for the automotive division and the entire work of designing and erection of the various factory buildings, etc., and the lay out of the automotive division were carried out by Telco's own personnel. It is then stated that the plant and machinery required for the automotive division were and are supplied to Telco by M/s. Daimler Benz on f.o.b. basis, as between principal and principal, i.e., buyer and seller, and those assets are separately paid for, and no part of the consideration payable under the agreement is attributable to this service. It is further stated that jigs, tools and fixtures as well as parts and components required by Telco for the manufacture of automotive products were and are supplied to Telco by M/s. Daimler Benz on f.o.b. basis as between principal and principal, i.e., buyer and seller, and these goods are separately paid for. No part of the consideration payable under the agreement is attributable to to this service. Mr. Moolgaonkar further states, "M/s. Daimler Benz have not transferred or assigned or imparted any technical know-how or secret or other processes to Telco. The manufacturing techniques and processes used by Telco are normally those adopted by automobile or engineering concerns of repute and there is, therefore, no special know-how or secret or other processes involved in the processes used by Telco." It is further stated :

"Drawing and designs and technical information supplied to Telco are also those that could normally be supplied by any automobile or engineering concern of repute, and technical personnel put at the disposal of Telco are employed by Telco under contract of service for specific period and remunerated by Telco for their services as full-time employees of Telco."

16. The ITO has questioned Mr. Moolgaonkar in detail further about the nature of the services rendered by M/s. Daimler Benz, and particularly question No. 9 was directed to find out what were the services for which payments were made to M/s. Daimler Benz. We have already referred to the statements of Mr. Moolgaonkar in the affidavit, where he has positively stated that the payments made to M/s. Daimler Benz were not in respect of any advice regarding the layout of the factory buildings or for purchase of plant and machinery from M/s. Daimler Benz. These services were grouped in group "A" and group "B" in note No. 1 which is a part of the statement. Group "A" refers to services which were to be performed but not performed by M/s. Daimler Benz. Group "B" refers to services for which full payment has been made separately by Telco. Then under group "C" the following services have been stated :

19. From the statement of Mr. Moolgaonkar, it appears that Telco tried to take assistance from General Steel Castings, a company in U.S.A. but "due to devaluation, etc.", they could not proceed further as the costs became prohibitive.

20. We are in this case not called upon to construe in abstract the recitals in an agreement of foreign collaboration, but we have positive evidence in this case with regard to the services availed of by Telco. It is in the light of the statements made in the affidavit and before the ITO that we have to correctly ascertain the nature of the benefit which was derived by Telco as a result of the agreements in question. If the statements made by Mr. Moolgaonkar are considered in their proper perspective, it is obvious that, according to him, the payments made to M/s. Daimler Benz were in essence for permission to use name and trade mark of M/s. Daimler Benz during the currency of the agreements and making provision for training facilities. When Telco started producing trucks and they entered into agreement with M/s. Daimler Benz they obtained a licence to use the name of M/s. Daimler Benz for the trucks which were manufactured by Telco. The substantial benefit under the agreement with M/s. Daimler Benz was that M/s. Daimler Benz permitted their trade mark to be used during the currency of the agreement and facilities were given for training personnel belonging to Telco. Obtaining information relating to the technical know-how and having well trained personnel necessary for the manufacture of trucks was essential if trucks of good quality had to be produced and no company would allow its name to be lent to a product of another company, unless it is satisfied that the product which is sold under the name of such company, was of the required quality. Telco would also be interested in producing trucks of good quality which could be sold by the trade name of M/s. Daimler Benz and it, therefore, appears to us that Mr. Moolgaonkar was right when he stated before the ITO that the payment made under the agreement with M/s. Daimler Benz in effect was payment made for the use of the use of the name and trade mark of M/s. Daimler Benz and making provision for training facilities. The period of the agreement was to run out after 15 years. Telco was, however, not going to stop manufacturing after that and if production of quality trucks was to continue, Telco was bound to see that its own personnel were properly trained with the know-how and possessed all the technical information necessary for the manufacture of a quality product. 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 a 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.