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Documents citing Praga Tools Ltd. vs Commissioner Of Income-Tax on 19 November, 1979

Maruti Suzuki India Ltd., New Delhi vs Addl. Cit, New Delhi on 17 October, 2018

(HC) • Praga Tools Ltd. v. CIT: 123 ITR 733 (AP) • ACIT v. Shama Engine Valves Ltd.: 138 ITR 216 (Del) • CIT v. J.K Synthetics : 309 ITR 371 (Del) • CIT v. B. N Elias & Co. Ltd.: 168 ITR 190 (Guj) • CIT v. Avery India Ltd.: 207 ITR 813 (Cal) • SRP Tools Ltd. v. CIT: 237 ITR 684 (Mad) • Mysore Kirloskar Ltd. : 114 ITR 443 The assessing officer further stated that the assessee obtained an exclusive license to manufacture the products and parts in India in as much as the licensor (SMC) agreed not to manufacture similar products in India nor to provide the technology to any other party. In this regard, the Ld. AR submitted that the exclusive license by itself would not, it is respectfully submitted, render the expenditure by way of royalty as capital in nature on the ground 117 ITA No. 467/Del/2014 that same has resulted in enduring benefit. As elaborately discussed earlier, the exclusive license seeks to protect the profitability/market of the assessee from/for manufacturing and selling the vehicles/cars in India, during the currency of the agreement, by eliminating competition from any other manufacturer(s), who may seek to manufacture similar vehicles in India. The exclusive license, thus, merely enables the existing business of manufacture to be carried on more efficiently and profitably, without any addition to the profit earning or capital apparatus. The enduring benefit, if any, is thus, on revenue account. The observation of the assessing officer that the license Agreement led to the assessee setting up a new factory based on new technology is factually incorrect. In this regard, it is pertinent to note that no new plant/ factory was set up by the assessee on the basis of the agreement entered into for use of technical knowledge/ information. The assessing officer failed to appreciate that the assessee is engaged in the business of manufacture of automobiles since 1982. The assessee is not making payment in the initial year of setting up of the factory, which is operative and running at the time of entering into the subject Agreement. Various models of the cars introduced by the assessee from time to time are nothing but part of the existing business of the assessee. Therefore, the mere fact that new models/ variants of cars are introduced by the assessee based on the license agreement does not mean that an altogether new product was manufactured. That apart, even if various variants of car are treated as different/ new products, still, having regard to the fact that the same were part of the very same business of the assessee of manufacturing of cars, no new business was set up so as to regard the payment of royalty as resulting in an enduring benefit to the assessee.
Income Tax Appellate Tribunal - Delhi Cites 243 - Cited by 39 - Full Document

Dy. Cit vs Swaraj Engine Ltd. on 3 December, 2001

In the case of Praga Tools Ltd. v. CIT (supra), their Lordships held, reversing the decision of the Tribunal, that the expenditure incurred had a direct nexus or relation to the carrying on or conduct of the business of the assessee and, therefore, it had to be treated as an integral part of the profit making process. The very object of payment of royalty based upon the production and sales of the products manufactured by the assessee, was to obtain manufacturing licence and technical know-how including drawings, designs, specifications and other technical information to enable the assessee to make and sell the products indicated in the agreements. Merely because the agreements provided that the assessee shall be entitled to retain technical know-how, designs drawings, etc., even after expiry of the agreements, it did not alter the nature of the transaction. There was no property right transferable in the technical know-how. The fact that the assessee was not entitled to use the trademark of J.S. for the products after expiry of the agreement period, clinched the issue. The expenditure incurred by the assessee for the purpose of payment of royalty to the collaborators was revenue in nature and held deductible.
Income Tax Appellate Tribunal - Chandigarh Cites 15 - Cited by 2 - Full Document

Smartchem Technologies Ltd. vs Income Tax Officer on 28 July, 2005

25.1 Our aforesaid finding, finds support from the decision of Hon'ble Andhra Pradesh High Court (Full Bench) in the case of Praga Tools Ltd. v. CIT (supra), where procuring of know-how rights for a period of 10 years with a condition of renewal for another period of 5 years and having right to keep the drawings, etc. after expiry of the term by the assessee, was held to be as not having procured the benefits of enduring nature.
Income Tax Appellate Tribunal - Ahmedabad Cites 85 - Cited by 10 - Full Document

Commissioner Of Income-Tax, Andhra ... vs Oblum Electrical Industries (P.) Ltd. on 27 February, 1980

5. Having regard to all these circumstances and applying the principles laid down by the decision of the Full Bench of this court in Praga Tools Ltd. v. CIT [1980] 123 ITR 773 and the Supreme Court in Ciba's case [1968] 69 ITR 692, we have no hesitation in coming to the conclusion arrived at by the Tribunal that the expenditure incurred by the way of payment of royalty is of a revenue nature. We, accordingly, answer the question referred to us in favour of the assessee. Advocate's fee Rs. 250.
Andhra HC (Pre-Telangana) Cites 1 - Cited by 9 - Full Document

Faurecia Emission Control ... vs Dcit Corporate Circle 2(1), Chennai on 23 April, 2019

not part with any assets of its business or advantage of an enduring nature for the purpose of business. The decision in Praga Tools Ltd. vs. CIT--is also to the same effect. All the above three cases dealt with a mere know-how agreement under which the Indian company acquired only technical knowledge from the foreign company and did not acquire any other right or advantage of an enduring nature for the purpose of its business, unlike the facts in this case. Here, in addition to the acquisition of technical knowledge, the assessee-company got an exclusive right to manufacture and sell its articles without any objection from anyone including the foreign company and this is clearly an advantage of enduring nature.
Income Tax Appellate Tribunal - Chennai Cites 13 - Cited by 0 - Full Document

Commissioner Of Income Tax vs Aquapump Industries on 14 July, 1995

The same point was also emphasised in Praga Tools Ltd. vs. CIT (supra). There, the assessee, a manufacturer of precision and machinery tools, entered into a licence agreement with a foreign company in the U. K. for the manufacture of certain tool and cutter grinding machine for which the said company was to supply the accessories, designs, technical know-how, etc. The agreement therein was also for a period of ten years and renewable thereafter for five years by mutual consent. During the subsistence of the agreement, the assessee therein had to pay royalty at five per cent on the Indian selling price on the production of the machine. In that context, the Full Bench of the Andhra Pradesh High Court held that the expenditure incurred in paying the abovesaid royalties had a direct nexus to the carrying on of the business of the assessee and, therefore, it had to be treated as part of the profit-making process. So, the Court held that it was a revenue expenditure.
Madras High Court Cites 13 - Cited by 7 - Full Document

Commissioner Of Income-Tax vs Avery India Ltd. on 8 April, 1993

8. Before us, the parties reiterated the contentions canvassed before the Tribunal. Learned counsel for the assessee emphasised that the assessee engaged in the business of manufacturing weighing machines and weigh bridges in India entered into a collaboration agreement with the American company. The purpose was to update the assessee's technology. Under the agreement the assessee acquired the right to use the technical know-how. The right so acquired does not go to alter the nature of the transaction being in the revenue field. Reliance was placed on the decision of the Andhra Pradesh High Court in Praga Tools Ltd. v. CIT [1980] 123 ITR 773 [FB]. The facts in the said case were that the assessee carrying on the business of manufacturing precision tools and machine tools entered into a licence agreement with a U. K. company which was to supply the accessories, designs, technical know-how with latest modifications and to provide assistance. U. K. company agreed to assist the assessee in its existing business of manufacture of weigh bridge machines and all the fixtures, jigs, gauges, raw materials and special parts. In consideration of grant of manufacturing know-how and for providing assistance, the assessee agreed to pay an initial amount. The agreement was for ten years and renewal for five years by mutual consent. During the subsistence of the agreement, the assessee had to pay royalty at five per cent. on the Indian selling price on the production of the machine, subject to Indian taxes. The rights of the assessee to use all the information, techniques and know-how, patents, copyrights and drawings received from the foreign company were not to be affected by the termination of the agreement. The only restriction was that the assessee in that case could not use the trademark of the foreign collaborator. The assessee claimed the royalty payment to the foreign collaborator as revenue expenditure deductible from the profits. But the Andhra Pradesh High Court held that the expenditure incurred had a direct nexus or relation to the carrying on or the conduct of the business of the assessee and, therefore, it had to be treated as an integral part of the profit-making process. The payment made in order to obtain the manufacturing licence and technical know-how including drawings, specifications and other technical information enabled the assessee to manufacture and sell the products. Merely because the agreement conferred on the assessee the right to retain technical know-how, designs, drawings even after expiry of the agreement it did not change the nature of the transaction. There was no property right transferable in the technical know-how. The prohibition against the use of the trademark of the foreign collaborator clinched the issue in favour of the assessee. The totality and cumulative effect of the material facts and surrounding circumstances were taken into consideration by the High Court to arrive at the decision as to what the nature of the transaction was. Viewed in the larger context of the business, each factor or circumstance by itself may not be decisive.
Calcutta High Court Cites 14 - Cited by 15 - Full Document

Commissioner Of Income-Tax vs Warner Hindusthan Ltd. on 24 August, 1984

The Full Bench of this court in Praga Tools Ltd. v. CIT [1980] 123 ITR 773 as well as of the Karnataka High Court in Mysore Kirloskar Ltd. v. CIT [1978] 114 ITR 443 [FB], of the Bombay High Court in Cooper Engineering Ltd. v. CIT [1982] 135 ITR 597 and of the Delhi High Court in Shriram Refrigeration Industries Ltd. v. CIT [1981] 127 ITR 746 had applied the ratio of Ciba's case [1968] 69 ITR 692, having regard to the facts in the cases before them. In this case, as pointed out earlier, the Tribunal has noticed the similarities which are not alone conclusive for applying the ratio in this case.
Andhra HC (Pre-Telangana) Cites 36 - Cited by 30 - Full Document

M/S Contitech India Pvt. Ltd., New Delhi vs Acit, New Delhi on 22 June, 2021

Vs. CIT, 177 ITR 377 (SC); and the decision of the Hon'ble Andhra Pradesh High Court in the case of Praga Tools Ltd. Vs. CIT, 123 ITR 773 (AP). The payment is not for acquiring any asset of enduring nature nor any asset has been acquired by the assessee by making this payment. It had only transferred the right and exclusive license to use the know-how to sell product in India and outside India except European countries. That, in our opinion, cannot be a ground for holding that it was an expenditure on capital account.
Income Tax Appellate Tribunal - Delhi Cites 9 - Cited by 0 - Full Document
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