Dipak Kumar Sen, J.B. N. Elias & Co. (P.) Ltd., the assessee, at the material time carried on the business of manufacture of carpet backing looms, cloth rolling machines and other machines. On September 14, 1964, the assessee entered into an agreement with M/s. Taylor & Challen Ltd., a company incorporated in the United Kingdom. The object of the said agreement was to obtain assistance from the British company to enable the assessee to manufacture in India power press machines economically and efficiently. The relevant terms and conditions of the said agreement were as follows :

" (1) The British company would supply to the assessee for use in India full and actual technical and other confidential information and advice for or in connection with the manufacture of the said machines. In consideration of such know-how, the assessee would pay to the British company a fee in Sterling in respect of each size of machine as specified in the schedule to the said agreement as and when the assessee would intend to manufacture such size or sizes of machines. The know-how would be supplied within two months on receipt of the request in writing from the assessee. Payment would be made in the United Kingdom by a representative of the assessee against one set of documents and materials relating to the know-how in respect of each size of machine. All such documents and materials would be handed over by the British company to the assessee, but the same would remain the property of the British company.

(2) The British company would grant to the assessee-

(i) a sole licence to make and sell the said machines within the manufacturing territories during the continuance of the agreement subject to the condition that during the period of the agreement, the assessee would appoint another company named in the agreement as the sole concessionaire for the sale in the manufacturing territory of the said machines made by the assessee under this agreement on the terms and conditions to be agreed between the assessee and the sole concessionaire;

(ii) a non-exclusive licence to sell the said machines within the selling territory during the continuance of this agreement;

(iii) the expression " manufacturing territory " would mean for the purpose of this agreement the territory of India including Jammu and Kashmir, Goa, Bhutan, Nepal and Sikkim. The expression " selling territory " for the purpose of this agreement would mean a number of countries of South East Asia specified in the agreement.

(3) In consideration of the rights granted to the assessee and the obligations assumed by the British company, the assessee would at all times during the continuance of this agreement pay to the British company in the United Kingdom or at places in the Sterling area as the British company might from time to time direct royalty at the rate of 6 1/2% of the net sale value of each of the machines manufactured by the assessee from time to time in Sterling,

(4) The British company would not during the continuance of this agreement, licence or assist any other person, firm or company to manufacture or sell in the manufacturing territory the said machines except the said sole concessionaire, the representatives in India of the British company.

(5) The rights conferred by the agreement would not be capable of assignment, encumbrance, letting or Sub-licence by the assessee and the assessee would always treat the same and the said know-how, documents and materials as confidential and would ensure that the same would be used solely for the purpose of this agreement and would not be communicated to any person other than the responsible officers and employees of the assessee or Sub-contractors engaged in the manufacture of parts or machines.

(6) The British company would apply to the Registrar for registration of, and user of, its trade marks at its own expense in the territory as might from time to time be decided and after the said trade marks were registered, would appoint the assessee as a registered user under the terms of the user agreement to be entered into by and between the parties. The assessee would be regarded as the registered user of the trade marks in the register of trade marks in India.

(7) Subject to the provisions of the subsequent clauses, the agreement would remain in force for a period of 10 years from the date the first machine manufactured by the assessee would be invoiced to the sole concessionaire, provided that unless either party would give to the other not less than one years previous notice in writing that this agreement would stand terminated on the expiry of the said period of 10 years, the same would continue in force thereafter unless terminated by either party giving to the other not less than one years previous notice in writing or for such lesser period as the assessee might approve.

(8) The agreement might be terminated forthwith by a party not in default giving to the party in default a notice in writing terminating the agreement on the ground of certain events as specified happening.

(9) Up to termination of the agreement after the initial period of 10 years, the assessee would subject to the other terms and conditions as aforesaid be at liberty to use and continue to use the said know-how acquired in pursuance of the agreement for manufacture of the said machines without being liable to make any further payment to the British company."

2. In the assessment year 1967-68, the accounting year ending on September 30, 1966, the assessee in terms of the aforesaid agreement paid a sum of Rs. 56,989 to the British company in respect of the technical know-how and debited the said amount in its accounts. In its assessment to Income Tax in the said assessment year 1967-68, the assessee claimed and was allowed deduction of the said amount by the Income Tax Officer.

3. Subsequently, the Commissioner of Income Tax initiated proceedings u/s 263 of the Income Tax Act, 1961. It was noticed by the Commissioner in the assessment records that against payment of the said amount of Rs. 56,989 to the British company, the assessee had obtained a right to exploit the design and technical know-how of the British company for the manufacture of machine presses for an indefinite period and thereby brought into existence a benefit of an enduring character. It appeared to the Commissioner that the said expenditure was capital in nature and the Income Tax Officer had erred in allowing deduction of the same as a revenue expenditure. The Commissioner came to the tentative conclusion that the said assessment was erroneous and prejudicial to the interests of the Revenue and issued a notice to the assessee to show cause why an order u/s 263 of the Act should not be passed modifying or cancelling the assessment and directing a fresh assessment.

4. It was contended before the Commissioner on behalf of the assessee that the question raised was covered by a decision of the Supreme Court in the case of Commissioner of Income Tax, Bombay Vs. Ciba of India Ltd., . In that case, on a similar agreement for supply of technical and other confidential information, the Supreme Court had held that the amounts spent by the assessee for obtaining such technical and confidential information would be a revenue expenditure. It was submitted further that the documents and materials supplied by the British company to the assessee would continue to belong to the latter ; the rights under the agreement could not be assigned by the assessee and though the period of the agreement was for 10 years, the same was terminable by either party subject to one years notice and in certain circumstances forthwith.

5. It was submitted that the assessee was already carrying on business of manufacturing machines and payment for obtaining the confidential information and know-how had been made in the course of the assessees business. It was submitted that the payment had not been made to set up a new business but to run an existing business more efficiently and profitably. The payment made for the technical know-how was analogous to a payment made for raw materials and the same was allowable as a deduction.

6. It was held by the Commissioner that the right to the technical know-how and designs vested in the assessee during the period of the agreement which was valid for 10 years, a long period, and the contract could be extended even after 10 years unless specifically terminated by either side. It was noted that in Ciba of India Ltd., the payment was made by the assessee to its foreign supplier for know-how periodically on the basis of sales, but under the agreement in the instant case, payment was being made once and for all, bringing into existence an asset of enduring benefit. The Commissioner held further that the assessee was not carrying on the business of manufacturing machine presses and, therefore, it could not be said that the payment was being made to the British company to obtain more profit from the existing business. It was held that the payment had been made to obtain technical know-how and design to start a new line of business in which the production started in 1969. The Commissioner came to the conclusion that the payment of the said Rs. 56,989 was capital in nature and that the Income Tax Officer had erred in allowing deduction of the same. On the above ground as also on other grounds the Commissioner held that the order of assessment was erroneous and prejudicial to the interests of the Revenue, set aside the same and directed the Income Tax Officer to make a fresh assessment in the light of his findings in his order.

7. The assessee, being aggrieved by the decision of the Commissioner, preferred an appeal therefrom to the Income Tax Appellate Tribunal. Before the Tribunal, it was contended on behalf of the assessee, inter alia, that in the facts of this case, the decision of the Supreme Court in Commissioner of Income Tax, Bombay Vs. Ciba of India Ltd., should be applied. It was submitted that in Ciba of India Ltd. payment had been made for obtaining technical know-how before the production started. It was submitted that the assessee in this case was already carrying on manufacture of other types of machines. Under the said agreement, the assessee came to be in a position to manufacture a new product and it was not the case that the assessee was starting a new line of business. No separate unit had been set up by the assessee for the manufacture of power presses. The payment of fee was for receipt of technical know-how which was in the nature of raw material and the expenditure incurred for obtaining the same must be construed accordingly.

8. It was contended on behalf of the Revenue that under the said agreement, the fee in question was payable by the assessee once and for all and, therefore, the expenditure was in the nature of capital expenditure. It was contended further that in Ciba of India Ltd., the assessee was required to pay for the technical know-how on the basis of sales and there was no transfer of the benefits of research once and for all as was the case here. It was contended that in the instant case, the assessee was at liberty to continue to use the know-how supplied even after the initial period of 10 years without any liability to make any further payment.

9. On a consideration of the facts and circumstances of the case, the Tribunal came to the conclusion that the principles laid down by the Supreme Court in Commissioner of Income Tax, Bombay Vs. Ciba of India Ltd., , would apply to the facts of this case. The Tribunal held that merely because a lump-sum was paid for obtaining the know-how, the same would not result in an enduring benefit to the assessee. The lumpsum paid, if otherwise chargeable against the Revenue, would be a business expense. If there was no acquisition of any asset or advantage, the payment of a lump sum to avoid a business expense would not be a capital expense.

10. The Tribunal noted that in the instant case, as in Ciba of India Ltd., there was no transfer of the benefits of research by the British company to the assessee once and for all. The British company remained the owner of all documents and materials supplied on account of knowhow. The agreement further provided that the assessee would continue to use the said know-how after the initial period of 10 years only up to the termination of the said agreement though without further payment. This right was, however, subject to the other conditions of the agreement, viz., that the documents and materials supplied would remain the property of the British company. The Tribunal found further that the payment by the assessee, in any event, would not go beyond the period of the agreement and the character of the payment did not depend upon its periodicity or upon sales. The Tribunal found that the assessee did not acquire a new line of business but it took up the manufacture of new machines in its existing business. The Tribunal came to the conclusion that the payment made by the assessee to the British company constituted a revenue expenditure. The order of the Commissioner on this issue was set aside and the original order of the Income Tax Officer allowing the claim of the assessee for deduction of the said amount of Rs. 56,989 as a revenue expenditure was affirmed.

11. On an application of the Revenue u/s 256(2) of the Income Tax Act, 1961, the Tribunal has, as directed by this court, referred the following question, as a question of law arising out of its order for the opinion of this court:

"Whether, on the facts and in the circumstances of the case, and on a correct interpretation of the agreement dated September 14, 1964, between the assessee and M/s. Taylor & Challen Ltd., the Tribunal misdirected itself in law in holding that the sum of Rs. 56,989 was an allowable revenue expenditure in computing the profits and gains of the assessees business "

12. At the hearing before us, learned advocate for the Revenue drew our attention to the decision of the Supreme Court in Commissioner of Income Tax, Bombay Vs. Ciba of India Ltd., , and highlighted the differences between the facts of the said case and the facts of the case before us. He submitted that in Commissioner of Income Tax, Bombay Vs. Ciba of India Ltd., , the agreement was for a fixed maximum period of five years but could be terminated earlier by three months notice. In the instant case, the agreement was to remain in force initially for 10 years and it could continue even thereafter unless terminated by either party on one years notice. In Commissioner of Income Tax, Bombay Vs. Ciba of India Ltd., , on the expiry of the agreement, the assessee would have no right to use the patent and trade marks and would return to the supplier copies of all information and technical know-how. In the instant case, there was no specific clause for return of the know-how but the agreement laid down that the assessee would be entitled to use the know-how for manufacture of the machines up to the termination of the agreement without being liable to pay anything further to the British company.

13. In Commissioner of Income Tax, Bombay Vs. Ciba of India Ltd., , the assessee would pay to the supplier on account of know-how a percentage of its selling price of the pharmaceutical products sold. In the instant case, the assessee was required to supply a fixed fee by way of a lump sum to the British company in sterling and also royalty on sale of machines at a stipulated rate.

14. Learned advocate for the Revenue submitted that the law has again been laid down by the Supreme Court in a decision subsequent to Commissioner of Income Tax, Bombay Vs. Ciba of India Ltd., , to the effect that the technical knowledge and know-how supplied by way of documents and records should be treated as " plant " in the hands of the recipient and as a capital asset and the latter would be entitled to claim depreciation in respect of the same.

15. In support of his contentions, learned advocate for the Revenue cited the following decisions :

(a) Ram Kumar Pharmaceutical Works Vs. Commissioner of Income Tax, . In this case, the assessee, carrying on business of manufacture and sale of saccharine, entered into an agreement with a German concern for obtaining, inter alia, know-how and data for construction and operation of a plant for manufacture of saccharine by a particular process. The assessee was required to pay a lump sum immediately on the conclusion of the agreement to the foreign supplier and in addition, a royalty of 2 1/2% on the sale value of the manufactured products for the next five years subject to a maximum. In the assessment year involved, the assessee paid an amount of royalty to the foreign supplier and claimed deduction of the same from its income on the ground that it was revenue expenditure. The claim was disallowed and this was affirmed in appeal by the Appellate Assistant Commissioner as also by the Tribunal. The matter ultimately came up before the Allahabad High Court. A Division Bench of the Allahabad High Court distinguished the facts in Commissioner of Income Tax, Bombay Vs. Ciba of India Ltd., from the facts before it. It was found that the foreign concern had parted with the know-how and the data, which had been transferred to the assessee for being used in future without any limit of time. The only restriction was that the assessee could not transfer the same to anyone else and had to keep it a secret. It was found that the assessee obtained an advantage of an enduring nature and the payment for acquisition of the same was capital in nature.

(b) Commissioner of Income Tax, Tamil Nadu-II Vs. Southern Switchgear Ltd., . In this case, the assessee entered into an agreement with a foreign company for obtaining technical aid and information for manufacture of switch-gears with the right to sell the products. The foreign company also agreed to keep the assessee posted with the latest and modern developments in the field of manufacture of the said item and to train the personnel of the assessee at its foreign factory. The assessee agreed to pay to the foreign company on consideration of the aforesaid a lump sum payable in five equal instalments as also further royalty. In the assessment year involved, the assessees claim for deduction of the technical collaboration fees and one-fourth of the royalty paid to the foreign company as a revenue expenditure was disallowed. On appeal, the disallowance was restricted by the Appellate Assistant Commissioner to one-fourth of the technical aid fees and one-fourth of the royalty. On a reference before the Madras High Court, it was held on a consideration of the various clauses of the agreement, that the assessee obtained an enduring advantage under the agreement, with the foreign company the benefit of which could continue to be available to the assessee even after the termination of the agreement. It was found further that the assessee had obtained an exclusive right to manufacture and sell the products. This was an independent right acquired by the assessee which was of an enduring nature. The decision of the Tribunal was upheld.

(c) Scientific Engineering House (P) Ltd. Vs. Commissioner of Income Tax, Andhra Pradesh, . In this case, the assessee which manufactured scientific instruments and apparatus, entered into two separate collaboration agreements with a Hungarian company for manufacture of two different products, namely, theodolites and microscopes. The terms of the agreements were almost identical. Under the agreements, the foreign supplier in consideration of Rs. 80,000 to be paid by the assessee to it in each case, agreed to supply to the assessee all technical know-how required for the manufacture of the said products. The foreign supplier also agreed to render documentation service by supplying to the assessee an up to date and complete set of five types of documents including manufacturing drawings, processing documents, a list containing specifications of raw materials, layouts and know-how, assembly and casting drawings. The foreign supplier also agreed to give training and impart knowledge of the know-how technique of manufacture. The agreements were to remain in force for five years. The assessee paid the stipulated amounts to the foreign supplier in terms of the agreements. The amounts were debited to the assessees account under the head " Library ". In its assessment, the assessee claimed depreciation on " Library " on the ground that the payment had been made to the foreign supplier for outright purchase of designs, drawings and other literature. On these facts, it was held by the Tribunal that the supply of designs and drawings, etc., was only incidental to and in furtherance of other services and did not decide the question whether the documents and records supplied fell within the meaning of the expression " Book ". The Tribunal, however, allowed deduction of Rs. 12,000 as revenue expenditure. On a reference, the High Court held that the service rendered by the foreign supplier by way of documentation was incidental to the other services and the entire amount paid by the assessee to the foreign supplier was a capital expenditure. What was obtained by the assessee from the foreign supplier was a non-depreciable asset and the assessee was not entitled to any relief on account of depreciation. On further appeal, it was held by the Supreme Court that the documents and records, namely, drawings, designs, charts, plans, processing data and other literature issued by the foreign supplier were in the nature of tools by using which the assessee was enabled to carry on its business of manufacturing instruments. For acquiring such technical know-how, a lump sum payment was made. It was found that the assessee had paid a lump sum by way of purchase price for the aforesaid documentation and had thereby obtained a capital asset of technical know-how in the shape of documents and other literature. The said items obtained by the assessee constituted " book " and could be deemed to be "plant" within the meaning of Section 43(3) of the Income Tax Act, 1961. The same, it was held, was a depreciable asset and the assessee would be entitled to claim depreciation on the same.

(d) Commissioner of Income Tax Vs. Polyformalin (P.) Ltd., . In this case, the assessee entered into a collaboration agreement with another concern for production of a new chemical item. The agreement was initially for a period of five years but could be extended further. The collaborating company transferred to the assessee its technical know-how and the right to use its trade mark. The assessee was required to keep the technical know-how secret. Information about further improvements in the technical know-how was also agreed to be transferred to the assessee. In consideration of the transfer of such know-how, the assessee agreed to pay to the collaborating company a royalty at an agreed rate per ton of the new product manufactured. There was a subsequent agreement between the parties where it was made clear that there was no absolute transfer of technical know-how, but the ownership in respect of the same continued with the collaborating company. The assessee was only entitled to use such know-how for a period of five years on payment of the royalty as agreed. In its Income Tax assessment, the assessee claimed deduction of the royalty paid to the collaborating company as revenue expenditure. The claim was disallowed by the Income Tax Officer but was allowed by the Appellate Assistant Commissioner. Thereafter, on further appeal, it was held by the Tribunal that the royalty paid in the first year would be treated as capital expenditure but the royalty to be paid in the subsequent years would be revenue expenditure. The matter came up on a reference before the Kerala High Court, On a consideration of the decision of the Supreme Court in Scientific Engineering House (P) Ltd. Vs. Commissioner of Income Tax, Andhra Pradesh, , it was held by the High Court that the technical know-how acquired by the assessee fell within the definition of " plant " and the expenditure incurred in acquiring the same was capital expenditure. The assessee was, therefore, not entitled to deduction of the royalty paid as revenue expenditure but would be entitled to depreciation and development rebate.

16. Learned advocate for the assessee contended on the other hand that the facts in the instant case were more in conformity with the facts in Ciba of India Ltd. and not with the facts in Scientific Engineering House (P) Ltd. Vs. Commissioner of Income Tax, Andhra Pradesh, . He submitted that the latter case, there was an out and out transfer of the technical know-how and the documents from the foreign supplier to the assessee. The assessee came up before the Supreme Court with a case that its entire expenditure was of a capital nature and claimed depreciation on that basis. In the instant case, the assessee claimed that it had obtained the user of technical know-how for the period limited to the agreement and had not acquired anything from its foreign supplier permanently. Learned advocate for the assessee contended that in Scientific Engineering House P. Ltd.s case [1986] 157 ITR 36, the earlier decision of the Supreme Court in Commissioner of Income Tax, Bombay Vs. Ciba of India Ltd., was neither cited nor considered. The same was neither distinguished nor overruled by the Supreme Court and must still be held to be good law.

17. Learned advocate for the assessee submitted further that whether the period of the agreement was five years or ten years was irrelevant. The question the court was required to consider was whether the assessee had obtained a permanent or an enduring benefit or a benefit for a limited period. In subsequent decisions of this court, the principles laid down by the Supreme Court in Commissioner of Income Tax, Bombay Vs. Ciba of India Ltd., had been extended and in the case of agreements for ten years and more, the principles laid down by the Supreme Court in Commissioner of Income Tax, Bombay Vs. Ciba of India Ltd., had been applied. It was submitted that in the instant case, it has been found as a fact that the assessee did not start a new line of business with foreign know-how. The know-how was utilised only for the purpose of manufacture of a new item of machine. It was submitted further that the assessee was entitled to utilise the foreign know-how only during the currency of the agreement and the property in the said know-how remained with the foreign supplier. The fact that in the instant case, the assessee made an initial payment of a lump sum and also agreed to pay royalty on the sales made no difference to the position. It was to be considered what benefit the assessee was obtaining as a result of the aforesaid payments.

18. In support of his contentions, learned advocate for the assessee cited the following decisions :

(a) Commissioner of Income Tax (Central) Vs. Hindusthan General Electrical Corporation Ltd., , In this case, the assessee under an agreement with a foreign company obtained certain rights to manufacture and sell in India products of designs and trade names belonging to the foreign company. The agreement provided that the assessee would pay to the foreign company costs of preparing and providing prints, designs, drawings, specifications, instructions and other information and for supply of patterns and tools. The assessee further agreed to pay to the foreign company a royalty on the products manufactured by the assessee during the continuance of the agreement at specified rates. The agreement was for a period of ten years but could be determined at any time by notice in writing on certain contingencies. The assessee was also required not to assign, lease out, deal with or otherwise transfer or seek to transfer the benefits of the trade mark and the know-how and to keep the same secret and confidential. On these facts, a Division Bench of this court held that the principles laid down by the Supreme Court in Commissioner of Income Tax, Bombay Vs. Ciba of India Ltd., applied to the facts. It was held that the payments which were required to be made by the assessee under the agreement were linked with the manufacturing activities of the assessee and not with the capital value of the assets that the assessee would acquire. The foreign suppliers were merely supplying the technical information to enable the assessee to carry on its business in terms of the agreement. The payment by the assessee to the foreign supplier on account of costs of know-how and royalty were held to be expenditure of a revenue nature and it was held that the same should be allowed as a deduction in computing its business profits.

(b) Commissioner of Income Tax Vs. Associated Electrical Industries (India) Private Ltd., . In this case, the assessee entered into an agreement with another company, the subsidiary of a foreign company, under which the latter, which had the right to obtain technical and manufacturing information, designs and data from the foreign company, agreed to supply the same to the assessee and the assessee agreed to manufacture and supply the products only to the agent company.

19. The terms of the agreement were, inter alia, that the manufacturing information supplied should he kept confidential and that the assessee would reimburse the agent company costs incurred in supplying such information, design and data. The agreement would remain in force for 10 years and thereafter either of the parties might terminate the agreement by giving to the other notice of not less than 24 months in writing.

20. In the assessment year involved, the assessee obtained certain designs from the agent company on payment of Rs. 22,039 on account of costs. In the books, the amount was appropriated equally for a period of 5 years and only a sum of Rs. 4,408 was debited in the year in question. In its assessment, the assessee claimed deduction of the said amount. The Income Tax Officer held that the information and knowledge obtained was of an enduring nature and, therefore, the expenditure was capital in nature and not allowable as a deduction. On appeal, it was held by the Tribunal that the expenditure was of a revenue nature and that the assessee was entitled to deduction of the same. On a reference, a Division Bench of this court upheld the decision of the Tribunal by following the decision of the Supreme Court in Commissioner of Income Tax, Bombay Vs. Ciba of India Ltd., and of this court in Commissioner of Income Tax (Central) Vs. Hindusthan General Electrical Corporation Ltd., . It was held that the expenditure was in the nature of revenue expenditure and allowable. This court noted that the period of agreement was for a fairly long period, viz., 10 years certain, and thereafter terminable on notice. It was held that the period was fixed by the agreement and the assessee merely had the use of the licence for a limited period of time for certain limited purpose. It was noted that under the agreement, no new machinery was acquired or installed and it was held that the assessee did not obtain any asset or right of an enduring nature but only obtained something necessary in its profit-earning process.

(c) Commissioner of Income Tax Vs. Indian Oxygen Ltd., . In this case also, the assessee entered into an agreement with a foreign company, of which it was a subsidiary, for obtaining processes, information inventions and the rights of the foreign company to be utilised by the assessee free of charge. The assessee agreed to pay to the foreign company 2.5% of the total expenditure incurred by the foreign company in running its scientific establishment for the purpose of acquiring processes, information inventions and rights. Deduction of the amount paid under this agreement was claimed as a business expenditure. On a reference, it was held by this court that the foreign company did not sell any information or processes or inventions to the assessee and the assessee was not entitled to use them after the termination of the agreement. It was for a period of 10 years certain, though it could be terminated earlier on certain contingencies. It was found that the assessee was prohibited from disclosing the information, processes and inventions during the currency of the agreement and also thereafter. On a construction of this agreement and following the decision of the Supreme Court in Commissioner of Income Tax, Bombay Vs. Ciba of India Ltd., , it was held that the assessee did not incur the expenditure for the purpose of bringing into existence an asset or advantage of enduring nature and, therefore, the expenditure was revenue expenditure.

(d) Shriram Refrigeration Industries Ltd. Vs. Commissioner of Income Tax, Delhi-I, . In this case, the assessee, a manufacturer of compressors, air-conditioners and refrigerators, entered into a technical assistance agreement for the manufacture of sealed units with an American company. The agreement was initially for a period of 10 years but was to continue unless terminated at the end of 10 years or at the end of any succeeding five-year period. Under the agreement, the foreign company granted to the assessee an exclusive licence for the manufacture of certain specified apparatus and material covered by foreign patents with the help of information furnished by the foreign company and also a licence to sell the apparatus and material manufactured throughout the world excepting U.S.A. and Canada. The licence granted was non-transferable and non-assignable and without any right to grant Sub-licence. Under the agreement, the foreign supplier was required to supply to the assessee, engineering and manufacturing information in current use for manufacture of the items concerned including calculations, designs, data, drawings, processes and specifications. The foreign company was also required to supply information relating to the designs and specifications in respect of manufacturing equipments, tools, fixtures, etc. The assessee was required to sell the manufactured products as licensed by the foreign company. In terms of the agreement, the assessee paid Rs. 2,39,084 to the foreign company in three instalments between 1962 and 1964. The question was whether deduction of the said amount paid was allowable as a revenue expenditure. On these facts, the Tribunal held that the said amount spent was a capital expenditure as the payment was not recurrent or dependent upon the sales. It was noted that the licence, was for a period of 10 years renewable for a further period of 5 years and was an exclusive licence. The object of the agreement was to obtain the benefit of technical assistance and not merely running the business.

21. On a reference, it was held by a Division Bench of the Delhi High Court that the payment of the said amount was in the nature of revenue expenditure. The whole object of the agreement was to obtain the benefit of technical assistance for running the business and restricting the licence for a limited use of patent rights. It was found that the foreign company had not parted with technical knowledge absolutely in favour of the assessee and had not sold their secret processes to the assessee. It was held that the period of the agreement was not of much significance. It was further held that as the assessee had not acquired absolutely any knowledge or other asset, whether the payment was in a lump sum or periodical would make no difference to the question.

22. On a consideration of the facts and circumstances, the respective submissions of the parties and the decisions cited, it appears to us that the facts in the instant case are more or less similar to the facts before the Supreme Court in Commissioner of Income Tax, Bombay Vs. Ciba of India Ltd., , the facts before this court in Commissioner of Income Tax Vs. Associated Electrical Industries (India) Private Ltd., and the facts before the Delhi High Court in Shriram Refrigeration Industries Ltd. Vs. Commissioner of Income Tax, Delhi-I, . The facts before the Supreme Court in Scientific Engineering House P. Ltd. [1986] 157 ITR 36 can be distinguished from the facts before us. In that case, the assessee, it appears, treated the documents containing the technical know-how received from the foreign company as its own property and as its own capital asset and claimed depreciation. The assessee came out with the case of an outright purchase of the aforesaid documents. The only question before the Supreme Court was whether the items purchased by the assessee under the agreement with the foreign company constituted depreciable capital assets. The Supreme Court was not concerned with the questions whether the transaction resulted in acquisition of a capital asset by the assessee or whether the assessee obtained a limited benefit. Whether the costs of obtaining the know-how amounted to capital expenditure or revenue expenditure was not considered. The earlier decision of the Supreme Court in Commissioner of Income Tax, Bombay Vs. Ciba of India Ltd., was neither cited nor considered. In the instant case, the assessee has obtained the user of the technical know-how not for all times to come but during the continuance of the agreement. The agreement is for a certain period of 10 years and thereafter might be terminated by the parties subject to the condition that on certain contingencies, the agreement can be terminated forthwith. It has been found as a fact by the Tribunal that under the agreement, the assessee had not acquired or started a new line of business. The assessee was already manufacturing machines and, under the agreement, would utilise its existing business unit for the purpose of manufacturing new items.

23. Under the agreement, there is no out and out transfer of the foreign know-how to the assessee and the know-how supplied by the foreign company remains the property of the foreign company for all times to come. The assessee has only user of the know-how during the currency of the said agreement.

24. The distinction sought to be made that in Commissioner of Income Tax, Bombay Vs. Ciba of India Ltd., , the payment by the assessee was periodic and on account of royalty and in the instant case, the payment is in a lump sum is of little consequence. As laid down by the decisions noted earlier, what is required to be decided is, whether the assessee by a payment, whether in a lump sum or periodical, was obtaining any enduring benefit or advantage or a permanent asset or not. If what the assessee obtained is not an enduring benefit or a permanent asset, the nature of payment would not be of much consequence. In the instant case, apart from the payment of the initial fees, the assessee is also required to pay a periodic payment on account of royalty.

25. For the above reasons, we hold that in the instant case, the assessee has not paid the said amount of Rs. 56,989 for obtaining a permanent asset or a benefit or advantage of an enduring nature but has obtained a limited use of technical know-how for a limited period. For the above reasons, we see no reason to interfere with the order of the Tribunal and we answer the question in the negative and in favour of the assessee.

26. In the facts and circumstances, there will be no order as to costs.

Monjula Bose, J.

27. I agree.