Ranganathan, J.

1. The assessee is the applicant in this matter under the I.T. Act, 1961, which is a consolidated reference relating to the assessment years 1966-67 and 1967-68. The assessee, Shriram Refrigeration Industries Ltd., is a public limited company carrying on business in the manufacture of sealed compressors for air-conditioners and refrigerators. The assessment years concerned are, as already stated, 1966-67 and 1967- 68, for which the corresponding previous years are the years which ended on 30th September, 1965, and 30th September, 1966. At the outset, it must be mentioned that the business of the assessee-company was set up only in the accounting period relevant to the assessment year 1966-67. The Income-tax Appellate Tribunal has clearly found that it was clear from the evidence produced that the commercial production started only in October, 1964, and that the business was set up only in the accounting period which ended on 30th September, 1965.

2. On 26th June, 1961, a technical assistance agreement for sealed units was entered into between Westinghouse Electric International Company and India Refrigeration Industries Ltd., which was apparently the previous name of the assessee-company. The collaborator (hereinafter referred to as " the Westinghouse ") was a division of Westinghouse Electric Corporation incorporated under the laws of the Commonwealth of Pennsylvania, in the United States of America. The said Corporation and a number of its subsidiary companies are referred to in the agreement as "associated companies". Westinghouse, the technical adviser, was in charge of administering all patents and patent rights belonging to the associated companies in countries outside the U.S.A. and was authorised to grant licences under such patents and patent rights and also to furnish technical, manufacturing and other information of the associated companies. The above agreement which became effective from 21st May, 1962, was prompted by the desire of the assessee, to obtain patent rights, rights under technical manufacturing and other information and services necessary to enable it to manufacture, use and sell certain types of electrical and other apparatus and material manufactured by the associated companies in the U.S.A. Westing-house was willing to license the assessee under patents and patent rights and technical information administered by it.

3. Article I of the agreement provided that the term of the agreement, and of any and all licences and rights granted and obligations assumed thereunder, was to be for a period of ten years from the effective date but was to continue, unless terminated, as provided for in the agreement. Under art. I, either party could terminate the agreement at the end of the said ten-year period or at the end of any succeeding five-year period, upon written notice to the other given in the prescribed manner and arts. XIII and XIV provided for the termination of the agreement in certain eventualities.

4. Article II, which is important is captioned "licences". Under this article Westinghouse granted to the assessee, (a) an exclusive licence to manufacture in India the apparatus and material described in Ex. A attached to the agreement, and (b) a non-exclusive licence to use and sell, in all countries of the world except the United States and Canada, apparatus and material so manufactured by the assessee under the licences granted under this article. The licences were to manufacture apparatus and material covered by patents and patent rights administered by Westinghouse with the help of the information furnished from time to time by Westinghouse to the assessee. The licences, however, did not include any right to manufacture in the U.S.A. or Canada, or to use in, sell in or sell for export, to those countries, the apparatus and material manufactured under the agreement. The licences were I also not to cover the apparatus and material described in Ex. B attached to the agreement even though used in the production of or as a part of apparatus and material described in Ex. A. Westinghouse on its own behalf and on behalf of the associated companies reserved the right to import into and to use and sell in all countries in respect of which licences were granted to the assessee and also reserved the right to grant non-exclusive licences to other companies, firms and persons to import into and to use and sell in such countries. The article further made it clear that the licences granted "shall be non-divisible, non-transferable, non-assignable" (subject to one exception and without the right to grant sub-licences except with the written consent of Westinghouse. With respect to the sale, transfer or consignment of parts the licences were limited to the sale, transfer or consignment of such parts as were used as spares or replacements in connection with the complete apparatus. The article further provided that if at any time the assessee discontinued the manufacture of any particular type or types of licensed material or failed to manufacture the same in reasonable commercial quantities, Westinghouse could, at its discretion, after written notice to the assessee, convert the exclusive licence with respect to such type or types of material into a non-exclusive licence.

5. Article III describes the technical and manufacturing information which Westinghouse was to provide. It states that Westinghouse, in so far as it has the right, shall communicate in duplicate to the assessee upon request the kinds of information set out in the article in relation to licensed material as shall from time to time be in current use by any of the associated companies in the manufacture of licensed material which may be of use to the assessee in its licensed operations. The information to be furnished consisted of any or all of the following :

(a) calculation and design sheets

(b) basic design data including design manuals where available

(c) drawings

(d) process specifications

(e) material specifications

(f) performance specifications

(g) test data

(h) apparatus instruction books

and similar data generally known as engineering and manufacturing information.

6. Westinghouse at its option could also supply information relating to designs and specifications relating to manufacturing equipment, tools, dies, jigs and fixtures to the extent available in the records of the associated companies and communicated by them to their own manufacturing plants and to the extent they were applicable to the operations of the assessee together with reasonable written technical assistance with respect to the use of information in the manufacture of licensed material. Westinghouse could also, at its discretion, undertake engineering development with respect to licensed material at the request of the assessee and provide special or additional information to the assessee resulting therefrom. Engineering development assistance included the furnishing of the services of technical experts to the extent possible to be spared by Westinghouse from the works of itself or its associated companies. The assessee could also depute a reasonable number of visiting representatives at its expense to visit such plants of the associated companies as may be designated by Westinghouse for reasonable periods. One of the important provisions of article III was :

"The licensee shall not communicate, cede, grant, dispose of or give, and shall take reasonable precautions to prevent the communication, ceding, granting disposal or giving of, any information (other than such information as shall have become generally known in the industry) to any third party in any way whatsoever, without the prior written consent of the technical adviser. This obligation shall survive any termination of this agreement."

7. Article IV entitled the assessee to require Westinghouse to give two months training to two trainees in the techniques and operations relating to the manufacture of licensed material. Additional training could be provided on payment.

8. Article V made it clear that the agreement should not be considered as granting any privilege to the assessee to use in any manner whatsoever the Westinghouse trade mark or any other trade marks belonging to or registered in the name of Westinghouse or the associated companies. All these trade marks were admitted to be the property of the associated companies. The agreement only permitted the assessee to use the term "Licensed by Westinghouse" or its equivalent in connection with the manufacture, use and sale of licensed material in the manner and to the extent from time to time authorised, approved and directed in writing by Westinghouse and even this liberty was to cease on the termination of the agreement.

9. Article VI is important as it provided for the nature of the payments to be made by the assessee to Westinghouse under the agreement. It is unnecessary to set out this article in full. It is sufficient to extract only a portion of this article. It says :

"Payments : In consideration of the Licences, option, information, rights and services granted, furnished and rendered, and to be granted, furnished and rendered by the technical adviser hereunder, the licensee shall pay to the technical advisor :

(a) Fifty thousand dollars ($ 50,000), payable as follows :

1. Upon signing of this agreement, sixteen thousand six hundred seventy dollars ($ 16,670);

2. Sixteen thousand six hundred seventy dollars ($ 16,670) within twelve months after the signing of this agreement;

3. Sixteen thousand six hundred sixty dollars ($ 16,660) within twenty-four months after the signing of this agreement.

(b) From time to time upon receipt of invoices therefor, all amounts which shall become due and payable by the licensee pursuant to articles III, IV, VIII, IX, X, XI or XII; and

(c) From time to time royalties in respect of licensed material computed as follows :

1. Five per cent. (5%) of the selling price of licensed material and apparatus and parts of the same general character as licensed material, whether or not made under patents and information of the technical adviser, sold, transferred or consigned by the licensee for use in India and

2. An additional one per cent. (1%) of the selling price of such licensed material, apparatus and parts sold, transferred or consigned for export from India."

10. Article VII which contains a reciprocal provision is interesting. Under this article, the assessee grants in favour of Westinghouse, a corresponding non-exclusive licence to manufacture, use and sell directly or through sublicensees, apparatus manufactured with the aid of the licence and information provided by the assessee regarding material covered by patents or patent rights owned or controlled by it. But the clause says :

"Regardless of any termination of this agreement, such licences shall be for full life of the respective patents and patent rights and any renewals or extension thereof and without limit as to the information so licensed."

11. Article XII can next be referred to. This article provides that except as otherwise mentioned in the agreement all information communicated to the assessee by or on behalf of Westinghouse or any of the associated companies (except to the extent they were common knowledge in industry) was to remain the legal and absolute property of Westinghouse or the associated companies, as the case may be. However, the assessee, even after the termination of the agreement, could continue to operate under such information but only in accordance with the terms and conditions to be agreed at the time of such termination.

12. It may be observed that under art. VI(a) of the agreement the assessee had to pay $ 50,000 to the collaborators in the manner prescribed in that clause. Accordingly, the assessee paid Westinghouse a sum of Rs. 79,433 on May 21, 1962, Rs. 79,766 on June 21, 1963, and Rs. 79,885 on May 21, 1964. In other words, these payments were made long prior to the commencement of the previous year in which the business of the assessee was set up.

13. For the assessment year 1966-67, the assessee originally submitted a return showing a loss of Rs. 8,34,366. In this return the assessee had claimed, as a deduction, 1/14th of the amount of Rs. 2,39,084 paid by it to Westinghouse in May, 1962, June, 1963, and May, 1964, respectively. This claim was based on a circular of the Central Board of Direct Taxes dated May 31, 1961, in respect of the write-off of expenditure on technical knowhow in the nature of copyrights/patents. However, subsequently, the assessee addressed a letter to the ITO claiming a deduction of the entire sum of Rs. 2,39,084 for the assessment year 1966-67 as revenue expenditure. This claim was said to be based on the decision of the Supreme Court in the case of CIT v. Ciba of India Ltd. [1968] 69 ITR 692. [LQ/SC/1967/382] In line with the original return, the assessee also claimed in its return for the assessment year 1967-68, the deduction of a sum of Rs. 17,078 being 1/14th of the total payment made to Westinghouse under art. VI(a) of the agreement.

14. The ITO disallowed the claim made by the assessee. He pointed out that the amounts in question were payable and paid before the beginning of the previous year. He was also of opinion that while the royalty payments made under art. VI(a) of the agreement were allowable as claimed, the liability incurred by the assessee under art. VI(a) was in the nature of a capital liability not admissible for income-tax purposes. He also disallowed the claim for distributing the expenditure over a period of 14 years since the payments had not been made for the purchase of patents as envisaged in the Boards circular (and subsequently incorporated in section 35A of the I.T. Act, 1961). For the same reason, the claim for the deduction of Rs. 17,078 in the assessment year 1967-68 was also disallowed.

15. The assessee appealed to the AAC for both the years. The AAC dealt with this matter in the order on the appeal for 1966-67. He was of opinion that the amount claimed could not be allowed as a deduction though he accepted the assessees contention that the expenditure, being of the same type as in the Cibas case [1968] 69 ITR 692 (SC), was in the nature of revenue, and not of capital expenditure. This was for the reason that the payments had been made and expenses had been incurred prior to the commencement of the previous year relevant for the assessment year 1966-67, i.e., prior to October 1, 1964. It was sought to be urged on behalf of the assessee that the business of the assessee had been set up only in the accounting year which ended on September 30, 1965, and that, therefore, the expenditure could be claimed by the assessee only in the assessment year 1966-67. This argument was met by the AAC by holding that the business of the assessee must be deemed to have been set up even in the year which ended on September 30, 1964, (i.e., assessment year 1965-66) because the company had received certain machining charges during that accounting year and had also purchased some raw material in that year. In view of his conclusion that the expenditure was of revenue nature, the AAC also rejected the alternative claim of the assessee for the spread-over of the expenditure over a period of 14 years in accordance with the circular of the Board.

16. There were further appeals to the Appellate Tribunal by the assessee. The Tribunal came to the conclusion that the assessees appeals should be dismissed and the orders of the ITO upheld for both the years as in its view the payments in question constituted expenditure of a capital nature. The Tribunal examined the agreement for technical assistance in the light of the decisions in the cases of CIT v. Ciba of India Ltd. [1968] 69 ITR 692 (SC), Mysore Kirloskar Ltd. v. CIT [1968] 67 ITR 23 (Mys) and Strick (Inspector of Taxes) v. Regent Oil Co. Ltd. [1965] 57 ITR 716 (CA). It pointed out that the agreement contemplated three types of payments. The first type of payment which was in dispute was the payment of 50,000 dollars, a payment made once and for all as consideration for inducing Westinghouse to enter into the arrangements and for the grant of licence, option information, rights and services. The second payment was in respect of material supplied or training given by Westinghouse. The third class of payment was related to the selling price of the licensed material and based on the sales inside the country or on export. The two latter categories, about which there was no dispute, were clearly payments of revenue nature but it was not possible to accept the contention of the assessee that the payment of the first category would constitute a revenue payment. The Tribunal pointed out that the Supreme Court in its decision in the case of Ciba of India Ltd. [1968] 69 ITR 692 [LQ/SC/1967/382] had relied upon six facts to come to the conclusion that the expenditure in that case was of revenue nature. These facts were :

(1) the licence was for a period of five years liable to be terminated in certain eventualities even before the expiry of that period ;

(2) the object of the agreement was to obtain the benefit of technical assistance for running the business ;

(3) the licence was granted to the assessee subject to rights actually granted or which may be granted after the date of the agreement to other persons;

(4) the assessee was expressly prohibited from divulging confidential informations to third parties without the consent of the Swiss company;

(5) there was no transfer of the fruits of research once for all; and

(6) the stipulated payment was recurrent dependent upon the sales and only for the period of the agreement. According to the Tribunal, out of these six aspects the crucial sixth aspect was conspicuously absent in the payment in dispute in the present case. Moreover, in the present case, the licence was for a period of ten years renewable up to a further period of five years and was an exclusive licence to manufacture in India certain specified apparatus and material. The object of the agreement was to obtain the benefit of technical assistance not merely in running the business but for giving it a start. In these circumstances, the Tribunal held that the decision of the Supreme Court in the Cibas case [1968] 69 ITR 692 [LQ/SC/1967/382] was not applicable and the expenditure incurred by the assessee had to be considered to be capital expenditure.

17. The Tribunal proceeded to reject the assessees claim for spread over of the expenditure under section 35A, firstly, because that section permitted only the spread over of expenditure incurred after February 28, 1966, and, secondly, because the expenditure under consideration could not be said to be expenditure for the acquisition of patent rights as required by the section.

18. Having held that the amount was rightly disallowed as capital expenditure the Tribunal also proceeded to express its opinion on the alternative claim of the assessee on the assumption that the expenditure was in the nature of revenue expenditure. On this aspect of the matter, the Tribunal disagreed with the AAC and held that the business of the assessee had been set up only in the accounting year relevant to the assessment year 1966-67, and that the expenditure in question, though incurred prior to the setting up of the business, was, if it were in the nature of revenue expenditure, in the nature of prepaid expenditure which would be considered only in the first assessment of the company for the assessment year 1966-67. Since, however, the Tribunal had taken the view that the expenditure in dispute was of capital nature the question of allowing it on the basis that it was revenue expenditure did not arise either for the assessment year 1966-67 or for the assessment year 1967-68. The assessees appeals were, therefore, dismissed.

19. At the instance of the assessee, the Tribunal has referred for our decision the following, two questions :

"(1) Whether, on the facts and in the circumstances of the case, the amount of Rs. 2,39,084 paid by the assessee to Westinghouse represented expenditure of a capital nature

2. If the answer to question No. 1 is in the affirmative, whether, on the facts and in the circumstances of the, case, any portion of the amount is allowable as a deduction in each or either of the two assessment years 1966-67 and 1967-68 "

20. It seems to us that Mr. Ravinder Narain, counsel appearing for the assessee, is right in pointing out that the principles applicable to cases of this type have been laid down by the Supreme Court in Cibas case [1968] 69 ITR 692. [LQ/SC/1967/382] In that case the assessee was an Indian subsidiary of a Swiss company engaged in the development, manufacture and sale of medical and pharmaceutical preparations. The pharmaceutical section of the Swiss company in India was taken over by the assessee from January 1, 1948. Under an agreement dated December 17, 1947, the Swiss company undertook to deliver to the assessee all processes, formulae, scientific data, working rules and prescriptions pertaining to the manufacture or processing of products discovered and developed in the Swiss companys laboratories. It also agreed to forward to the assessee as far as possible all scientific and bibliographic information, pamphlets or drafts, which might be useful to introduce licensed preparations and to promote their sale in India. It granted to the assessee full and sole right and licence under the patent listed in the agreement to make, use, exercise and vend the inventions specified therein in India. It also granted to the assessee a licence to use certain specified trade marks in the territory subject to any existing licence which third parties held at the date of agreement, or which the Swiss company might grant to third parties thereafter. In consideration of the right to receive scientific and technical assistance the assessee agreed to make contributions of 5%, 3% and 2%, respectively, of the net sale price of the products sold by the assessee towards technical consultancy and technical service rendered and research work done, towards cost of raw material used for experimental work and towards royalties on trade marks used by the assessee. Under the agreement the assessee agreed not to divulge to third parties any confidential information received under the agreement without the consent of the Swiss company. It also agreed not to assign the benefit of the agreement or grant sub-licences in respect of the patents and trade marks without such consent. It was also agreed that, upon the termination of the agreement for any cause, the assessee would cease to use the patents and trade marks and to return to the Swiss company all copies of information, scientific data or material sent to it and to refrain from communicating any such information, scientific data or material received by it to any person. The agreement was to be in force for a period of 5 years from January 1, 1948, and was liable to cancellation by either party if the other party failed to perform or observe the provisions of the agreement, by giving 3 months notice. By a subsequent agreement the contribution payable was reduced from 10% to 6% of the net selling price of the pharmaceuticals. The question which arose was, as to whether the contribution other than the part paid as royalties was admissible as an allowance either under clause (xii) or under clause (xv) of section 10(2) of the Indian I.T. Act, 1922. After analysing the provisions of the agreement and disposing of a contention based on section 10(2)(xii), the court pointed out that, under the agreement, the assessee did not become entitled exclusively, even for the period of the agreement, to the patents and trade marks of the Swiss company; it had merely access to the technical knowledge and experience in the pharmaceutical field which the Swiss company commanded and was a mere licensee for a limited period of the technical knowledge of the Swiss company with the right to use the patents and trade marks of that company. The assessees contention was that the contribution for this permission to have access to the technical knowledge for the purpose of running the business during the period of the agreement was revenue expenditure wholly and exclusively laid out for the purposes of the business. On the other hand, on behalf of the revenue, it was contended that the expenditure was of capital nature. Reliance was placed on the decision of the House of Lords in Moriarty v. Evans Medical Supplies Ltd. [1959] 35 ITR 707 (HL), where the majority had ruled that money received by a taxpayer for making available to another person a right to "technical know-how" was in the nature of a capital receipt.

21. The Supreme Court was of opinion that the revenues contention could not be accepted. It was pointed out that in Evans case [1959] 35 ITR 707 (HL), the question was regarding the true character of a receipt, but this was not always determinative of the nature of the outgoing in the hands of the person who paid it. Moreover, the speeches of the Law Lords in that case disclosed a remarkable divergence of opinions and the view of the majority reached on different and somewhat contradictory premises was of little assistance in deciding the case before them. Further, the case of Evans [1959] 35 ITR 707 (HL) had been distinguished in Rolls-Royce Ltd. v. Jeffrey (Inspector of Taxes) [1965] 56 ITR 580 (HL) and Musker (H.M. Inspector of Taxes) v. English Electric Co. Ltd. [1964] 41 TC 556 (HL). In Rolls-Royce Ltd.s case [1965] 56 ITR 580 (HL), payments received for licensing a foreign Government to manufacture aero-engines with the accumulated technical knowledge of the taxpayer, supplying information and drawings, advising the foreign Government as to improvements and modifications in manufacture and design and giving instructions to the licensee was held to be revenue receipt. Similarly, in English Electric Co. Ltd.s case [1964] 41 TC 556 (HL) the fixed lump sum payments received as consideration for imparting manufacturing technique to the licensee was held to be income. Having thus dealt with the decisions relied upon by the revenue, the court observed (p. 701 of 69 ITR):

"In the case in hand, it cannot be said that the Swiss company had wholly parted with its Indian business. There was also no attempt to Part with the technical knowledge absolutely in favour of the assessee.

The following facts which emerge from the agreement clearly show that the secret processes were not sold by the Swiss company to the assessee ........"

(underlining ours)

and proceeded to refer to the six aspects extracted and referred to in the order of the Tribunal in this case. The above observations of the Supreme Court show that the crucial question for consideration in such cases is whether the agreement merely confers on the assessee a right to draw, for the purposes of carrying on its business, upon the technical knowledge of the foreign company for a limited period or whether by virtue of the agreement the foreign company has absolutely parted with or sold its secret processes and technical knowledge to the assessee. If it is the former, then the assessee cannot be said to have acquired any asset or advantage of enduring nature for the benefit of its business and the payments would be revenue in nature. On the other hand, if there is an absolute transfer or sale of patent rights or secret or technical knowledge absolutely in favour of the assessee, the payments made in respect thereof would be payments for the acquisition of a capital asset and hence capital in nature.

22. We have referred earlier to the six features of the agreement before it which have been listed by the Supreme Court as clearly showing "that the secret processes were not sold by the Swiss company to the assessee". Mr. Ravinder Narains grievance is that in the present case the Tribunal has erroneously considered the six points mentioned by the Supreme Court as cumulative conditions necessary to be fulfilled in order to claim the payment as a revenue expenditure. According to him, the Tribunal has erred in holding that the present assessee is not entitled to the deduction claimed because one of the six aspects referred to by the Supreme Court (viz., a dependance of the payment on the sales or output) was not fulfilled in the present case.

23. It will be clear from the above discussion that the question for consideration here is as to how far the decision in the Ciba case [1968] 69 ITR 692 (SC) would be applicable to the facts here. The Tribunal has sought to distinguish the facts of the present case from those considered by the Supreme Court in four respects :

(a) The payment under consideration is a flat lump sum paid once and for all, not for the use of licence, information or facilities, but for inducing Westinghouse to enter into the arrangement;

(b) The payment is neither recurrent nor dependent upon the sales;

(c) The period of the agreement is ten years with a provision enabling renewal for a succeeding period of five years ; and

(d) The object of the agreement was to obtain the benefit of technical assistance not merely for running the business but for giving it a start.

24. We are, however, of opinion that the payment of $ 50,000 under art. VI(a) was also only in the nature of revenue expenditure. The principle laid down by the Supreme Court in the above decision is that if the agreement results in the absolute transfer of technical knowledge to the assessee, the assessee could be said to have acquired an asset of enduring advantage but where the payment is made only for obtaining access to information which does not become its own, the payments cannot be elevated to the status of payments of a capital nature. Looked at from this point of view, it seems to us that there is no significant or material difference between the agreement in the Cibas case [1968] 69 ITR 692 (SC) and that in the present case. Under the terms of the present agreement also, the assessee does not acquire absolutely any information or knowledge from Westinghouse. What is it that the assessee gets under the agreement Firstly, it gets a licence for manufacturing certain types of apparatus and material and to sell the same. The licence is partly exclusive and partly non-exclusive and even the former can be converted into the latter in certain circumstances. There is no right for granting any sub-licence or for assigning the licence to any other person except with the consent of Westinghouse. The licence which covers the apparatus in Ex. A does not extend to the apparatus and material described in Ex. B even where they are used in the production of or as part of the apparatus listed in Ex. A. As in the Cibas case [1968] 69 ITR 692 (SC), here also the licence granted to the assessee is subject to rights in favour of other persons to whom licences were granted earlier or will be granted later. The second advantage derived by the assessee is the access to technical and manufacturing information. Here again Westinghouse is only to communicate to the assessee from time to time such information as it may be having in current use either in its factories or with the other associated companies. The information thus received from the Westinghouse, again as in the Cibas case [1968] 69 ITR 692 (SC), is not to be parted with by the licensee to any third parties whatsoever either during the currency of the agreement or after the termination thereof. Westinghouse has a discretion to impart or decline to impart some types of information particularly that relevant to engineering development. In contrast with these restricted and limited rights of the assessee, art. VI confers wider liberty to Westinghouse in utilising the licences and information supplied to it by the assessee. The third advantage which the assessee obtains is a permission not to use the trade-mark of Westinghouse or the associated companies, but only to acknowledge the licence granted in favour of the assessee for this purpose. The only other provision which enures to the advantage of the assessee is the benefit of technical advice by the collaborator, training to the employees of the assessee and permission to send visitors on the assessees behalf to the factories of Westinghouse. Taking all these together, it is clear that the whole object of the agreement was only to obtain the benefits of technical assistance for running the business, a restricted licence to the limited use of the patent rights of Westinghouse and the use restricted to the assessee alone and for the duration of the agreement of such technical information as may be supplied by Westinghouse. In the light of these features of the agreement it can be appropriately said of this agreement as well that it does not attempt to part with technical knowledge absolutely in favour of the assessee and that Westinghouse have not "sold" their secret processes to the assessee.

25. In view of our above conclusion, we do not think that the period of the agreement in the present case is of much significance. In the case before the Supreme Court, the licence was for a fixed period of 5 years while in the present case it is for a period of 10 years in the first instance. The agreement no doubt contemplates that it will continue unless otherwise terminated and enables the agreement being renewed thereafter. But at the same time it also contains provisions for terminating the agreement at the end of the 10 year period as well as at the end of every succeeding 5 years period at the option of the other party and there are also other circumstances set out in arts. XIII and XIV under which the agreement could be terminated. The decided cases (referred to later) show that periods of 10 years and 15 years have not been considered to be so unduly long as to warrant an inference that some lasting advantage is obtained by the assessee as a result of such contracts. The Supreme Court in the Cibas case [1968] 69 ITR 692 [LQ/SC/1967/382] cannot be taken to have indicated that an agreement for a period longer than five years should be construed differently. Moreover, as already pointed out, the conclusion in Ciba at p. 699 was that the assessee was "a mere licensee for a limited period of the technical knowledge" (emphasis added). It will be appreciated that once the conclusion is to be based on the difference in principle between the payments made for the acquisition of a certain asset and the payments made for its use, the period of user pales into insignificance. Payments made for the use of an asset, for however long a period, will only be a payment of revenue nature.

26. The principal difference on which the Tribunal has emphasised is that the payment to the Swiss company in the Ciba case [1968] 69 ITR 692 (SC) was made as a percentage of the net sale price of the products sold by the assessee whereas, in the present case, the agreement contemplates only two types of payments based on production, sales or services which are not in dispute and the question is only regarding the payment of the lump sum under art. VI(a). From this, the inference has also been drawn that the fixed payment was not consideration for the services under the agreement but a consideration to induce Westinghouse to enter into the agreement. We are unable to agree. The periodical recurrence of the payments or their correlation to the production may be indicative but not conclusive of the nature of the payment. Purchase price of a capital asset can also be made in annual or periodical instalments or by reference to profits, sales or turnover. The crucial question, therefore, is : what is the amount being paid for The answer to this question cannot be different in the absence of anything in the agreement itself, for purposes of clause (a) from what it is for purposes of cls. (b) and (c). But, even assuming that the Tribunal is right in its inference that the payment under clause (a) was paid to induce Westinghouse to enter into the agreement, we do not think the position will be different, for, whether such a payment would be capital or revenue would again depend upon the nature of the agreement. As explained above, the whole object of the agreement is only to obtain technical assistance and the entire payment made under the agreement, whether under one category or the other, was only with the object of enabling the assessee to have access to the technical knowledge available with Westinghouse. If the nature of the agreement itself is such that, as pointed out by the Supreme Court, it cannot be said the assessee has absolutely acquired any knowledge or asset, it is difficult to see how even a payment made by way of a lump sum to obtain this agreement or, as the Tribunal puts it, to persuade Westinghouse to enter into this agreement, could itself have a different, character. If as a result of an agreement an assessee acquires a capital asset or an enduring advantage then a payment made to obtain that agreement would be capital in nature. On the other hand, if the agreement itself does not confer any permanent or lasting advantage and is merely an agreement which enables the assessee to more efficiently run its business, then it is difficult to see on what principles the nature of the lump sum payment could be said to differ from that of the other payments. We are, therefore, of opinion that there being no controversy regarding the recurring payments made by the assessee, there can equally be no controversy that the sum of $ 50,000 paid under the agreement is a payment of revenue nature.

27. One more aspect referred by the Tribunal is that this is an agreement entered into by the assessee-company when it is about to start its business. In our opinion, this fact also does not make any difference. In the Cibas case [1968] 69 ITR 692 (SC) also, the position was the same and it was held that the payments made under the agreement were of revenue nature. In view of the conclusion that the payments are being made to have access to knowledge and information that is necessary to carry on and run the business from day to day, it is not of much significance whether the agreement is entered into at the time of commencement of a business or in the course of a business which is already being carried on.

28. We are, therefore, of opinion that the principle of the decision in Cibas case [1968] 69 ITR 692 (SC) is applicable here and that the assessee is entitled to the deduction of the sum of Rs. 2,39,084 as revenue expenditure. The Tribunal has held that, in case this is viewed as revenue expenditure, it is rightly deductible in the assessment year 1966-67 and on this aspect there is no reference before us. We have, therefore, to hold that the sum of Rs. 2,39,084 represents expenditure of revenue nature and that it is allowable in the assessment year 1966-67.

29. The second question referred to us proceeds on the footing that the answer to question No. 1 is in the affirmative. Since we have answered the first question in the negative, no answer need be given to the second question. However, since we have held that the entire amount is allowable as revenue expenditure it is obvious that the entire amount should be allowed in the assessment year 1966-67 and no question of apportioning it over a series of years can at all arise. There can, therefore, be no question of allowing any deduction in respect of the whole or any part of this amount in the assessment year 1967-68.

30. Before concluding, we may only point out that there are a large number of decisions of various High Courts on this issue. We have not considered it necessary to discuss these cases at great length because cases of this type will depend upon the terms of the agreement in each case and the question has to be decided ultimately on the basis of the principles laid down by the Supreme Court in Cibas case [1968] 69 ITR 692. [LQ/SC/1967/382] Reference may be made to the following cases in which the expenditure claimed was allowed : CIT v. Hindustan General Electrical Corporation Ltd. [1971] 81 ITR 243 (Cal); British India Corporation Ltd. v. CIT [1973] 89 ITR 138 (All) [LQ/AllHC/1971/372] ; Sayaji Iron & Engineering Works Pvt. Ltd. v. CIT [1974] 96 ITR 240 (Guj) [LQ/GujHC/1973/127] ; CIT v. Associated Electrical Industries (India) P. Ltd. [1975] 101 ITR 844 (Cal); CIT v. Lucas-T.V.S. Ltd. (No. 1) [1977] 110 ITR 338 (Mad) [LQ/MadHC/1976/527] ; CIT v. I.A.E.C. (Pumps) Ltd. [1977] 110 ITR 353 (Mad) [LQ/MadHC/1977/98] and CIT v. Indian Oxygen Ltd. [1978] 112 ITR 1025 (Cal). The Gujarat High Court in CIT v. S.L.M. Maneklal Industries Ltd. [1977] 107 ITR 133 [LQ/GujHC/1976/23] , at pages 159-162, has also explained the Ciba decision [1968] 69 ITR 692 (SC) and pointed out that it makes no difference whether a stipulated payment is a lump sum or is recurrent.

31. On the contrary, in Mysore Kirloskar Ltd. v. CIT [1968] 67 ITR 23 (Mys), rendered before the decision in the Cibas case [1968] 69 ITR 692 (SC), the Mysore High Court disallowed certain lump sum payments as capital expenditure. This was on the ground that the know-how was to be utilised for producing new types of machines and also on the ground that the know-how was to become the property of the assessee at the end of the period of the agreement. A similar conclusion was arrived at by the Andhra Pradesh High Court in Hylam Ltd. v. CIT [1973] 87 ITR 310 (AP) [LQ/APHC/1971/60] and by the Madras High Court in Fenner Woodroffe & Co. Ltd. v. CIT [1976] 102 ITR 665 (Mad) [LQ/MadHC/1975/163] and Addl. CIT v. Southern Structurals Ltd. [1977] 110 ITR 890 (Mad) [LQ/MadHC/1977/134] . Mysore Kirloskar [1968] 67 ITR 23 [LQ/KarHC/1966/126] has, however, been overruled by a Full Bench of the same High Court in another case of the same assessee in Mysore Kirloskar v. CIT [1978] 114 ITR 443 [LQ/KarHC/1978/132] and this decision has been reiterated in Indian Telephone Industries Ltd. v. CIT [1979] 117 ITR 682 (Kar) [LQ/KarHC/1979/56] by the same High Court. Hylam [1973] 87 ITR 310 (AP) [LQ/APHC/1971/60] has also been overruled by the Full Bench of the same High Court in Praga Tools Ltd. v. CIT [1980] 123 ITR 773. [LQ/APHC/1979/45]

32. We answer the questions referred to us by saying that the assessee is entitled to the deduction of Rs. 2,39,084 in the assessment year 1966-67 and nil in the assessment year 1967-68. As the assessee has succeeded, it will be entitled to its costs,. Counsels fee Rs. 300.