HYDERABAD BENCH SOLID STATE DEVICES v. INCOME TAX OFFICER INDIA LTD. July 15, 1986 JUDGMENT ORDER ANNAND PRAKASH, A.M. These are cross appeals in respect of asst. yr. 1980-81. I.T.A. No.2632 is by assessee whereas I.T.A. No. 3029 is by Revenue. assessee is company manufacturing and selling industrial process control instruments. In accounting period under consideration, while working out disallowance under s. 40A(5) of IT Act, 1961,the ITO treated reimbursement of medical expenses as perquisites and also worked out value of rent free accommodation provided by assessee to its employees on basis of actual payments made by assessee. assessee's grievance against aforesaid mode of computation before ld. CIT (A) was that medical reimbursement should not be treated as perquisite at all as it was cash payment to employees by assessee and that so far as value of perquisite of rent free accommodation was concerned, same should have been valued by resort to r. 3 of IT Rules, 1962 for purpose of disallowance under s. 49A(5). ld. CIT(A) accepted assessee's first submission but did not agree with second submission. Both Department and assessee are aggrieved of aforesaid finding of ld. CIT (A). grievance of Department is contained in ground No. 1 is that medical expenses should have been included in aggregation of perquisites for purpose of working out disallowance under s. 40A(5) and that in so far as CIT (A) did not do so, he erred in law. submission of assessee, on other hand, is that ld. CIT (A) erred in not accepting its submission that perquisite value of rent free accommodation should be valued as per r. 3of IT Rules, 1962. In this connection, ld. counsel for assessee took us through language of sub- cl. (Ii) of cl.(a) of sub-s. (5) of 40A and emphasised that what had to be examined was not merely expenditure incurred by employer but ITO had further to determine as to what part of said expenditure "resulted" in perquisite to assessee. perquisite could be lesser amount than expenditure incurred by employee. It would be clear also from language of Expln. I to sub-s. (5) of s. 40A, wherein it has been made clear that any amount not to be allowed under sub-s. (5) of s. 40A would be that "as was included in total income of employee." There must thus, be co-relation between what was included in total income of employee and what was disallowed in case of employer. In view of this, disallowance should be made on basis of r. 3 of IT Rules, and not no basis of actual payments made for rent free accommodations provided by employer to employees. After learning both sides, we are of opinion that order of ld. CIT (A) is correct with regard to aforesaid grounds. Medical reimbursement, being cash payments, cannot be regarded as perquisites in terms of definition of that term given in sub-cl. (Ii) of cl. (A) of sub-s. (5) of s. 40A. (See Instalment Supply Pvt. Ltd. vs. CIT (1984) 41 CTR (Del) 334: (1984) 149 ITR 457 (Del). So far as rent free accommodation is concerned, ld. CIT (A) was justified in directing that actual expenditure incurred in providing rent free accommodation should be regarded as perquisite for purpose of sub-cl. (Ii) of cl. (A) of sub-s. (5) of s. 40A, referred to above. In terms of aforesaid sub-clause, what has to be found out, is as to what is expenditure incurred by employer for purpose of employee which results directly or indirectly in provision of perquisite to employee. language used is unambiguous and there being no provision herein for prescribing any Rule, to compute value of perquisite in terms of aforesaid sub-cl.(ii), it would be entirely improper to bring in r. 3 into interpretation of sub-cl. (Ii) of cl., (a) of sub-s (5) of s. 40A, more particularly when aforesaid, r. 3 has been made with reference to assessment of employee in terms of s. 17 and purpose of that is different from one contemplated by sub-s. (5) of s. 40A. aforesaid view is in consonance with opinion of our ld. brothers in assessee's own case in respect of asst. yr. 1978-79 in I.T.A. No. 5517/D/1983 dt. 8th April, 1985 (See para 2 of said order), with which we concur. There is nothing in language of section to imply that expenditure and perquisite may be two different items. nature of expenditure is, itself such as provides benefit and amenity to employee, and it is this expenditure which has to be taken into account for purpose of aggregation under s. 40A(5). There is no merit in assessee's contention that, in view of language of Expln. 1, what is not included in total income of employee cannot be considered for purpose of s. 40A(5). In fact, provisions of sub-cl. (Ii) of cl. (A) of sub-s. (5) of s. 40A indicate contrary position. In terms of it, even expenditure incurred or allowance made in respect of any asset of assessee used by employee has to be taken into account for purpose of s. 40A(5), it may never be perquisite in hand of employee. purpose of Expln. 1 is very limited, viz., to clarity that addition under s. 40A(5) will not be called into question on ground of double taxation. To infer any other proposition from its language will not, in our opinion, be justified. Rs.53,979 were added back by ITO to total income of assessee on ground that said expenses were entertainment expenses and were, therefore, not allowable in terms of sub-s. (2A) of s. 37 of IT Act, 1961. details of such expenses have been given at p. 4 of assessee's paper book. From perusal thereof, it appears that expenses are mostly for cost of lunch, dinner etc. aforesaid expenses fall squarely within language of sub-s. (2A) of s. 37 and, therefore, disallowance of aforesaid amount was justified. We, accordingly, refuse to interfere with order of ld. CIT (A) on this point. ld. counsel for assessee had, of course, drawn our attention to chart furnished at p 4 wherein, it has been written, against three items, that payment in question represented inter alia "charges for conference hall and lunch etc. for guests". It was pleaded by assessee that part of expenditure, which represented charges for conference hall, ought to be excluded, as same was for purposes of business, and was not hit by provisions of sub-s (2A) of s. 37 of IT Act, 1961. assessee, however, did not provide break-up of such charges and, prima facie, charge by hotel in question was consolidated, integrated, charge for providing lunch etc. and included inter alia permission to hold deliberation in lunch room. In view of this, it is not, in our opinion, possible to split (when, in fact, they were not divisible) these expenses into two parts. disallowance of Rs. 15,017 has been sustained by ld. CIT (A) out of general charges on ground that expenses in question have not been proved by assessee for purpose of assessee's business. detail of such expenses have been placed at p. 5 of assessee's paper-book and, from perusal thereof, it appears that most of expenses are on account of cost of presentation articles like ivory lamp and one electric peacock (Rs. 5216), cost of lemon set (Rs. 3125), cost of presentation items, gift articles, game tickets, game article, ivory figure etc. It has not been possible for assessee to indicate as to whom were aforesaid items presented and as to what for game tickets etc. were purchased. In view of this, we are unable to find fault with finding of ld. CIT (A) that assessee has not been able to correlate expenditure on aforesaid items with needs of assessee's business. There are, however, certain minor items debited under this head, which appear to be of allowable nature, for example, Rs. 175 paid in Reserve Bank of India for surcharge on Income-tax salaries and Rs. 200 paid to Indian Red-Cross Society subscription. There is item of Rs. 65 representing cost of challans. These amounts totalling in all Rs. 440 should be allowed as deduction. remaining addition is hereby sustained. ITO added Rs. 97,900 to assessee s total income in terms of sub- s. (1) of s. 41 of IT Act, 1961. While making disallowance, ITO made following observations in paragraph 8 of his order: "This sum of Rs. 97,900 represents liabilities created in past years and same were allowed as deduction in those years. However, since said liability did not exist any more, hence they were written back during year. As these liabilities were allowed as deductions in past and they had been written back during year, they are definitely includible in assessee's income for this year within meaning of s. 41(1) of IT Act". assessee appealed against said order to ld. CIT (A) who allowed partial relief to assessee to extent of Rs. 13,080 under this head vide his observations in paragraph 4 of his order. His observations may be noted as below: "This amount represents liabilities written back and credited to P/L account during year. amount mainly represents cuts in bills and excess provision made in immediately preceding year. assessee has, however, pressed for allowance of two amounts which did not represent any revenue expenditure in earlier years. This amount relates to write back of certain amounts shown as due on capital accounts and were shown as payable to: M/s Progressive Construction Co. Rs. 674 M/s J.J. Electricals ,406 ,080 Considering fact that these expenses were not allowed as revenue expenditure, write back of these amounts aggregating Rs. 13,080 is not covered by provisions of s. 41(1). addition is, therefore, reduced by Rs. 13,080. Both assessee and Department are aggrieved with aforesaid finding of ld. CIT (A). Department's contention is that ld. CIT (A) was not justified in allowing Rs. 13,080. assessee's grievance on other hand, is that he disallowance of Rs. 84,820 upheld by CIT (A) was not justified and in support of it, ld. counsel for assessee had relied upon decision of Tribunal in assessee's own case in respect of asst. yr. 1978- 79 (supra) vide observations of Tribunal in paras 3 & 4 at pp. 2 to 8 of Tribunal's order. On behalf of Revenue, order of ITO is supported. Whether or not certain disallowance ought to be made depends on facts of case obtaining in previous year in question and it is not possible to evolve any general yardstick which would apply to each year without regard to facts of that year. details of additions sustained by ld. CIT (A) amounting to Rs. 84,820 have been given at pp. 6 to 10 of assessee's paper- book. From perusal thereof it appears that sum of Rs. 48,312 was "provision for bonus" which had earlier been made in respect of previous year immediately preceding one under consideration and which, prima facie, was in excess of requirement under law and was, therefore, no more needed for disbursement and was accordingly, added back by assessee this year (See page 10 of assessee s paper book). other amounts are also representing short payments of bills of various parties (See page 7). These bills were raised in between period 1970 to 1976 and have not been paid by assessee, since. same were, however, debited to accounts as and when bills were received and have been credited back to accounts this year as, prima facie assessee did not agree to make aforesaid payments to parties concerned and said parties did not pursue their claims, Similar is position of payments listed at p. 8 aggregating to Rs. 10,812. Three major items which have been debited at p. 8 are as follows: Party's name Amount Financial year Mineral & Metal Trading Co. (I) Ltd. Rs. 953 -79 Larsen & Toubro Ltd. ,112 -79 I.D.M. (P) Ltd. ,133 -79 At page 9 appear items, which represent details of liabilities provided for telephone expenses for financial year 1978-79 written back during financial year 1979-80 aggregating to Rs. 8,578. Referring to aforesaid bills, finding of ld. CIT (A) as extracted above, is that above amount represented "cuts in bills and excess provision made". This finding of fact of ld. CIT (A) has not been disputed before us. So long as above finding stands, and by nature of items extracted above, we are inclined to accept correctness of finding of ld. CIT (A), his inference that aforesaid amounts represented assessee's deemed income in terms of sub-s (1) of s. 41 appears to us to be correct. For example, excess provision for bonus made in earlier years to extent of Rs. 48,312 was no more needed for disbursement during year, under consideration. same has, therefore, been written back to accounts. liability to pay aforesaid amount has, prima facie ceased during previous year. In fact, whether or not liability to pay aforesaid amount has ceased would be best known to assessee and it is he who has proceeded on that footing and passed entry. judgment of assessee in this matter should not be interfered with by ITO unless he had facts in his possession to show that said judgment of assessee was incorrect or assessee was able to place on record fact that facts of case did not justify assessee's action. Similar is position with regard to telephone bills. Prima facie, those bills were received and accounted for in accounts but later on liability to pay said bills was found not to be there, and so assessee credited them back in accounts. It was for assessee to show that his action in writing back aforesaid amount was erroneous. He has placed no evidence on record to show that bills in question in respect of which aforesaid provision had been made were still pending for payment against assessee and despite this, it had written them back. Similar is position with regard to various other bills, which either have not been accepted by assessee as his liability and have, therefore, been written back by him or were no more payable by assessee. authorities below were, in circumstances, in our opinion, justified in treating aforesaid amounts as assessee's income in terms of s. 41(1). It is true that our ld. brothers, in respect of asst. yr. 1978-79, have held on basis of facts obtaining in that year that amounts credited back in accounts in that year were not income of assessee. Their finding is based on facts obtaining in that year. same cannot govern of facts of this year and for purpose of determining as to whether or not ITO was justified in treating aforesaid write backs in assessee's accounts as assessee's income, we have to have regard to facts obtaining in this year of this purpose. On analysis of facts of this year, we are of opinion that assessee had made excess provision in respect of certain expenses or item earlier and this year he had written them back as said amounts were no more necessary for making concerned disbursement. liability to make payments had thus ceased and, accordingly, said items became assessee's income during previous year under consideration. assessee is, in our opinion, best judge for determining as to when assessee's liability to make relevant payment ceased either because of other party not pressing claim against assessee or assessee having disputed said claims and other party not pressing for said claims or assessee having provided extra amounts for payment of bonus etc. and same ultimately were found as not necessary for making disbursement. Any write backs in accounts on account of aforesaid reasons would, in our opinion, be squarely covered by language of sub-s (1) of s. 41 of IT Act, 1961. We, therefore, sustain addition made by ld. CIT (A), on this account. ld. CIT (A) has given cogent reasons, in our opinion, for giving relief of Rs. 13,080 to assessee and Department has not made out case that amount in question should be taxed under s. 41(1), even though said amounts had never been debited to accounts earlier and had thereby never gone to reduce assessee's income in earlier years. order of ld. CIT (A) allowing relief of Rs. 13,080 to assessee was correct and we uphold it. assessee debited to its accounts Rs. 1,89,890 being third instalment of initial contribution for past services payable under r. 6(2) of Rules of Fund. ITO has not accepted above claim in full. He allowed assessee's claim to extent of Rs. 93,653 in accordance with Board's circular No. 100 dt. 12th Jan., 1965. remaining amount of Rs. 96,237 was disallowed. assessee challenged aforesaid disallowance but failed before ld. CIT (A). Ground No. 5 of assessee is directed against aforesaid finding of ld. CIT (A). At time of hearing, however, it was brought to our attention that aforesaid point is covered against assessee vide paragraph 8 of order of Tribunal in assessee's own case in respect of asst. yr. 1978-79 vide ITA No. 5587/83, referred to above. facts this year remaining same, as in earlier year, and arguments of either sides also remaining identical, as such we see no justification in not following order of Tribunal in respect of asst. yr. 1978-79 referred to above. Respectfully following same, we uphold addition sustained by ld. CIT (A) under this head. next controversy in assessee's appeal is with regard to computation of capital employed under s. 80J. assessee is entitled to relief under s. 80J in respect of his electronics division plant. While computing capital employed therein, assessee included sum of Rs. 80 lacs which was, according to assessee, earmarked for electronics division for purchase of machineries etc. for said unit, and was lying in fixed deposit with bank. authorities below have not accepted above claim of assessee. ld. CIT (A) inter alia, following observations, while rejecting assessee's claim: "Having heard assessee and perused records, it appears that there is mis-direction of argument both on part of ITO and by assessee. assessee has neither maintained any separate accounts of new undertaking nor are separate balance sheet consequently available for this unit. balance-sheet prepared by assessee on 1st Oct., 1979 is merely in form of certain accounts segregated for purpose of showing investment made in this unit. relief under s. 80J is to be computed with reference to assets of undertaking as on first day of computation period and not in finances set-apart for purpose of acquiring assets at some future date. facts relating to new unit set up by assessee clearly indicate that finances in new unit were entirely provided from self- generated funds belonging to company. funds lying surplus with company were being deposited, under short-term fixed deposits, with banks from time to time. As on 1st April, 1979, such FDs amounted to Rs. 53 lacs. On 30th Sept., 1979 these deposits amounted Rs. 80 lacs. existence of these deposits merely indicated extent of surplus funds available with company. utilisation of part of these funds for purpose of acquiring assets for new unit does not prove anything beyond de facto deployment of funds for several purposes of company. As and when assets of new unit were acquired, they would become part of assets of new industrial undertaking, entitled to relief under s. 80J on 1st day of each computation period. For asst. yr. 1980-81, first day of computation period was 1st Oct., 1979 on which date electronics division is stated to have gone into production. On this day, company had surplus funds available to it to extent of Rs. 80 lacs, kept in fixed deposit apart from other funds under other heads. Neither fact that these deposits existed on that date nor fact that capital requirement of new unit over period of time was to be in vicinity of Rs. 70-80 lacs, nor fact that between six month's period from 1st Oct., 1979 to 31st March, 1980 i.e. last date of previous year further investment of Rs. 40 lacs (approximately) was made in assets of new undertaking, can convert funds available with company into assets of new undertaking. rejection of assessee's claim on this count was, therefore, justifiable, though for reasons different from those mentioned by ITO. Grounds No. 8 and 9 are, therefore, rejected. assessee challenges correctness of aforesaid finding of ld. CIT (A). same pleadings as were put forward before ld. CIT (A) have been reiterated before us. On behalf of Revenue, order of ld. CIT (A) is supported. We have examined facts of case carefully. We have also looked at balance sheet of assessee company. It appears from perusal thereof that assessee company had two divisions, one pneumatic division and another electronic division. assets which pertained to aforesaid two divisions have been specifically stated under headings pneumatic division and electronics division. Such distinction has been made under head current assets loans and advances also. Pneumatic division has been in operation for some years and has been yielding income to assessee. Electronics division, on other hand, was in process of erection during previous year- and it started working during previous year under consideration. sum of Rs. 80 lacs which is bone of contention in present appeal, appears under head cash and bank balances, and said amount is not shown as pertaining either to electronic division or to pneumatic division. Prima facie, aforesaid amount is available with assessee company for such deployment as it may deem appropriate to make. On basis of these facts it is difficult to appreciate argument of ld. counsel for assessee that aforesaid sum of Rs. 80 lacs represented capital deployed in electronics division as on first day of accounting period which in present case was 1st Oct., 1978. ld. CIT (A) is justified in presuming that aforesaid amount represented surplus funds of company, and, may be, that assessee wanted to utilise them for purpose of new plant, but it had not used them for new plant as on first day of accounting period. fund earmarked for future use did not represent capital employed for electronics division as on 1st Oct., 1978. In fact balance sheet does not show that it was earmarked at all for any specific purpose. It shows that said amount was available with assessee and it could use this amount for such purpose as it might deem appropriate at given point of time. This being factual position, we are inclined to uphold order of ld. CIT (A). Accordingly, assessee's appeal on this point fails. assessee's next ground of appeal is with regard to deduction of sur-tax liability as business expenditure. claim of assessee is merely to be stated to be rejected for sur-tax liability is not business expenditure. It is application of income of assessee and is not incurred as item of expenditure laid out wholly and exclusively for purpose of assessee's business. claim is, therefore, rejected. We find support for above proposition from decision of Calcutta High Court in case of Molins of India Ltd. vs. CIT (1983) 35 CTR (Cal) 254: (1983) 144 ITR 317 (Cal). ITO made disallowance of Rs. 9250 under s. 80VV and gave following details in this regard: Paid to Sh. Bishamber Lal Khanna in connection with advice for income- tax matter of High Court. Rs. 1,150 Paid to M/s V. Shanker Iyer and Co. in connection with Income-tax cases ,100 Rs. 14,250 Less: Admissible deduction under s. 80VV Rs. 5,000 Balance disallowable: Rs. 9,250 assessee challenged aforesaid disallowance, but said challenge was negatived by ld. CIT (A), who observed that payments were in connection with IT cases and so disallowance was rightly made. assessee is aggrieved of aforesaid finding of ld. CIT (A) and it stated to us that out of Rs. 13,100 paid to M/s V. Shanker Iyer & Co., Rs. 8,400 represented retainers fees and inasmuch as said fees had nothing to do with IT matters, same should not have been considered for disallowance under s. 80VV. aforesaid is averment of fact and it is not borne out from order of ITO or of CIT (A). In absence of any evidence on this account, it is not possible for us to interfere with finding of ld. CIT (A). details pertaining to payments have been given at page 42 of assessee's paper book and said details make us wiser on this account. In said circumstances, we confirm order of ld. CIT (A). That brings us to last controversy in present appeal pertaining to payment of Rs. 10 lacs to M/s Sybron Corporation of United States of America. According to assessee, aforesaid amount is Revenue expenditure and should have been allowed in full. ITO treated entire amount as capital expenditure. assessee's plea that depreciation, investment allowance etc. should be allowed with regard to capital expenditure was also negatived by ITO. Against aforesaid order of ITO assessee went in appeal to CIT (A) who, after detailed consideration of agreement under which payment in question was made, gave finding that expenditure to extent of Rs. 5 lacs was capital expenditure and remaining amount of Rs. 5 lacs was revenue expenditure. With regard to sum which was upheld by him to be capital expenditure, ld. CIT (A) directed that depreciation and investment allowance be allowed to assessee in respect of aforesaid sum of Rs. 5 lacs "after examining admissibility thereto in accordance with other provisions of law". Both sides are aggrieved of aforesaid findings of ld. CIT (A). Revenue's grievance is that Rs. 5 lacs should not have been allowed as revenue expenditure. assessee's grievance on other hand, is that Rs. 5 lacs should not have been held as capital expenditure and that entire amount of Rs. 10 lacs should have been allowed as revenue expenditure. It is further contended that ITO should have been specifically directed to allow depreciation @ 15 per cent technical know-how fees being sophisticated plant and machinery. Both sides have taken us through various clauses of agreement and have relied on decision of Hon'ble Delhi High Court in case of Shri Ram Refrigeration Industries Ltd. vs. CIT (1981) 127 ITR 746 (Del). Reference has also been made to decision of Triveni Engineering Works Ltd. vs. CIT (1982) 29 CTR (Del) 234: (1982) 136 ITR 340 (Del). Before we deal with submissions of either sides as above, it would be pertinent to note down relevant clauses of agreement, on interpretation of which present controversy has to be resolved. assessee company and M/s Sybron Corpn. of United States of America entered into technical collaboration agreement on 31st May, 1979. In accordance with this agreement, M/s Taylor Instrument Co. Ltd. who had earlier acquired exclusive right to manufacture, use and sell certain instruments in India were desirous of receiving further developments from Sybron Corpn. as well as assistance of technical nature related to electronic line of instruments from time to time under licensing arrangement and, therefore, it was agreed between parties inter alia that: "2. From time to time during life of this Agreement Sybon shall furnish Technical Assistance as hereinbefore defined in this Agreement to Taylor India. In addition deputation of technicians either way shall be subject to mutual agreement between parties and shall be governed by specific approval to be granted by Government of India on application in terms of numbers, period of assistance and training, rate of allowance to be paid, travel charges and other items of expense. Sybron hereby grants to Taylor India and Taylor-India hereby accepts, subject to conditions appearing below, exclusive licence to make, use and sell excepting however right of Sybron and Sybron subsidiaries to make, use and sell licenced Instruments in India during term of this Agreement, utilising technical property and Technical Assistance. In consideration of licences and rights granted pursuant to provisions of Art. 3 of this Agreement, Taylor-India will make payments in United States dollars, to Sybron, from time to time during term hereof, royalties with respect to sale of licensed instruments, computed and paid as indicated in Art. 5. Taylor-India recognizes that secret data and information supplied by Sybron pursuant to Art. (2) and Art. (3) is being given in confidence and for Taylor-India's use only pursuant to this Agreement and Taylor-India agrees that it will not furnish or divulge and will use all reasonable efforts to prevent its employees from furnishing or divulging any such secret information or details thereof to any other party. (9) (a) This agreement will become effective upon execution hereof and upon receipt of Sybron of duly authenticated copies of official approval of this Agreement by Government of India. Until such approval is obtained, neither party shall be bound by, nor incur any obligation under this Agreement. Unless otherwise terminated in accordance with provisions of this Agreement this Agreement with continue in effect for period of five (5) years from date of commencement of commercial production of Licenced Instrument provided production is not delayed beyond three (3) years from date of this Agreement so that in no event shall this Agreement continue in effect beyond eight (8) years from date of approval of this Agreement by Govt. of India. Taylor-India shall notify Sybron of date of commencement of commercial production of Licensed Instruments under this Agreement. (b) Either party hereto may terminate this Agreement sooner based upon violation of any material provisions hereof giving to other party ninety (90) days written notice to that effect mailed to such other party at its address appearing above or its last known address furnished by it in writing. Termination for violation of material provision shall become effective at end of such ninety (90) day period unless violation shall have by then been cured. (c) Notwithstanding foregoing, Agreement shall terminate automatically and be of no further force or effect in event Taylor-India becomes bankrupt, is liquidated is placed under controller administration, or makes general assignment for benefit of creditors or upon happening of any similar circumstances. Taylor-India will be entitled to give sub-licence of technical know how product design under this Agreement to another India party should become necessary. terms of such licence will be as mutually agreed to by Sybron, Taylor-India and Indian party and will be further subject to approval of Govt. of India. Taylor Instrument will also pay Sybron lump sum of Rs. 7.5 lakhs (Rupees seven lakhs and firty thousand) subject to deduction of taxes. lump sum shall be paid in three instalments as follows: (a) one-third after Agreement has been taken on record (b) one-third at time of transfer of Technical property, and(c) one third after commencement of commercial production." Clause. 1 of agreement defined, inter alia, following terms: (a) "Licensed Instruments" shall refer to and be defined as electronic industrial and scientific control process instruments, as set forth in Appendix annexed to and made part of this Agreement; (b) "Technical Property" as used herein shall mean such date reduced to drawings, designs, specifications, instruments or other forms of writing as is necessary to manufacture of Licensed Instruments in economical and functional manner including following secret and confidential data; Factory layout plans, designs, and drawings; Drawings of parts, sub- assemblies, assemblies and test equipment; Material specifications; Performance specifications; Test specifications Manufacturing; operation plants; Operations analysis plants; Test equipment instructions; and in addition thereto, such other written documentation as is necessary to further enable Taylor-India to carry on manufacture and sales of Licensed Instruments in most efficient manner, provided, however that Sybron/Taylor owns Technical Property or is permitted under license to transmit Technical Property to others. (c) "Technical Assistance" as used herein shall mean right to Taylor- India to receive, and obligation of Sybron to furnish from time to time during life of this Agreement, information and assistance to enable Taylor- India to carry out manufacture and sale of Licensed Instruments in most economical and functional manner including following: continuing flow of Technical Property as hereinbefore defined in Article 1(b); Consultation services of Sybron's technical experts; Training of reasonable number of Indian engineers at Rochester, New York; Assistance and guidance in start up of Taylor India's factory; Technical supervision of manufacturing processes." Appendix to Agreement listed 8 items, which would be termed as License Instruments in terms of cl. 1(a) of Agreement (supra). On basis of aforesaid provisions of Agreement ld. CIT (A) held that following facilities were provided to assessee under agreement: (i) Exclusive licence to make and sell Licensed Instruments in India during term of agreement, and (a) to enable assessee to exploit said license, foreign collaborator agreed to render technical assistance and (b) to make available technical property to assessee. (ii) Technical Property; as defined (iii) Technical Assistance; as defined." So far as first facility was concerned payment for it was, according to CIT (A) to be made in form of royalty as per cl. 4 of agreement. lump sum payment, referred to in cl. 12 of agreement was according to ld. CIT (A) in respect of second and third facilities referred to above. expenditure pertaining to acquisition of technical property was, according to him, capital expenditure, whereas expenditure incurred on obtaining technical assistance was revenue expenditure. For coming to above conclusion, ld. CIT (A) relied on decision of Hon'ble Kerala High Court in case of Catayst and Chemical (India) Ltd. vs CIT (1982) 31 CTR (Ker) 274: (1982) 137 ITR 110 (Ker). Reference has also been made to cl. 10 of Agreement, wherein assessee has been authorised to give sub-license of Technical know-how product, design etc. to another Indian party and it has been inferred on basis of aforesaid clause that assessee could give such sub-license only if technical know product design etc. obtained by it were its property. aforesaid conclusion of ld. CIT (A) has been assailed by ld. counsel for assessee as erroneous. According to assessee, entire agreement was for period of five years only and acquisition of technical know-how for aforesaid period could not be regarded as acquisition of asset of enduring nature. So far as cl. 10 was concerned it was merely enabling clause and did not signify that assessee was owner of technical property received by assessee from Sybron Corporation New York. sub-license was subject to terms to be agreed upon by M/s Sybron Corpn. and it would not be necessary to obtain their consent, if assessee were full owner of technical property received from Sybron Corpn. Our attention is invited in this connection to observations of their Lordships of Hon'ble Delhi High Court in case of Triveni Engg. Works Ltd. vs CIT (1982) 29 CTR (Del) 234: (1982) 136 ITR 340 (Del) wherein, even though technical know how was obtained for period of 10 years, payment made for acquiring said technical know how treated as revenue expenditure by their Lordships. In present case, acquisition of technical know how was only for period of five years and so, according to learned counsel for assessee it could not be regarded as capital acquisition. Reference is also made to decision of Hon'ble Delhi High Court in case of Shri Ram Refrigeration Industries Ltd. vs. CIT (1981)127 ITR 746 (Del) and based thereon, it is urged that entire lump sum payment in present case, in addition to royalty, had to be regarded as revenue expenditure. On behalf of Revenue, above submission is opposed and our attention is invited to observations of their Lordships of Hon'ble Delhi High Court in case of Shri Ram Refrigeration Industries Ltd. (supra) at p. 759 which may be extracted here as follows for ready reference: "The principle laid down by Supreme Court in above decision is that if agreement results in absolute transfer of technical knowledge to assessee, assessee could be said to have acquired asset of enduring advantage but where payment is made only for obtaining access to information which does not become its own, payments cannot be elevated to be status of payments of capital nature.......Under terms of present agreement also, assessee does not acquire absolutely any information or knowledge from Westinghouse. What is it that assessee gets under agreement? Firstly it gets licence for manufacturing certain types of apparatus and material and to sell same. licence is partly exclusive and partly non-exclusive and even former can be converted into latter in certain circumstances. There is no right for granting any sub-license or for assigning licence to any other person except with consent Westinghouse.....The second advantage derived by assessee is access to technical and manufacturing information. Here again Westinghouse is only to communicate to assessee from time to time such information as it may be having in current use either in its factories or with other associated companies. information thus received from Westinghouse,...... is not to be parted with by licensee to any third parties whatsoever either during currency of argument or after termination thereof. Westinghouse has discretion to impart or decline to impart some types of information particularly that relevant to engineering development......the third advantage which assessee obtains is permission not to use trademark of Westinghouse or associated companies, but only to acknowledge license granted in favour of assessee for this purpose. only other provision which ensures to advantage of assessee is benefit of technical advice by collaborator training to employees of assessee and permission to send visitors on assessee's behalf to factories of Westinghouse. Taking all these together it is clear that whole object of agreement was only to obtain benefits of technical assistance for running business, restricted licence to limited use of patent rights of Westinghouse and use restricted to assessee alone and for duration of agreement of such technical information as may be supplied by Westinghouse. In light of these features of agreement, it can be appropriately said of agreement as well that it does not attempt to part with technical knowledge absolutely in favour of assessee and that Westinghouse had not sold their secret processes to assessee. " According to ld. departmental representative facts of present case are materially different from those of Shri Ram Refrigeration. Here technical property is sold once and for all by M/s Sybron Corpn. to assessee, and, after termination of agreement assessee can use said property in whatever manner it likes. Even while agreement is in existence assessee can issue sub-licence with regard to technical know-how product design etc. and so according to Revenue it is case where it has to be held that technical property was 'sold' to assessee by Collaborator and that assessee spent amount in question for obtaining such asset of enduring nature. In rejoinder ld. counsel for assessee submitted that now days technology was changing so fast that after period of five years, technical know-how received by assessee would become obsolete and would have no commercial value and therefore there was no point in saying that assessee had acquired asset of enduring benefit to assessee. We have given careful consideration to facts of case and rival submissions. It appears that by virtue of agreement in question assessee company obtained exclusive licence to make use and sell licensed instruments referred to above vide cl. (3) of agreement. To enable assessee to effectively exploit aforesaid exclusive licence it was agreed between parties that Sybron Corpn. would provide from time to time during life of agreement, which was of five years duration, technical assistance to assessee company. Technical assistance, as noted earlier, has been defined under agreement to mean right of assessee to receive information and assistance to enable Taylor-India to carry out manufacture and sale of licensed instruments and such assistance included inter alia "a continuing flow of technical property," to assessee namely, factory lay out plans, material specifications, performance specifications etc. Clause 4 provided for payments of royalties with reference to sales of licensed instruments and cl. 12 provides, in addition for payments of lump sum amount to Sybron Corpn. to be paid in three instalments specified in cl. 12 above. According to it, 1/3rd of lump sum amount was to be paid inter alia " at time of transfer of technical property." This property was to remain with assessee even after period of five years had expired and, there was no provision in agreement to return said property to M/s Sybron Corpn. According to cl. 10 of agreement Taylor-India were entitled to give sub-licence of technical know-how product design under this agreement to another Indian party, should it become necessary. M/s Sybron Corpn. had no say in selection of Indian party by assessee. Sybron Corpn. had however, say in settling term of sub-licence to be given by Taylor India to Indian Party during continuation of this agreement i.e. during period of five years. Thereafter, there was no control of M/s Sybron Corpn. on assessee-company to give sub-licence of technical know-how product design etc. obtained by assessee from M/s Sybron Corpn. Applying principle laid down by their Lordships of Hon'ble Delhi High Court in case of Shri Ram Refrigeration Industries Ltd. (1981) 127 ITR 746 (Del) (supra) to facts to present case as noted above, we have to ask crucial question, namely, "what is amount being paid for?" Part of amount i.e. 1/3rd of lump sum was being paid for transfer of technical property at initial stage, on basis of which assessee-company had to determine its factory lay out plans, drawings towards sub assemblies, assemblies and test equipments etc. This information, as noted earlier, was to remain with assessee permanently and there is no provision in agreement to its return. assessee could give sub-licence of above technical know-how to another Indian party, on terms to be mutually agreed upon between assessee Sybron Corpn. In view of aforesaid special features which did not detain in case of Shri Ram Refrigeration Ltd. it has to be said that part of lump sum payment was clearly for acquisition of technical know-how, and, by paying said amount, assessee had, in our opinion, acquired asset of enduring advantage. payment was made not merely for obtaining "access to information", which did not become assessee's own as was case in Shri Ram Refrigeration Industries Ltd. (supra). Here information obtained has become assessee's own and assessee has been authorised to give sub licence thereof, if necessary. In view of this peculiar position, we are in agreement with finding of ld. CIT (A) that part of payment is for acquisition of advantage of enduring nature and not merely for facility of "access to information of technical nature". value of such technical know how has been taken at Rs. 5 lacs by ld. CIT (A) however, appears to us to be unrelated with facts of present case. In our view, it would be in accordance with facts of case, if 1/3rd of Rs. 10 lacs is taken as value of "technical property" which was passed on to assessee by M/s Sybron Corporation. remaining payment was for technical assistance which was being given to assessee from time to time by M/s Sybron Corpn. and which M/s Sybron Corpn. was obliged to provide to assessee only for period of five years. Such advantage cannot, in our opinion, be construed as advantage of enduring benefit, following ratio of decision of their Lordships of Delhi High Court in case of Triveni Engg. Works Ltd. vs CIT (1982) 136 ITR 340 (Del) (supra). In view of above discussion, we hold 1/3rd of Rs. 10 lacs be regarded as payment for acquisition of capital asset and that remaining sum be regarded as having been laid out wholly and exclusively for purpose of assessee s business on revenue account. In respect of capital expenditure, assessee would be entitled to get investment allowance and depreciation on same terms and conditions as can be made available to "books". In accordance with opinion expressed above, we reject contention of Revenue to effect that entire payment was on capital account and that no depreciation and investment allowance was allowable thereon. assessee s appeal on this point is accepted partly as above. In result, both, appeals stand partly allowed. *** SOLID STATE DEVICES INDIA LTD. v. INCOME TAX OFFICER