1. This is a reference under s. 256(1) of the I. t. Act, 1961. Two questions, have bene referred to us for our determination in this references, namely :
' (1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the expenditure of Rs. 2,043 incurred on drafting and printing of the articles of association of the assessee-company was a permissible revenue deduction ?
(2) Whether, on the facts and in the circumstances of the case, the Technical Services Fee of Rs. 17,098 paid by the assessee to M/s Wyman-Gordon Co. Ltd,. of U. S. A. was allowable as revenue expenditure ?'
2. As far as the fist questions is concerned, it is common ground that is is concluded in favour of the assessee by the decision of the Division Bench of this court tin CIT v. Elphinstone Spinning and Weaving Mills Co. Ltd. : 100ITR139(Bom) . We therefore, have to really consider only the second question referred to us
3. The relevant face, as far as the second questions is concerned, are as follows :
The assessee entered into two separate agreement, both dead 20th November, 1961, with Wyman Gordon Company Ltd, of U. S. A. (referred to hereinafter as 'the American company'), one for financial collaboration and e other for technical collaboration, It is common ground that the financial collaboration agreement is not relevant for the determination of the question before us,. As far as the technical collaboration agreement is concerned, the Tribunal found the following facts :
' (1) The technical information, advice and assistance to be finished by the collaborator, that is, the American company, on a regular and continuing basis related to raw material, specifications for manufacture of forgings, castings and components, supply of qualified engineers as well as advice on merchandising marketing and sales programs.
(2) the visits by assessee personnel tot he plants of the American Company were in order to obtain full knowledge, information and experience in the operation of the processes and formulate used in the manufacture of such products.
(3) the assistance Relating to manufacturing problem to be given by the American company was by way of advice on the difficulties experienced and outlined by the assessee in the course of manufacturing.
(4) The period of the agreement was ten years, and though the agreement stated that it was automatically renewable for further five yeas period in fact no automatic renewable was possible because the and such approval could not be taken for granted.
(5) The assessee was required to treat such technical information as confidential. The assessee had not purchased any technical information outright, but it merely acquired the right to draw upon the technical knowledge of the collaborator for the period of the agreement. Each of the agreement was to enable the assessee to commence and continue the manufacture in India of forgings and castings specialized in by the American Company.'
4. In the financial year relevant to the assessment year 1963-64 the assessee paid an amount of Rs. 17,089 under the said agreement to the American Company and claimed it as a revenue deduction,. The ITO disallowed this claim, inter alia, holding that the said expenditure was of a capital nature. On an appeal by the assessee to the AAC, the ACC allowed the appeal and held that the services received under the said agreement were on account of assistance in the erection of th plant and hence the amount aforesaid wa allowable as revenue deduction. On an appeal by the REvenue, to the Income-tax Appellate Tribunal, the Tribunal gave its findings as stated earlier, ON the basis of these finding, the Tribunal came to the following conclusion :
' (1) that the service under the said technical collaboration agreement were contenting services by the collaborator for the fees stipulated in article XII of the agreement and these fees were paid by the assessee for the technical knowledge and experience of the collaborator as a licensee, and it could not be said that the collaborator had parted with any of its business.
(2) that it could not be said, in the circumstances of the case, that the assessee had acquired any assets or advantage of an enduring nature for the benefits of its business.
(3) That the assessee had not outright purchased any technical information but it merely acquired the right to draw upon the technical knowledge of the collaborator for the period of the agreement.
(4) That the collaborator merely made its technical know-how available to the assessee, and gave advice and assistance in the manufacturing of the assessee products.
(5) That the stipulated payment of the fee was in the nature of royalty and was recurrent and entirely dependent on e actual manufacture and sale buy the assessee.
(6) That the American Company wa merely supplying technical information to the assessee to enable it to carry on business in terms of the agreement, and the payment could not be regarded as the purchase price of any asset.'
5. On the basis of these conclusions, the Tribunal held that the assessee was entitled to claim the said amount of Rs. 17,089 as a revenue deductions. It is from this decision of e Tribunal that the aforesaid question has been referred to us.
6. The contention of Mr. Joshi, learned counsel for the Commissioner, is that the payment of Rs. 17,089 was made by the assessee to the American company for acquiring an asset of an enduring value, namely, for acquiring technical knowledge, and, as the period of the agreement was of ten years with an option for renewal, it must be regarded as a capital payment. Mr. Dastur, on the other hand, contended that the payment was purely of a revenue nature and that under the said technical collaboration agreement the assessee had not acquired any asset of an enduring nature. We find that the controversy raised before us is practically covered by the decision of a Division Bench of this Court, to which one of us was a party, namely, CIT v. Tata Engineering & Locomotive Co. Pvt. Ltd. : 123ITR538(Bom) . In that case the agreement in question were in essential aspect similar to the technical collaboration agreement before us. It was held that technical know-how cannot be called a tangible asset. Technical know-how and technical advice for the time being cannot, in these days of technological and scientific development and consequent change in production techniques, be treated as a capital asset. The length of the period of agreement is not of much consequence, if the nature of the advice is such that it cannot be called a capital asset. Merely because an assessee who has entered into a contract with regard to know-how is entailed to use the know-how even after the agreement has expired, it does not mean that he has acquired a benefits of an enduring nature. Agreement of foreign collaboration, where foreign know-how is availed of in lieu of payment, is, in substance, a transaction of acquiring the necessary technical information with regard to the technique of production. Instead of employing persons having knowledge of techniques and utilizing their knowledge, technical know-how is acquired. Technical know-how made available by a party to such an agreement does not stand ton the same footing as protected right under a registered patent. it was held in that case that, in essence, the agreements were for acquiring technical knowledge regarding method of production, and in the case of Benz for use of the trade name. The assessee had not acquired any asset or advantage of an enduring nature for the benefits of its business. The amounts paid for provision of the know-how and licence to use the trade name were revenue expenditure. Following that decision, we must decide the aforesaid question in favor of the assessee.
7. In the result, the questions referred are answered as follows :
Questions No. 1 : IN the affirmative.
Question No. 2 : In the affirmative.
8. Both the questions are answered in favour of assessee.
9. The Commissioner to pay the costs of the reference.