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Commissioner of Income-tax, Bombay City-ii, Bombay Vs. T. Maneklal Mfg. Co. Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 73 of 1967 and Income-tax Reference No. 38 of 1968
Judge
Reported in[1978]115ITR725(Bom)
ActsIncome Tax Act
AppellantCommissioner of Income-tax, Bombay City-ii, Bombay
RespondentT. Maneklal Mfg. Co. Ltd.
Appellant AdvocateR.J. Joshi, Adv.
Respondent AdvocateS.E. Dastur, Adv.
Excerpt:
direct taxation - deduction - income tax act - whether sum of rs. 39101 was rightly allowed as revenue deduction - nature of advantage obtained under collaboration agreements by assessee-company - expenditure allowable as revenue expenditure and considered as wholly and exclusively laid out for purpose of carrying on business of assessee - held, concerned sum is allowed as deduction. - - clause 5 of the agreement provided for the foreign collaborator putting at the asseessee's disposal certain manufacturing documents like drawings and designs. 5. it is now fairly well settled that the i. it would appear that it would be improper and impermissible, unless some gross error or mistake is pointed out, to depart from the well-considered and well-reasoned view of the gujarat high court......4. at the hearing of these references mr. joshi fairly drew our attention to the decision of the gujarat high in cit v. s. l. m. maneklal industries ltd. : [1977]107itr133(guj) , where the gujarat high court considered two of these four agreements with which we are concerned in these references. these two agreements were between the assessees and s.l.m. wintherthur, and these are the collaboration agreements nos. 3 and 4 in our references respectively dated august 14, 1957, and march 7, 1961. it appears that some time after these collaboration agreements were entered into, the sister concern of the assessee, s.l.m. maneklal industries ltd. was floated and by subsequent agreements between the foreign collaborators and the assessee it was agreed that the name of the new company, s.l.m......
Judgment:

Desai, J.

1. Both these references may be disposed of by a common order inasmuch as they are references at the instance of the Commissioner under s. 256(1) of the I.T. Act, 1961, in respect of the same items but for two separate assessment years. In ITR No. 73 of 1967, the question referred to us is as follows :

'Whether, on the facts and in the circumstances of the case, the sums of Rs. 39,854 and Rs. 45,610 were rightly allowed as revenue deductions for assessment years 1962-63 and 1963-64, respectively ?' In ITR No. 38 of 1968, the question referred to us reads as under : 'Whether, on the facts and in the circumstances of the case, the sum of Rs. 39,101 was rightly allowed as revenue deduction ?'

2. The facts may be briefly state : The assessee-company for the purpose of carrying on its business entered into a number of collaboration agreements with certain foreign manufacturers. In these references, we are concerned with four agreements. The first one is dated January 30, 1959, entered into between the assessee and Benninger Engineering Co. Ltd. The agreement was to ensure for a period of 10 years and under the agreement the assessee obtained a right from Benninger Engineering Co. Ltd. to manufacture under a licence in India certain mercerised machines manufactured by Benninger; it was not entitled to grant any sub-licence. Clause 5 of the agreement provided for the foreign collaborator putting at the asseessee's disposal certain manufacturing documents like drawings and designs. The assessee expressly agreed not to allow access to any third party either directly or indirectly in respect of such drawings or documents; these were to be carefully guarded against misuse. It was specifically provided that these remained property of Benninger, the foreign collaborator, and were to be returned by the assessee to the foreign collaborators at the expiry of the agreement. There was a schedule of payment regarding these documentations (drawings, etc.). In the statement of the case, it is mentioned that there were three further similar agreements. The collaborators in the second of these agreements are Arts Maschinenbau Dr. Ing Meier Windhorst, Hamburg, and the date of the agreement was August 5, 1958. The third and the fourth collaboration agreements concerned in these references were between the assessee and S.L.M. Wintherthur : these were respectively dated August 14, 1957, and March 7, 1961. It is observed by the Tribunal that these agreements were more or less similar in nature.

3. The assessee claimed deductions in respect of the amounts of Rs. 39,854.78 for the year 1962-63 and Rs. 45,610-22 for the year 1963-64 and Rs. 39,101 for the assessment year 1964-65. This claim was rejected by the ITO who held that the expenditure incurred of such technical know how was of a capital nature because the effect lasted over a period of years. In appeal the AAC also held that payments were made only to acquire an asset of an enduring nature and, therefore, capital in nature. Being aggrieved, the assessee carried the matter further to the Tribunal. After having heard the parties and considering the materials, the Tribunal was of the opinion that this was to a case of purchase of the know-how or design outright but a mere right to use the drawings and designs and that only for the duration of the agreements, which, in the opinion of the Tribunal, could not be said to be very long. The Tribunal rejected the department's submissions that the assessee was given the exclusive right over these drawings and designs. According to the Tribunal, the expenses incurred were expenses wholly and exclusively laid out for the purpose of carrying on the business of the assessee, viz., that of manufacture of machinery. The Tribunal accordingly held that the payments made for the drawings and designs were only for the use thereof and were not for drawings and designs were only for use thereof and were not for the acquisition of an asset which could be termed as capital asset and that the payment was more or less in the nature of royalty payment. The Tribunal accordingly accepted the contentions of the assessee and allowed the appeals but gave certain directions as to calculation of the deductions claimed. We are not concerned with these directions.

4. At the hearing of these references Mr. Joshi fairly drew our attention to the decision of the Gujarat High in CIT v. S. L. M. Maneklal Industries Ltd. : [1977]107ITR133(Guj) , where the Gujarat High Court considered two of these four agreements with which we are concerned in these references. These two agreements were between the assessees and S.L.M. Wintherthur, and these are the collaboration agreements Nos. 3 and 4 in our references respectively dated August 14, 1957, and March 7, 1961. It appears that some time after these collaboration agreements were entered into, the sister concern of the assessee, S.L.M. Maneklal Industries Ltd. was floated and by subsequent agreements between the foreign collaborators and the assessee it was agreed that the name of the new company, S.L.M. Maneklal Industries Ltd., should be substituted in the place and stead of the assessee. The Gujarat High Court, therefore, was considering these very agreements and the Tribunal, it is pertinent to note, has observed that the terms of these agreements are more or less identical with the terms of the agreement between the assessee and Benninger which have been extracted in the statement of the case. After considering the terms of the agreements the Gujarat High Court upheld the decision of the Gujarat Bench of the Tribunal which was to the effect that the expenses were allowable as revenue expenditure.

5. It is now fairly well settled that the I.T. Act being an all India statute, uniformity in the construction of its statutory provisions by the various High Courts is eminently desirable and the considered opinion of any other High Court should be followed unless there are overriding reasons for taking a divergent view. This salutary principle would apply with greater force in these references and make it incumbent on us to follow the Gujarat decision inasmuch as the Gujarat High Court was considering two of the very four agreements which are brought for consideration before us in these two references and, therefore, the principle of uniformity is not required to be followed by analogy but directly. It would appear that it would be improper and impermissible, unless some gross error or mistake is pointed out, to depart from the well-considered and well-reasoned view of the Gujarat High Court. Mr. Joshi has very fairly stated that he is not able to point out any such error or mistake or to show that the Gujarat High Court has ignored any relevant consideration or vital provision of the agreements.

6. It appears to us unnecessary, therefore, to apply our mind fully to the clauses of the agreements, as we find that the Gujarat High Court has fully applied its mind and taken a reasoned decision on the question. It will be sufficient to observe that, broadly speaking, we are in agreement with the approach of the Tribunal indicated in para. 12 of the statement of the case where the Tribunal considered the nature of the advantage obtained under the collaboration agreements by the assessee-company and came to the conclusion that the expenditure was allowable as revenue expenditure and could be considered as wholly and exclusively laid out for the purpose of carrying on the business of the assessee. In view of the Gujarat decision referred to above, it is unnecessary to set out the rival contentions in detail and to evaluate them more closely as we would ordinarily have done.

7. In the result, the questions referred to us in the two references are answered in the affirmative and in favour of the assessee.

8. The parties, however, will bear their own costs of these references.


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