JUDGMENT Hon’ble Dr. Kaushal Jayendra Thaker, J.—All these appeals have raised common substantial questions of law, therefore, have been heard together and are being decided by this common judgment. However, individual appeal relates to different assessment years and different dates of order of Tribunal, therefore, such details are given in the following chart. S. No. Appeal No. Assessment year Appeal No. before Tribunal Date of order 1 503 of 2008 2003-2004 3173/Del/2007 & 3408/Del/2007 16/05/08 2 187 of 2010 1999-2000 888/Del/2009 10/07/08 3 277 of 2010 2005-2006 3030/Del/2009 23/10/09 4 34 of 2010 2002-2003 1673/Del/2009 03/07/09 5 28 of 2010 2001-2002 889/Del/2009 29/06/09 2. Income Tax Appeal (hereinafter referred to as ‘ ITA’) No. 503 of 2008 was admitted on the following substantial questions of law: “(1) Whether on the facts and circumstances of case the ITAT was legally justified in holding that fee for technical service of 29,40,64, 000/- and royalty payment of 18,55,24,000/- as revenue expenditure inspite of the fact that they were of enduring nature. (2) Whether on the facts and circumstances of case, ITAT has erred in law by ignoring the fact that limited right to use know how that yields enduring benefits cannot be termed as revenue expenditure. (3) Whether on the facts and circumstances of case, the ITAT was right in holding non existence of ownership rights for manufacturing activities, making payments of technical know how, and revenue paid for manufacturing activities can be termed as revenue in nature.” 3. In all the remaining matters, Tribunal has followed its earlier decision dated 16.5.2008 and therefore, all the subsequent appeals were connected with leading ITA No. 503 of 2008, hence, facts have been taken for convenience from Income ITA No. 503 of 2008. Same questions of law are involved in all the other matters and hence not reproduced. 4. Basic facts are not disputed and real dispute relates to the question, “whether amount paid towards “Technical know-how” and ‘Royalty’ should be treated as “Revenue Expenditure” or “capital expenditure”. 5. M/s. Honda Motor Company Ltd. Japan (hereinafter referred to as “HMCL, Japan”) entered into a joint venture agreement dated 12.9.1995 with M/s. Seil Ltd, (a company duly registered under the Companies Act, 1956 (hereinafter referred to as “Act,1956”) having its registered office at Surya Kiran Building, 19, Kasturba Gandhi Marg, New Delhi) (hereinafter referred to as “Seil India”.) 6. 5. M/s. Honda Motor Company Ltd. Japan (hereinafter referred to as “HMCL, Japan”) entered into a joint venture agreement dated 12.9.1995 with M/s. Seil Ltd, (a company duly registered under the Companies Act, 1956 (hereinafter referred to as “Act,1956”) having its registered office at Surya Kiran Building, 19, Kasturba Gandhi Marg, New Delhi) (hereinafter referred to as “Seil India”.) 6. Ministry of Industry, Government of India, vide letter dated 13.11.1995 approved application of HMCL, Japan and Seil India to enter into a foreign collaboration and constitute a joint venture. Terms and conditions of approval letter were amended by subsequent letters of Government of India dated 27.12.1995 and 19.1.1996. 7. A joint venture Company was incorporated with the name of “M/s. Honda Seil Cars India Private Ltd.” (hereinafter referred to as ‘HSCIL/Assessee’). 8. Total share capital of HSCIL/Assessee was 36 crores shares out of which 356399995 shares were held by HMCL, Japan while remaining 3600005 shares held by M/s. Seil India. In other words, joint venture was almost owned by HMCL, Japan, having around 99% shares and Seil India (local Indian company) owned only 1% shares. 9. Thereafter, M/s. HMCL, Japan who held about 99% share of joint venture company/subsidiary company i.e Assessee, entered into an agreement on 21.5.1996 with HSCIL/Assessee which is called as “Technical Collaboration Agreement”. Agreement stipulated and termed HMCL, Japan as “licensor” and HSCIL/Assessee as licensee. 10. To keep record straight, we may also mention a fact that at the time of execution of technical collaboration agreement, HSCIL/Assessee was initially incorporated as a Private Limited Company i.e HSCIL but subsequently it became Public Limited Company. 11. Agreement was incorporated stating the facts that HMCL, Japan is engaged in the business of development, manufacture and sale of automobiles and their parts and through experience accumulated in such business, has acquired and possesses certain intellectual property rights, manufacturing information and know-how, quality standards and marketing methods relating to such products. HSCIL/Assessee/lecensee was desirous of obtaining and receiving a ‘licence’ and ‘technical assistance’ from licensor for manufacture and sale of certain automobiles. HMCL, Japan was willing to give such licence and assistance. 12. Agreement itself defines certain terms, namely, ‘Products’, ‘Parts’, “Manufacturing Facilities”,”Intellectual Property Rights”, “Know-How” and “Technical Information” in Articles 1, 2, 3, 5, 6 and 7 of the agreement, which read as under: “1. HMCL, Japan was willing to give such licence and assistance. 12. Agreement itself defines certain terms, namely, ‘Products’, ‘Parts’, “Manufacturing Facilities”,”Intellectual Property Rights”, “Know-How” and “Technical Information” in Articles 1, 2, 3, 5, 6 and 7 of the agreement, which read as under: “1. The term “Products” shall mean the automobiles, the specific models and types of which are listed in Exhibit I attached hereto; 2. The terms “Parts” shall mean the component parts of the Products and shall include the parts for repair or rep0lacement of the Products. The LICENSOR may in consultation with licnesee, taking into consideration the Intellects. Property Rights, the Know-How and the Technical Information classify the parts as (a) the parts which are supplied by LICENSOR or its designees to licnesee hereunder (hereinafter referred to as the “Supply Parts”), and (b) (I) the parts which may be locally manufactured by licnesee hereunder (including the pans locally manufactured by any subcontractor for licnesee on a subcontract basis) and (ii) the parts which may be procured by licnesee from suppliers (excluding such subcontractors) other than LICENSOR (such Parts (b) (I) and (ii) being hereinafter collectively referred to as the “Domestic Parts”). Such classification shall be deemed to be so effected from the date of issue Notice to this effect by the LICENSOR to the licnesee. In this regard, the parts which may be locally manufactured by licnesee hereunder as referred to in (b) (I) above shall particularly be hereinafter referred to as the “licenced Parts”; 3. The terms “Manufacturing Facilities” shall mean jigs, tools, dies, machinery and equipment which licnesee uses for the manufacture, assembly, testing of inspection of the Products; 5. The term “Intellectual Property Rights” shall mean those patents, utility models design patents and other intellectual property rights directly relating to the Products or the licenced Parts themselves, or relating to the manufacture of the Products or the licenceD parts (including may pending application thereof, but excluding trademarks, and excluding patents utility models design patents and other intellectual property rights relating to the Manufacturing Facilities and the manufacture thereof) which LICENSOR owns at the time of execution of this Agreement or may own from time to time during the term of this Agreement or under which LICENSOR is entitled to grant a licence to LECENSEE; 6. The term “Know-How” shall mean any and all secret technical information (except for the Intellectual Property Right), whether in writing or not, including but not limited to drawings, standards, specifications, material lists, process manuals and direction maps, which directly relates to the Products or the licenced Parts themselves or is necessary for the manufacture of the Products or the licenced Parts and which LICENSOR owns at the time of execution of this Agreement or under which LICENSOR is entitled to grant a licence to licnesee; 7. The term “Technical Information” shall mean (I) the Know-How, and (ii) any technical information, not included in the Know-How, such as service materials and Japanese Industrial Standard (JIS), Whether in writing or not, which directly relates to the Products or the licenced Parts or is necessary for the manufacture of the Products or the licenced Parts and which LICENSOR owns at the time of execution of this Agreement or may own from time to time during the term of this Agreement or under which LICENSOR is entitled to grant a licence to licnesee, and the Technical Information shall include the “Technical Materials” designated by LICENSOR as “Technical Materials” (emphasis added) 13. Licence was granted by HMCL, Japan to an indivisible, non-transferable and exclusive right and licence to manufacture, use and sell the products and the licensed parts within the territory under the intellectual property rights by using know-how, and technical information. It also provided that licnesee i.e. HSCIL/Assessee may grant sub-licences with a prior written consent of licensor. It also provided that to sale or export any products and parts, to any place outside territory of India, prior consent of licensor would be required. 14. In view of aforesaid licence, a consideration/lump sum fee agreed between parties was 30.5 million U.S Dollar, payable in five continuous equal installments by licensee to licensor and payment thereof was to commence from third year after commencement of commercial production. Besides, licensee was also liable to pay royalty of 4%, both on internal and exports, subject to taxes. Article 14 of agreement which talks of lump sum fee and royalty reads as under: “14.1 In consideration of the right and licence granted to licensee under Article 2 hereof and of the furnishing of the Technical Information under Article 4.2 hereof, licensee shall pay to LICENSOR the following fees: 1. Article 14 of agreement which talks of lump sum fee and royalty reads as under: “14.1 In consideration of the right and licence granted to licensee under Article 2 hereof and of the furnishing of the Technical Information under Article 4.2 hereof, licensee shall pay to LICENSOR the following fees: 1. Lumpsum fee: The amount of lumpsum fee payable by the licensee to the LICENSOR shall be USS 30.5 million. This fee shall be payable in 5 continuous equal annual installments, the amount of each of which installments shall be six million one hundred thousand US dollars (USS6,100,000), beginning from the 3rd year after the commencement of Commercial Production. The lump sum fees shall be payable by licensee in currency of US dollars by bank transfer remittance to the bank account designated by LICENSOR, based on final Government approval. 2. Royalty: The rate of royalty payable by the licensee to the LICENSOR shall be Four (4) percent; both on internal sales and exports, subject to taxes. The royalty shall calculated on the basis of the ex-factory sale price of the product exclusive of excise duties, minus the cost of standard bought out components and the landed cost of imported components irrespective of the source of procurement, including ocean-freight, insurance, custom duties, and other similar charges. The royalty shall be payable for a period of seven (7) years from the date of commencement of Commercial Production. List of standard bought out items is as per exhibit II. 14.2 The total amount of royalty specified in the counter signed report and invoice under Article 13.1 hereof shall be payable by licensee in the currency of US Dollars by bank transfer remittance to the bank account designated by LICENSOR, so that such remittance shall reach LICENSOR not later than the 10th day of month next following the month in which such counter-signed report and invoice reach licensee. In the event the currency in which the amount of running royalty is calculated differs from the currency in which payment of the running royalty is to be made, then conversion shall be made in accordance with the the final quotation of the telegraphic transfer selling rate of exchange prevailing at the time of remittance by the Delhi office of any international bank, mutually agreed separately. 14.3 All payments and remittances by licensee will be subject to Tax Deduction at Source (TDS)/levy of CESS (under Research and Development Cess Act, 1986). Receipt by LICENSOR of any payment tendered hereunder shall not constitute LICENSOR’S acceptance of any account, schedule or figure on which such payment is based. All payments made or to be made by licensee to LICENSOR hereunder shall not be refundable to licensee, in any facts or circumstances whatsoever. If licensee fails to make any payment here under on the due date, licensee agrees to pay a late payment fee in the amount equivalent to LIBOR +TWO (X) percent per annum in the payment currency, calculated on the basis of a 365 day year, subject to Government of India/RBI approvals/guidelines prevailing at that time. 14.4 It is understood and confirmed that it should be separately agreed to by the parties hereof in the “Memorandum on Exchange of Technicians” referred to in Article 4 hereof the any and all fees, costs, expenses and other consideration for and in connection with the technical guidance provided by LICENSOR by dispatching to licensee technical experts (s) of LICENSOR and the technical training of licensee’s engineers) at a factory or factories of LICENSOR or any of its designers, including but not limited to technical guidance fees, per dien allowances, traveling expenses, staying or living expenses and other incidental expanses, shall be payable by licensee to LICENSOR in accordance with such”Memorandum on Exchange of Technicians”, separate from and in addition to the payments under this Article 14, and that no amount of any such fees, costs, expenses or other consideration is included in the payments under this Article 14.” (emphasis added) 15. Article 19 provides term/tenure of agreement and reads as under: “Article 19. Article 19 provides term/tenure of agreement and reads as under: “Article 19. TERMS OF AGREEMENT This Agreement shall become effective on the Effective Date, and shall continues in full force and effect for period of ten(10) years from the date of agreement or seven (7) years from the date of commencement of commercial production, and shall thereafter be renewed subject to the prevailing laws in India; provided, however, that this Agreement may be terminated by either party at the end of the initial period as mentioned above or at the end of any subsequent renewed period by written notice to that effect given to the other party at least three (3) months prior to the expiration of initial period or any subsequent renewed period. Not withstanding the foregoing, in the event of termination of the Joint Venture Agreement, this Agreement shall accordingly terminate forthwith.” (emphasis added) 16. Agreement can be terminated by either of the parties by giving sixty days’ notice, in case of default in performance of obligations under the agreement, as contemplated in Clause 20.1. Consequence of termination of agreement is provided in Article 21 and reads as under: “21.1 In the event of the expiration or any other termination of this Agreement for any reason whatsoever, (except where the parties have taken steps for the renewal of the agreement) and unless otherwise agreed upon by the parties hereto, 1. licensee shall, within 90 days, discontinue (I) the manufacture, sale and other disposition of the Products and the Parts, and (ii) the use of the Intellectual Property Rights, Technical Information licensed or furnished by LICENSOR under this Agreement. 2. licensee shall promptly return to LICENSOR all particular documents and tangible property supplied by LICENSOR in connection with this Agreement and belonging to LICENSOR and shall keep all Information received by licensee hereunder secret and confidential in accordance with Article 7 hereof; 3. 2. licensee shall promptly return to LICENSOR all particular documents and tangible property supplied by LICENSOR in connection with this Agreement and belonging to LICENSOR and shall keep all Information received by licensee hereunder secret and confidential in accordance with Article 7 hereof; 3. licensee shall not be entitled to demand from LICENSOR, for the reason of the expiration or termination of this Agreement or the failure to renew or extend it, any damages, reimbursements or other payments on account of the current or prospective profits on licensee’s sale or anticipated sale of the Products and the Parts, or on account of the establishment, development or maintenance of the goodwill or other business of licensee, or on account of any other cause of thing whatsoever, except as provided in this Agreement; 4. Even after the expiration or termination of this Agreement for any reason whatsoever, the licensee permits LICENSOR or its agents to have access to licensee’s factories and other facilities and to make the necessary inspection to confirm whether licensee is observing its obligations under this Article 21.1; 5. LICENSOR may at its option, but without obligation to do so, repurchase or cause to be repurchased at fair price agreed upon by the parties hereto, all or any portion of the Products and the Parts which licensee then has on hand and which remain unso2ld and unused at the time of the expiration or termination of this Agreement; 6. LICENSOR may at its option sell, directly or indirectly, the Products and the Parts repurchased by it under paragraph (5) above in the Territory or any other country, without any liability on the part of LICENSOR, to account to licensee for any part of the proceeds of such sale or any other sums whatsoever; 7. LICENSOR may at its option sell, directly or indirectly, the Products and the Parts repurchased by it under paragraph (5) above in the Territory or any other country, without any liability on the part of LICENSOR, to account to licensee for any part of the proceeds of such sale or any other sums whatsoever; 7. If LICENSOR does not exercise its option referred to in Paragraph (6) above within a reasonable period of time after the expiration or termination of this Agreement, then licensee may, notwithstanding the provision set forth in Paragraph (1) above, sell on a non-exclusive basis, the Products and the Parts which licensee has on hand at the time of the expiration or termination of this Agreement within such a reasonable period of time as may be agreed upon by the parties hereto; provided, however, that such sale shall be made in accordance with this Agreement and without impairing LICENSOR’s reputation, provided further that the said sale shall be so executed without using the Trade mark of the LICENSOR in full or in part, and provided further, that running royalties thereon shall be paid to LICENSOR on the same terms and conditions as provided herein. (emphasis added) 21.2 This expiration or any other termination of this Agreement here under shall be without prejudice to any right which shall have accrued to either party here under prior to such expiration or termination.” (emphasis added) 17. Rights and duties in the agreement are not assignable, delegatable or transferable, directly or indirectly, by either party without prior written consent of other party but licensor, however, is conferred an authority to assign, delegate or transfer the agreement or any rights or duties there under. 18. We may look other parts of agreement, wherever necessary during course of discussion. Suffice it to mention at this stage that as a part of agreement, there are certain memorandum which were also executed and the same are as under: a. Memorandum on exchange of technician. b. Memorandum on supply of parts. c. Memorandum on supply of manufacturing facilities. 19. Assessee filed a return on 29.12.1999, declaring a net loss of Rs. 14,59,91,000/- in the office of Joint Commissioner of Income Tax, Special Range 26, New Delhi for Assessment Year (hereinafter referred to as “AY”) 1999-2000. Later on revised return was filed declaring loss of Rs. 14,61,10,910/- on 30.3.2001. c. Memorandum on supply of manufacturing facilities. 19. Assessee filed a return on 29.12.1999, declaring a net loss of Rs. 14,59,91,000/- in the office of Joint Commissioner of Income Tax, Special Range 26, New Delhi for Assessment Year (hereinafter referred to as “AY”) 1999-2000. Later on revised return was filed declaring loss of Rs. 14,61,10,910/- on 30.3.2001. Subsequently, jurisdiction was transferred to Assistant Commissioner, Income Tax, Circle Noida (hereinafter referred to as “ACIT)”. Assessment was completed on 21.3.2002 under Section 143(3) of Income Tax Act 1961 (hereinafter referred to as “Act 1961”) at a net loss of Rs. 8,48,61,712/-, after making addition of Rs. 3,03,01,605/-. 20. Assessee thereafter preferred appeal before Commissioner of Income Tax (Appeals), Ghaziabad (hereinafter referred to as “CIT(A)”), who partly allowed appeal, granting reliefs of Rs. 1,19,908/-. Subsequently, for re-assessment, a notice dated 20.5.2005 was issued under Section 148 for the reason that Assessee made payment of royalty of Rs. 7,96,02,000/- to HMCL, Japan and claimed deduction, treating the same as ‘Revenue Expenditure’. In the opinion of Assessing Officer (hereinafter referred to as ‘A.O’), aforesaid income has escaped assessment since, it was a capital expenditure. Ultimately assessment order was passed on 24.8.2006, making an addition of Rs. 7,96,02,000/-, treating it a ‘Capital Expenditure’ and not ‘Revenue Expenditure’. 21. For AY 2001-2002 assessee filed return on 30.10.2001, declaring a net loss of Rs. 68,14,22,302/-. This case was taken in scrutiny and notice under Section 143(2) was issued on 25.10.2002. ACIT passed ultimate assessment order dated 26.3.2004, treating following amount as ‘Capital Expenditure’ (which was claimed by assessee as ‘Revenue Expenditure’), and made addition thereof accordingly. S. No. Nature of expenditure Amount 1. Expenditure of capital nature Rs. 60,07,099/- 2. Technical Guidance Fee Rs. 28,67,00,000/- 3. Royalty payment Rs. 12,38,37,000/- 4. Capital expenditure on R & D Rs. 57,44,102/- Total Rs. 25,91,34,101/- 22. For AY 2002-2003, Assessee filed return on 31.10.2002 showing net loss of Rs. 93,03,99,726/-. Thereafter a revised return was filed on 29.3.2004, disclosing a net loss of Rs. 92,19,99,489/-. Here also case was selected for scrutiny and notice under Section 143(2)/142(1) dated 11.10.2004 was issued. In assessment order dated 29.3.2005 passed by ACIT, it treated payment made towards ‘Technical know-how’ and ‘Royalty’ to the tune of Rs. 29,20,07,000/- and 15,60,93,000/- respectively as ‘Capital Expenditure’ and made additions, thereof, besides others. 23. For AY 2003-2004, Assessee filed return on 27.11.2003, showing income of Rs. In assessment order dated 29.3.2005 passed by ACIT, it treated payment made towards ‘Technical know-how’ and ‘Royalty’ to the tune of Rs. 29,20,07,000/- and 15,60,93,000/- respectively as ‘Capital Expenditure’ and made additions, thereof, besides others. 23. For AY 2003-2004, Assessee filed return on 27.11.2003, showing income of Rs. 70,63,844/- as capital gain income and NIL business income. This case was also selected for scrutiny and notice under Section 143(2)/142(1) of Act 1961 was issued on 8.10.2004. Ultimately, assessment order dated 27.3.2006 was passed by ACIT, and besides others, it treated the amount paid towards ‘Technical know-how’ and ‘Royalty’ as ‘Capital Expenditure’ and, hence, made additions thereof alongwith others. Payment towards ‘Technical know-how’ and ‘Royalty’ in the AY 2003-2004 were Rs. 29,40,64,000/- and 18,55,24,000/-, respectively. 24. The last case up for consideration relates to AY 2005-2006 wherein, Assessee filed return of income on 31.10.2005, showing income of Rs. 2,45,12,65,555/-. Since foreign exchange transaction under Section 92 of Act 1961 exceeded Rs. 5 Crores, this case came under compulsory scrutiny. Hence notice under Section 143(2) of Act 1961 was issued on 22.4.2006. ACIT in assessment order dated 29.12.2008 made additions, besides others, of the payments towards ‘Technical know how’ and ‘Royalty’, treating the same as ‘Capital Expenditure’ and not ‘Revenue Expenditure’. The amounts paid towards ‘Technical know-how’ and ‘Royalty’ were Rs. 26,62,04,000/- and Rs. 44,27,31,000/-, respectively. 25. In all the aforesaid matters, appeals preferred by assessee were disallowed by CIT(A), holding that payments made towards Technical know-how’ and ‘Royalty’ cannot be treated Revenue expenditure. Said decision of Commissioner has been reversed by Tribunal in judgments and orders impugned in these appeals. Therefore, the sole question up for consideration in all these appeals, as noticed above, relates to the nature of payments made towards “technical know-how” and ‘royalty’ whether can be treated to be a “revenue expenditure” or “capital expenditure”. 26. Basic contention raised on behalf of Revenue, i.e. appellant before us is that ‘Technical know-how’ and ‘Royalty’ payments are of enduring nature and therefore, same would qualify and liable to be treated as ‘Capital Expenditure’ and not ‘Revenue Expenditure’. 26. Basic contention raised on behalf of Revenue, i.e. appellant before us is that ‘Technical know-how’ and ‘Royalty’ payments are of enduring nature and therefore, same would qualify and liable to be treated as ‘Capital Expenditure’ and not ‘Revenue Expenditure’. Shri Manish Goel, learned counsel appearing for appellant in support of his submissions placed reliance on judgments in Scientific Engineering House (Pvt.) Ltd. v. Commissioner of Income-Tax, Andhra Pradesh, (1986) 157 ITR 86 (SC); Alembic Chemical Works Co.Ltd. v. Commissioner of Income Tax, Gujarat, (1989) 177 ITR 377 (SC); Jonas Woodhead and Sons (India) Ltd. v. Commissioner of Income Tax and, (1997) 224 ITR 342 (SC). 27. Per contra, Sri Roopesh Nath, assisted by Sri R.S. Agarwal, Advocates, appearing for Assessee respondent, contended that certain payments being of enduring nature, by itself would not be determinative of the fact whether the same is ‘Revenue Expenditure’ or ‘Capital Expenditure’ but there are other determining factors also and one of the same is whether payments are for the purpose of enhancing efficiency of business or to add to assets of Assessee. Reliance has been placed on Commissioner of Income Tax v. Ciba of India Limited, (1968) 69 ITR 692 (SC); Commissioner of Income Tax v. I.A.E.C(Pumps) Ltd., (1998)232 ITR 316; a full judgment of Andhra Pradesh High Court in Praga Tools Ltd. v. Commissioner of Income Tax, (1980) 123 ITR 773; a Bombay High Court judgment in Commissioner of Income Tax v. Tata Engineering & Locomotive Co.Pvt.Ltd., (1980) 123 ITR 538 (Bombay), a Calcutta High Court judgment in Commissioner of Income Tax v. Hindustan Motors Ltd., (1991) 192 ITR 619 (Cal.) and two judgments of Delhi High Court in Shriram Refrigeration Industries Ltd. v. Commissioner of Income-Tax, Delhi-I, (1981) 127 ITR 746 (Del.) and Triveni Engineering Works Ltd. v. Commissioner of Income Tax, (1982) 136 ITR 340 (Del.). 28. We have heard counsel for the parties and perused record, relevant statutory provisions and authorities, cited at the Bar and also other authorities relevant on the subject. 29. Revenue has supported its claim to treat aforesaid payments as capital expenditure, by construing certain clauses/articles of Technical Collaboration Agreement dated 21.5.1996. According to it, acquisition of ‘Technical know-how’ and licence are crucial for setting up business of Assessee. 29. Revenue has supported its claim to treat aforesaid payments as capital expenditure, by construing certain clauses/articles of Technical Collaboration Agreement dated 21.5.1996. According to it, acquisition of ‘Technical know-how’ and licence are crucial for setting up business of Assessee. It is not something which has been obtained subsequently in an already running business but ‘Technical know-how’ and licence was foundation of the business in question and for setting up of industrial establishment of Assessee. Shri Goel urged that apparently, agreement was signed in 1996 and at that time, Assessee was not already manufacturing any product so that it could be said that aforesaid payments were made to augment business prospects or to run more efficiently but ‘Technical know-how’ and licence etc. are the basic foundation for establishment, commencement and running of business. ‘Technical know-how’ and licence constitute basic input for setting up manufacturing plant. Agreement envisages payment of ‘Technical know-how’ in third year, after commencement of production. It also indicates that it covers a time which Assessee would take for its establishment and to run business, so as to make payment smoothly. Even earlier activities of company of Assessee, i.e incorporation of joint venture, approval from Government of India and foreign collaboration is for manufacture of motor car on proposed location. All these would show that firstly plant and manufacturing faculties were to be set up, and technical collaboration was foundation for this purpose. Apparently it was not towards improvement or running of existing business more efficiently. Restrictions to which Assessee relied so as to bring aforesaid payments within the ambit of ‘Revenue Expenditure’ are only by way of precaution and to wriggle out of real nature of payment, i.e ‘Capital Expenditure’. In fact, Assessee company is nothing but a predominant entity. Foreign company, namely HMCL, Japan held almost the entire shares, i.e 99%. Shares held by Indian Company is negligible i.e 1%. Hence, it is only a tactical foreign collaboration but for all practical purposes, it is an establishment by a foreign company itself in India and there is virtually no difference in two entities. Hence, it cannot be said that there is payment by one entity to another but, in fact, entire payment is for the benefit of same entity; and agreements etc. are only to wriggle out tax liability on payments under title ‘Technical know-how’ and ‘Royalty’. 30. Hence, it cannot be said that there is payment by one entity to another but, in fact, entire payment is for the benefit of same entity; and agreements etc. are only to wriggle out tax liability on payments under title ‘Technical know-how’ and ‘Royalty’. 30. On the contrary, defence of Assessee as accepted by Tribunal is that HMCL, Japan granted an indivisible non transferable and exclusive right and licence to use ‘Technical know-how’ and technical information for manufacture of automobiles, model and types mentioned in the agreement. Assessee acquired mere right to use technical information provided by HMCL Japan. Subsistence of agreement and ownership of ‘Technical know-how’ remained with HMCL, Japan throughout. Even after termination of agreement, it will go with HMCL, Japan and Assessee would thereafter not be entitled to use the same for its purpose. Assessee is not authorised to transfer to any other person ‘Technical know-how’ etc. on its own but here also it is absolutely controlled by HMCL, Japan, (licensor). Thus, Assessee had only limited right to use ‘know-how’. Assessee cannot be said to be owner of said ‘Technical information/know-how’ and it did not acquire any intellectual property right therein.”Technical know-how” and information was for the purpose of effective and better running of business. It will make no difference whether payments were made for running business or for the business which is yet to commence but payments would qualify to be a ‘Business Expenditure’ and not as a ‘Capital Expenditure’ since the same does not add to the Assessee, and capital of Assessee’s business. It is also pointed out that there are separate agreements with licensor i.e. HMCL, Japan, with respect to supply of manufacturing facilities as well as for obtaining services of technical experts for installation of those facilities. ‘Technical know-how’ supplied by HMCL, Japan was nothing to do with business or manufacturing by Assessee. It has nothing to do with business plants and machinery, which were capitalized under the relevant Assets heads and depreciation was provided therefor. No such depreciation is permissible in respect of ‘Technical know-how’ fee and ‘Royalty’. Hence, it was rightly claimed as ‘Revenue Expenditure’. 31. It has nothing to do with business plants and machinery, which were capitalized under the relevant Assets heads and depreciation was provided therefor. No such depreciation is permissible in respect of ‘Technical know-how’ fee and ‘Royalty’. Hence, it was rightly claimed as ‘Revenue Expenditure’. 31. In view of above submissions advanced on both the sides, we have to now examine and adjudicate whether nature of payments made towards fee for ‘Technical know-how’ and ‘Royalty’ would qualify to be treated as ‘Revenue Expenditure’ or ‘Capital Expenditure’, as it is well known, if it is ‘Revenue Expenditure’, Assessee would be entitled for deduction from income and if ‘Capital Expenditure’, it would be taxable. 32. The term ‘Revenue Expenditure’ as such is not defined in the Act, 1961. Thus term ‘Revenue Expenditure’ was explained in Assam Bengal Cement Co. Ltd. v. Commissioner of Income Tax, AIR 1955 SC 89 (at page 96) as under: “If the expenditure is made for acquiring or bringing into existence an asset or advantage for the enduring benefit of the business it is properly attributable to capital and is of the nature of capital expenditure. If on the other hand it is made not for the purpose of bringing into existence any such asset or advantage but for running the business or working it with a view to produce the profits it is a revenue expenditure.” (Emphasis added) 33. In Commissioner of Income Tax v. Ciba of India Limited (Supra), a question arose, whether payment made by Assessee to Ciba Limited, Basle, pursuant to agreement dated 17.12.1947 is an admissible deduction under Section 10(2)(xii) of Income Tax Act 1922. Ciba of India Limited was originally floated in the name of ‘Ciba Pharma Limited’ and subsequently became “Ciba of India Limited”, an Indian subsidiary of “Ciba Limited, Basle”, (the Swiss Company), and is engaged in the development, manufacture and sale of medical and pharmaceutical preparation. Swiss company originally carried on business in India of selling its products through a subsidiary called “Ciba (India) Ltd”. After incorporation of Assessee on December 13, 1947, activities of Swiss company in India were bifurcated; Pharmaceutical section was taken over by Assessee i.e Ciba of India Ltd., while other business relating to dyes and chemicals remained with “Ciba (India) Ltd.” which subsequently changed to “Ciba Dyes Ltd”, a subsidiary of Swiss company. After incorporation of Assessee on December 13, 1947, activities of Swiss company in India were bifurcated; Pharmaceutical section was taken over by Assessee i.e Ciba of India Ltd., while other business relating to dyes and chemicals remained with “Ciba (India) Ltd.” which subsequently changed to “Ciba Dyes Ltd”, a subsidiary of Swiss company. An agreement dated 17.12.1947, was executed between Swiss company and Assessee in consideration of payment of “technical and research contribution for the use of Indian patents and or trade marks” to communicate the results of its research work, in so far as they relate to the products which were already manufactured or processed or sold by Assessee. Court held that ‘Royalty’ payment made by Assessee were revenue expenditure and, for this purpose, it held that secret processes were not sold by Swiss company to Assessee. Further, the reasons that prevailed with the Court to hold ‘Royalty’ payment as ‘Revenue Expenditure’, are: (a) licence was for a period of five years, liable to be terminated in certain eventualities even before expiry of the period; (b) object of the agreement was to obtain the benefit of technical assistance for running the business; (c) licence was granted to Assessee subject to rights actually granted or which may be granted after the date of agreement to other persons; (d) Assessee was expressly prohibited from divulging confidential information to third parties without consent of Swiss company; (e) there was no transfer of fruits of research once and for all; the Swiss company which was continuously carrying on research had agreed to make it available to Assessee and (f) stipulated payment was recurrent dependent upon the sales, and only for the period of agreement. Court stressed upon the fact that Assessee acquired under the agreement merely right to access to technical knowledge and experience for the purpose of carrying its business and was merely a licensee for a limited period of technical knowledge of Swiss company with right to use patents and trade works of that company by making that technical knowledge available. Swiss company did not part with any asset of its business nor did the Assessee acquire any assets or part in the nature of benefits or advantage. 34. In L.B. Sugar Factory and Oil Mills (P) Ltd, Pilibhit v. Commissioner of Income Tax, U.P Lucknow, (1980) 125 ITR 293 (SC), the question was considered in a different but interesting context. Swiss company did not part with any asset of its business nor did the Assessee acquire any assets or part in the nature of benefits or advantage. 34. In L.B. Sugar Factory and Oil Mills (P) Ltd, Pilibhit v. Commissioner of Income Tax, U.P Lucknow, (1980) 125 ITR 293 (SC), the question was considered in a different but interesting context. Assessee was a sugar factory engaged in manufacture and sale of crystal sugar at Pilibhit, State of U.P. In 1952-53, a dam was to be constructed by State of U.P at a place called Deoni. A road, Deoni Dam-Majhala was constructed connecting Deoni Dam with Majhala. Collector requested Assessee to make some contribution towards construction of Deoni Dam and Deoni Dam-Majhala Road pursuant whereto Assessee contributed certain amount. Assessee also contributed some amount towards meeting the cost of construction of roads in the area around its factory under a Sugar Cane Development Scheme promoted by State of U.P. as part of Second Five Year Plan. Assessee claimed deduction on both the amounts it had contributed as deductible expenditure under Section 10(2)(xv) of Indian Income-tax Act, 1922. It was disallowed by Assessing Officer on the ground that expenditure incurred was of capital in nature. Appeal before CIT also failed. In Tribunal, two Members of the Bench differed in their view, one held “Revenue Expenditure” another “Capital Expenditure”. The matter was referred to a third Member who instead of going into the question whether expenditure could be treated as “Capital Expenditure” or “Revenue Expenditure” took a third view that contribution was made by Assessee as a good citizen and cannot be said to be in relation to business of Assessee and for that reason it disallowed payments as deductible expenditure under Section 10(2)(xv). Assessee, therefore, failed in appeal before Tribunal. Then matter came to High Court who also upheld view taken by Tribunal with the reasoning that expenditure was not related to business activity of Assessee. With respect to one amount which Assessee contributed on the request of Collector for construction of dam and connecting road, Supreme Court upheld the view of Courts below that it was as a good citizen and not connected with the business of Assessee, hence disallowable under Section 10(2)(xv). With respect to one amount which Assessee contributed on the request of Collector for construction of dam and connecting road, Supreme Court upheld the view of Courts below that it was as a good citizen and not connected with the business of Assessee, hence disallowable under Section 10(2)(xv). With respect to another item, which Assessee paid under Sugarcane Development Scheme, Court followed the test laid down in British Insulated and Helsby Cables Ltd. v. Atherton, 10 TC 155, where learned Law Lord Cave L.C. stated “When an expenditure is made, not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade, there is very good reason (in the absence of special circumstances leading to an opposite conclusion) for treating such an expenditure as properly attributable not to revenue but to capital” and said that this test is a well known test for distinguishing capital and revenue expenditure but not of universal application. It must yield where there are special circumstances leading to a contrary conclusion. For this opinion, Court referred to Lord Radcliffe in Commissioner of Taxes v. Nohanga Consolidated Copper Mines Ltd., (1965) 58 ITR 241, where it was highlighted that it would be misleading to suppose that in all cases securing a benefit for the business, would be prima facie capital expenditure so long as the benefit is not so transitory as to have no endurance at all. Court relied on its earlier decision in Empire Jute Company Ltd. v. Commissioner of Income Tax, (1980) 124 ITR 1 (SC), that there may be cases where expenditure even if incurred for obtaining advantage of enduring benefit, may, nonetheless, be on revenue account and the test of enduring benefit may break down. Court further said as under: “It is not every advantage of enduring nature acquired by an Assessee that brings the case within the principle laid down in this test. What is material to consider is the nature of the advantage in a commercial sense and it is only whether the advantage is in the capital field that the expenditure would be disallowable on an application of this test. What is material to consider is the nature of the advantage in a commercial sense and it is only whether the advantage is in the capital field that the expenditure would be disallowable on an application of this test. If the advantage consists merely in facilitating the Assessee’s business operations or enabling management and conduct of the assessee’s business to be carried on more efficiently or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account, even though advantage may endure for an indefinite future.” 35. It was therefore, held that the expenditure incurred in the scheme was on revenue account and not capital. Hence, it was allowable as deduction under Section 10(2)(xv). 36. Praga Tools v. Commissioner of Income Tax (Supra), a decision of Full Bench of Andhra Pradesh High Court is relied by Assessee. Here again we find that Assessee, a Government Company was carrying on business in the manufacture of precision and machine tools, machinery and forgings since 1942. On 2nd January, 1961, Assessee entered into a licence agreement with a foreign collaborator, M/s. A.A Jones and Shipman Ltd. Leicester, U.K for manufacture of Jones-Shipman Tool and Cutter Grinding Machine with all items of standard equipment. The foreign collaborator was to supply necessary designs, drawings, Technical know-how and assistance. It also agreed to assist Assessee in the production of main castings of machine and also to sell all relative jigs, fixtures, tools, gauges, raw materials and special parts as ordered at their normal commercial retail value. The agreement also required foreign collaborator to furnish all technical information with the latest modifications and standards, for this Assessee was to pay certain amount to foreign collaborator on signing of agreement and Royalty subsequently. Court said that in order to decide whether a particular expenditure is “Capital” or “Revenue”, there is no rule of thumb or test of principle or universal application. In fact dividing line between two is very thin. The scrutiny is to be made in respect of the nature and character of the business, the object for which expenditure has been incurred and it is not an individual test but totality or cumulative effect of all the relevant facts and circumstances which would help in arriving at a particular inference. The scrutiny is to be made in respect of the nature and character of the business, the object for which expenditure has been incurred and it is not an individual test but totality or cumulative effect of all the relevant facts and circumstances which would help in arriving at a particular inference. It referred to an extract from a Full Bench judgment of Lahore High Court in Benarsidas Jagannath, In re (1947) 15 ITR 185, which was approved in Assam Bengal Cement Co.Ltd. v. CIT (Supra) which reads as under: “If the expenditure is made for acquiring or bringing into existence an asset or advantage for the enduring benefit of the business, it is properly attributable to capital and is of the nature of capital expenditure. If on the other hand it is made not for the purpose of bringing into existence any such asset or advantage but for running the business or working it with a view to produce the profits, it is a revenue expenditure. If any such asset or advantage for the enduring benefit of the business is thus acquired or brought into existence it would be immaterial whether the source of payment was the capital or the income of the concern or whether the payment was made once and for all or was made periodically. The aim and object of the expenditure would determine the character of the expenditure whether it is a capital expenditure or a revenue expenditure. The source or the manner of the payment would then be of no consequence.” 37. It also referred to the decision of Supreme Court in Gotan Lime Syndicate v. Commissioner of Income Tax, (1966) 59 ITR 718 , wherein it was held that expenditure incurred to secure an enduring advantage must not invariably be treated as capital expenditure and royalty payment including dead-rent, which has no direct nexus for securing an enduring benefit but has relation to the raw material viz. lime deposits, was held to be a “Revenue Expenditure”. Court found that under the agreement, amount paid by Assessee at the time of signing was not claimed to be ‘Revenue Expenditure’. However, the amount paid towards ‘royalty’ was for the benefit of business and, therefore, should be treated to be a “Revenue Expenditure’. lime deposits, was held to be a “Revenue Expenditure”. Court found that under the agreement, amount paid by Assessee at the time of signing was not claimed to be ‘Revenue Expenditure’. However, the amount paid towards ‘royalty’ was for the benefit of business and, therefore, should be treated to be a “Revenue Expenditure’. It held: “Where the expenditure has a direct nexus, connection or relation to the carrying on of or conducting the business of the assessee, it must be regarded as an integral part of the profit-making process. In such a case, it must be held to be a revenue expenditure. Where the purpose and object of the expenditure is to acquire an asset or right of an enduring nature or permanent character, it is a capital expenditure.” 38. In Scientific Engineering House (Pvt.) Ltd. v. Commissioner of Income-Tax, Andhra Pradesh (Supra) relied on behalf of Revenue, there was no question involved, whether a particular payment of amount was ‘Capital’ or ‘Revenue’ Expenditure’. On the contrary, issue was, whether payment made by Indian Company to Foreign Collaborator could be construed as acquisition of depreciable asset in terms of collaboration agreement. Indian company, M/s. Scientific Engineering House (Pvt.) Ltd., was engaged in manufacture of Scientific Instruments and Apparatus like dumpy levellers, levelling staves, prismatic compass, etc. It entered into two separate collaboration agreements dated 15.3.1961 and 31.3.1961 with M/s. Metrimpex Hungarian Trading Company, Budapest for manufacture of microscopes and theodolites. Foreign Company agreed to supply Indian company all ‘Technical know-how’ required for manufacture of two instruments namely microscopes and theodolites. The object was to enable Assessee to manufacture said instruments of certain specifications. Assessee acquired right to manufacture in India, under its own trade mark, and name but under the licence-MOM Hungary-of the Foreign supplier, the said instruments, and right to sell the same in India. Assessing Officer held that payment made for acquiring ‘Technical know-how’ amount to ‘Capital Expenditure’ since no tangible or depreciable asset was brought into existence, hence no depreciation can be claimed. Appellate Authority, in appeal, preferred by Assessee took the view that what Assessee had done was to make an outright purchase of certain specimen drawings, charts, plans, etc, on special papers and these documents collected together, constituted a book on which depreciation would be allowable. Appellate Authority, in appeal, preferred by Assessee took the view that what Assessee had done was to make an outright purchase of certain specimen drawings, charts, plans, etc, on special papers and these documents collected together, constituted a book on which depreciation would be allowable. In further appeal, Tribunal observed that some of the services of Foreign Collaborator do qualify for ‘Revenue’ account and therefore, to the extent, services qualified for ‘Revenue’ account, may be allowed to be deducted and rest may be added. In appeal Supreme Court considered the question, whether ‘Technical know-how’ in the shape of drawings, designs, charts, plans, processing data and other literature falls within the definition of “Plant”. It replied aforesaid question by referring to judgments and reasonings in Yarmouth v. France, (1987)19 QBD 647, a case in which it was decided that a cart horse was plant within the meaning of Section 1(1) of the Employers’ Liability Act, 1880. It was held: “There is no definition of plant in the Act: but, in its ordinary sense, it includes whatever apparatus is used by a business man for carrying on his business not his stock-in-trade which he buys or makes for sale; but all goods and chattels, fixed or movable, live or dead, which he keeps for permanent employment in his business.” 39. Court also referred and approved decision in Commissioner of Income tax v. Elecon Engineering Company Ltd., (1974) 96 ITR 672 (Guj), wherein it was held that drawings and patterns which constitute know-how and are fundamental to Assessee’s manufacturing business are ‘plant’. Court held that payment made by Assessee to Foreign Collaborator was attributable wholly towards acquisition of a depreciable asset. 40. In Alembic Chemical Works Co. Ltd. v. Commissioner Of Income Tax (supra), a company engaged in the manufacture of antibiotics and pharmaceuticals, was granted licence for manufacture in its plant, well-known antibiotic, penicillin. It negotiated with M/s. Meiji Seika Kaishna Limited (“Meiji” for short), a reputed enterprise engaged in the manufacture of antibiotics in Japan, which agreed to supply to Assessee, requisite ‘Technical-know-how’ so as to achieve substantially higher levels of performance or production of more than 10,000 units of penicillin, per millilitre, of ‘cultured-broth’-with the aid of better technology and process of fermentation and with better yielding penicillin-strains developed by foreign company i.e Meiji. The negotiations culminated into an agreement dated 9.10.1953, whereunder Meiji, in consideration of the “once for all” payment of 50,000 U.S. Dollars agreed to supply to Assessee, the “sub-cultures of the Meiji’s most suitable penicillin-producing strains”, the technical information, know-how and written description of Meiji’s process for fermentation of penicillin alongwith a flow-sheet of the process on a pilot plant, the design and specifications of the main equipment in such pilot plant, arrange for the visits to and training at Assessee’s expense, of technical representatives of the Assessee, Meiji’s plant at Japan and to advise Assessee in the large scale manufacture of penicillin for a period, limited to 2 years from the effective date of the agreement. It was also stipulated that technical know-how supplied by Meiji was to be kept confidential and secret by Assessee. It was prohibited from parting with technical know-how in favour of others or to seek any patent for the process. Assessing Authority held that expenditure was in the nature of acquisition of an asset or advantage of an enduring benefit, therefore, it was a capital outlay and hence, declined deduction. This view was affirmed in appeal by Commissioner as well as Tribunal. At the instance of Assessee, reference was made to High Court who answered the question against Assessee. Hence matter went in appeal to Supreme Court. Referring to some earlier judgments, Court culled out certain principles laid down therein to determine, whether expenditure of Assessee was ‘Capital Expenditure’ or ‘Revenue Expenditure’ and said : “(i) When an expenditure is made, not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of trade, I think that there is very good reason (in the absence of special circumstances leading to an opposite conclusion) for treating such an expenditure as properly attributable not to revenue but to capital (referred to British Insulated Helsby Cables Ltd. v. Atherton, [1926] AC 205). (ii) If the expenditure is made for acquiring or bringing into existence an asset or advantage for the enduring benefit of the business it is properly attributable to capital and is of the nature of capital expenditure. (ii) If the expenditure is made for acquiring or bringing into existence an asset or advantage for the enduring benefit of the business it is properly attributable to capital and is of the nature of capital expenditure. If on the other hand it is made not for the purpose of bringing into existence any such asset or advantage but for running the business or working it with a view to produce the profits, it is a revenue expenditure. (iii) The aim and object of the expenditure would determine the character of the expenditure whether it is a capital expenditure or a revenue expenditure.” 41. Court in Alembic Chemical Works Co.Ltd. (Supra) held that three aspects should be considered, (a) the character of the advantage sought, and in this, its lasting qualities may play a part, (b) the manner in which it is to be used, relied upon or enjoyed, and in this and under the former head recurrence may play its part and (c) the means adopted to obtain it. 42. It was further observed that there is no single test or principle or rule of thumb which is paramount. It is ultimately a question of law, but a question which must be answered in the light of all the circumstances which are reasonable to take into account, and the weight which must be given to a particular circumstance in a particular case, must depend on common sense rather than on strict application of any single legal principle. 43. Referring to B.P. Australia Ltd. v. Commissioner of Taxation of the Commonwealth of Australia, (1966) AC 224 (PC), Court in Alembic Chemical Works Co.Ltd. (Supra) observed that solution to the problem is not to be found by any rigid test or description. It has to be derived from many aspects of the whole set of circumstances, some of which may point in one direction, some in the other. One consideration may point so clearly that it dominates other and vaguer indications in the contrary direction. It is a common sense appreciation of all guiding features which must provide the ultimate answer. Court said that the idea of ‘once for all’ payment and ‘enduring benefit’ are not to be treated as something akin to statutory conditions; nor are the notions of “Capital” or “Revenue” a judicial fetish. It is a common sense appreciation of all guiding features which must provide the ultimate answer. Court said that the idea of ‘once for all’ payment and ‘enduring benefit’ are not to be treated as something akin to statutory conditions; nor are the notions of “Capital” or “Revenue” a judicial fetish. What is ‘Capital Expenditure’ and what is ‘Revenue’ are not eternal varieties but must need be flexible so as to respond to the changing economic realities of business. The expression “asset or advantage of an enduring nature” was evolved to emphasize the element of a sufficient degree of durability, appropriate to the context. It was clarified that the phrase ‘enduring benefit’ in British Insulated and Helsby Cables Ltd. v. Atherton, 1926 AC 205, 213 (HL), was not thinking of advantages that are permanent. There is a difference between the lasting and everlasting. The time over which the thing ‘endures’ is a matter of degree and one element only to be considered. Thereafter Court looked into the process of making antibiotics and penicillin and observed that Indian company was already engaged in the preparation of antibiotics since long. In the background facts, Court held, it cannot be said that the area of improvisation by obtaining know how from foreign collaboration was not a part of improvisation of existing business or that the entire gamut of existing manufacturing operations for the commercial production of penicillin in the Assessee’s existing plant had become obsolete or inappropriate in relation to exploitation of the new sub-cultures of the high yielding strains of penicillin. It cannot be said that mere introduction of new bio-synthetic source required erection and commissioning of a totally new and different type of plant and machinery. Adding the fact that agreement placed limitations on the right of assessee in dealing with the know-how and the conditions as to non-partibility, confidentiality and secrecy of the know-how inclined towards the inference that the right pertained more to the use of the know-how than to its exclusive acquisition. Hence, payment was to be treated as “Revenue Expenditure”. 44. Adding the fact that agreement placed limitations on the right of assessee in dealing with the know-how and the conditions as to non-partibility, confidentiality and secrecy of the know-how inclined towards the inference that the right pertained more to the use of the know-how than to its exclusive acquisition. Hence, payment was to be treated as “Revenue Expenditure”. 44. In M/s. Jonas Woodhead & Sons Ltd. v. The Commissioner Of Income-Tax (supra), Assessee Company was incorporated in March 1963 to carry on the business of manufacture of automobiles springs, entered into an agreement with M/s. Jonas Woodhead and Sons Ltd. of United Kingdom for manufacture of all types of springs and suspension for road and rail vehicles. The foreign company was to provide Assessee, technical information and know-how, relating to and suitable for manufacture of the products as well as the technical know-how relating to setting up of the plant itself, the drawings, estimates, specifications, manufacturing methods, blue prints of production and testing equipment and other data and information necessary to manufacture the products and to set up proper and efficient plants. In lieu of the aforesaid information etc., Assessee was to pay ‘Royalty’ to the foreign company. Production of Assessee commenced on 1.1.1966 and ‘Royalty’ was to be paid to foreign company in terms of the agreement. Assessing Officer held payment to foreign company of an enduring nature and treated it to be a “capital receipt”. Assessee lost before Commissioner as well as Tribunal in appeal and also in High Court and therefore, in last, matter came to Supreme Court. Assessing Officer held payment to foreign company of an enduring nature and treated it to be a “capital receipt”. Assessee lost before Commissioner as well as Tribunal in appeal and also in High Court and therefore, in last, matter came to Supreme Court. The questions considered by Court, were (i) whether a particular payment made by an Assessee under the terms of the agreement forms a part of capital expenditure or revenue expenditure would depend upon several factors, namely, whether Assessee obtained a completely new plan with a complete new process and completely new technology for manufacture of the product or the payment was made for the technical know-how which was for the betterment of the product in question which was already being produced; (ii) whether the improvisation made, is the part and parcel of existing business or a new business was set up with the so-called technical know-how for which payments were made; (iii) whether on expiry of the period of agreement, Assessee is required to give back the plans and designs which were obtained, but the Assessee could manufacture the product in the factory that has been set up with the collaboration of the foreign firm; (iv) what is the cumulative effect on a construction of the various terms and conditions of the agreement and (v) whether Assessee derived benefits coming to its capital for which the payment was made. 45. Relying on tests laid down in the earlier authorities including Alembic Chemical Works Co. Ltd. v. Commissioner Of Income Tax (supra), Court decided the issue against Assessee observing that under the agreement with foreign firm Assessee had to set up a new business and foreign firm had not only furnished information and technical know-how but also rendered valuable services in setting-up of the factory itself and even after expiry of agreement, there is no embargo on Assessee to continue to manufacture the product in question. Court held that merely because payment is required to be made at a certain percentage of the rates of gross turnover of the products of Assessee as ‘Royalty’, it cannot be said that the entire payment is a ‘Revenue Expenditure’. 46. In Commissioner of Income Tax, Hyderabad v. Warner Hindustan Ltd., 1998 (9) SCC 533 , Court did not examine this aspect in detail since the amount involved in dispute was small. 46. In Commissioner of Income Tax, Hyderabad v. Warner Hindustan Ltd., 1998 (9) SCC 533 , Court did not examine this aspect in detail since the amount involved in dispute was small. Hence, it is not an authority on the question whether technical fee paid to a foreign company would be a ‘’Capital Expenditure’ or ‘’Revenue Expenditure’. 47. In Commissioner of Income Tax v. I.A.E.C. (Pumps) Ltd. (supra) again this question arose whether amount paid by Assessee to a foreign collaboration for Technical know-how is a “Capital Expenditure” or “Revenue Expenditure”. Court upheld the view taken by High Court that it was “Revenue Expenditure”. Referring to the finding recorded by High Court that the Assessee acquired under the terms and agreement only a licence to use other party’s patent and knowledge and not a benefit of enduring nature which will constitute acquisition of an asset. 48. This Court in Commissioner of Income Tax v. Prem Heavy Engineering Works Pvt. Ltd., (2006) 282 ITR 11 (All), also had an occasion to consider a similar question. Assesee entered into an agreement on 11.4.1984 with the West German Company who was specialized in manufacture of machinery and equipment for Cane Sugar Industry. Assessee itself was a company engaged in the business of manufacture and sale of Sugar Machinery parts. Assessee was interested in acquiring ‘Technical know-how’ from foreign company on Cane Sugar Mills size, able to accommodate rollers upto a specific dimension and in furtherance thereof, agreement was executed wherein foreign company agreed to supply ‘Technical know-how’ in the form of workshop drawings, documentation for basic engineering on structural components and individual parts, not manufactured by foreign company itself, data on necessary special tools and special manufacturing techniques, assembly instructions, arrangement drawing of the mill, foundation and loading plan, operation and maintenance instructions, information on the storage of spare parts etc. The agreement allowed to make use of the ‘Technical know-how’ to manufacture the mill at its workshops in India, to sell the mill within India without any limitation and also to export the mill to Countries other than certain Counties mentioned in the agreement. Assessee was entitled to use know-how for the purpose of performing under agreement only and keep such documentation confidential even after termination of agreement. Assessee was entitled to use know-how for the purpose of performing under agreement only and keep such documentation confidential even after termination of agreement. This Court referred to various authorities as we have discussed above and held that under the agreement there was no absolute parting by the assessee with his technical know-how. The consideration received was for imparting know-how not in association with the disposal of a capital asset. It was a for a limited period, not permanently, and not for establishment of any plant or machinery but for manufacture of equipment and machinery for Cane Sugar Plant. Hence, it was not of enduring nature and a ‘’Revenue Expenditure’ and not ‘’Capital Expenditure’. This decision evidently makes it clear that therein agreement and parting of Technical know-how was not for establishment of plant and machinery but for manufacture of equipment and machinery of Cane Sugar Plant which was a distinguishing feature. 49. The other judgments relied on behalf of Assessee, of different High Courts, basically have examined the issues in the light of Supreme Court’s judgments in Commissioner of Income Tax v. Ciba of India Ltd. (Supra) and others which we have already discussed. Therefore, we directly come to the facts of this case to examine whether in the present case, payments made as ‘Technical know-how’ fee and ‘Royalty’ should be held to be a “Revenue Expenditure” or “Capital Expenditure”. 50. Looking into the exposition of law laid down in various cases, as discussed above, and applying to the facts of appeals in question, we find that there was no existing business for improvising whereof “Technical Know-how Agreement” was executed between HMCL, Japan and HSCIL (Assessee). In fact no company for such production existed. A joint venture company, with aim and objective to establish a unit for manufacture of automobiles and parts thereof was brought into existence by HMCL, Japan and Seil India in the form of HSCIL. As already noticed, HMCL, Japan (Foreign Company) held about 99% shares of joint venture and, therefore, for all purposes had absolute control over newly incorporated joint venture company. After incorporation of joint venture, in the manner aforesaid, HMCL, Japan (Foreign Company) and newly incorporated joint venture company entered into an agreement, i.e., “Technical Know-how Agreement” for technical collaboration. As already noticed, HMCL, Japan (Foreign Company) held about 99% shares of joint venture and, therefore, for all purposes had absolute control over newly incorporated joint venture company. After incorporation of joint venture, in the manner aforesaid, HMCL, Japan (Foreign Company) and newly incorporated joint venture company entered into an agreement, i.e., “Technical Know-how Agreement” for technical collaboration. Technical collaboration included, not only transfer of technical information, but, complete assistance, actual, factual and on the spot, for establishment of plant, machinery etc. so as to bring into existence manufacturing unit for the Products. The agreement also provided for continuous assistance at every stage. 51. Thus one of the test laid down in M/s. Jonas Woodhead & Sons Ltd. v. The Commissioner of Income-Tax (Supra) that, a completely new plan with a complete new process with new technology for manufacture of product was brought into existence is satisfied. Technical know-how was not made for betterment of existing product. Similarly second condition, whether it was improvisation of existing business or new business is also answered by reiterating that a new business was set up with so called technical know-how for which payments were agreed. Though period of technical collaboration for payment of technical know-how and royalty is mentioned in terms of ‘tenure’ but a close scrutiny of agreement shows that in case of termination of agreement, joint venture itself would come to an end and there may not be any further continuance of manufacture of product with technical know-how of foreign collaboration. Virtually, life of manufacture of product in the plant and machinery, established with assistance of foreign company is co-extensive and there is no distinction whatsoever. The agreement admittedly is framed in a manner so as to give a colour of licence for a limited period having no enduring nature but a close scrutiny of agreement shows otherwise. Various tests laid down in judicial precedents as discussed above, have been attempted to cover up by giving colour to agreement that it is not of enduring nature. The fact however is otherwise, when we read the entire agreement in consonance, harmony and together. 52. Agreement provided that in the event of expiration or otherwise termination, whatsoever, licensee, i.e., joint venture company/Assessee shall discontinue manufacture, sale and other disposition of products, parts and residuary products. All these things then shall be at the option of licensor. The fact however is otherwise, when we read the entire agreement in consonance, harmony and together. 52. Agreement provided that in the event of expiration or otherwise termination, whatsoever, licensee, i.e., joint venture company/Assessee shall discontinue manufacture, sale and other disposition of products, parts and residuary products. All these things then shall be at the option of licensor. In other words, licensee in such contingency would hand over unsold product and parts to licensor for sale by him. In case licensor does not exercise such option and product is allowed to be sold by licensee, thereupon licensee would continue to pay royalty as per rates agreed under the agreement. Clauses 19 and 21, in our view, make the agreement in question, i.e., establishment of plant, machinery and manufacture of product with the help of technical know-how, co-extensive, in continuance of agreement. 53. The agreement also has a clause of renewal which, in our view, in totality of terms and conditions, will make the unit continue so long as manufacture of product in plant and machinery, established with aid and assistance of foreign company, will continue. We find that the agreement thus also satisfies guidelines laid down in Alembic Chemical Works Co. Ltd. v. Commissioner of Income Tax (supra) wherein Court has said, if an expenditure is made with a view to bring into existence an asset or advantage of an enduring benefit of trade, it would be Capital and not Revenue. In the present case technical know-how is also used to bring into existence manufacturing unit which obviously is of enduring in nature. 54. The term “Revenue Expenditure” is explained in case of Assam Bengal Cement Co. Ltd. v. Commissioner of Income Tax (Supra) and applying the same to the contents of agreement up for consideration in this case, we find here at that expenditure in the form of “Technical Know-how” fee and ‘Royalty’ for enduring benefit of business. It was not only for running the business but for bringing the business into existence and then for running and sustaining it. A.O and CIT(A) have also recorded their findings holding that “Technical Know-how” fee and ‘Royalty’ were paid for acquiring and bringing into existence and advantageous assets. Hence, the said expenses would qualify to be termed as “Capital Expenditure” and not “Revenue Expenditure”. A.O and CIT(A) have also recorded their findings holding that “Technical Know-how” fee and ‘Royalty’ were paid for acquiring and bringing into existence and advantageous assets. Hence, the said expenses would qualify to be termed as “Capital Expenditure” and not “Revenue Expenditure”. We are also fortified in taking the above view in the light of judgment in Commissioner of Income Tax v. Ciba of India Limited (Supra). The agreement was crucial for setting up plant and machinery for manufacturing the project and major stockholder was foreign company i.e. HMCL Japan. Without said agreement, the business in question could not have been started or run or continue to run and with the end of the agreement business will also come to halt. 55. From whatever angle it is, the result would be same that expenditure in question is nothing but “Capital Expenditure” and not “Revenue Expenditure”, hence, not deductable under Section 37 of Act 1961. All the factors which we have considered would go to show that assessee had obtained advantage of enduring benefit by payment of lum sum fee, though in installments. 56. CIT(A) in its order dated 22.3.2007 in Appeal Number 45/2006-07 for AY 2003-2004, has affirmed findings of A.O. with regard to “Technical Know-how” fee so as to be treated as ‘Capital Expenditure’ holding as under: “Beyond doubt, it is established that but for the technical know how provided, the plant would have neither come into existence nor could have started manufacture of vehicles. The technical know how provided enabled the setting up of the manufacturing activity/plant. The A.O. has rightly observed that the technical collaboration agreement was made for setting up of the plant and not towards improvement or running of an existing business and as such the payment has been made (as established by the documents and not denied by the appellant) for technical guidance provided from time to time during the course of the same. The A.O. has rightly held that the lum sum fee and royalty are relatable to the installation of the appellant’s plant and hence capital in nature. It is pertinent to note that as per provisions of the TCA, the technical know how provided are for setting up of the plant and manufacture of vehicles. The A.O. has rightly held that the lum sum fee and royalty are relatable to the installation of the appellant’s plant and hence capital in nature. It is pertinent to note that as per provisions of the TCA, the technical know how provided are for setting up of the plant and manufacture of vehicles. As such the repeated pleas of the appellant that the appellant acquired only limited rights on the technical know how and is not free to transfer, assign or convey the know-how/technical information to any third party, has no substance. The technical know how was passed to it not to be sold to another entity but for the purpose of manufacture of vehicles and the appellant being in possession of this technical know how could set up facility and manufacture vehicles. The stand of the AO is upheld. The submissions of the appellant during the appellant proceedings that the AO “in effect doubted the genuineness of the terms of the TCA, not appreciating that the same is approved by the Government of India.....” This contention of the appellant has no substance. In the assessment order, the A.O has not held that the TCA is not genuine. As such the appellant’s contention that the same has been approved by the Government of India has no relevance as the Income Tax Act provisions are applicable to it. It is pertinent to mention here that the appellant company entered into an agreement with the Associate enterprise in Japan and copies of the TCA were submitted to the Government of India/relevant Ministries as per the provisions necessitating submission of copies of agreements. As such the TCA has not been “approved” by the Government of India so as to imply that the technical know how passed is of revenue nature, or “approval” does not place the assessee beyond the provisions of Income Tax Act. The most important question here is as to why and for what the payment is being made and the answer to this is that it is payment for technical know how as passed on a particular date, for which payment has been made/was to be made and the said amount, under reference, is one of the installments which was to be paid for the said technical know-how. In effect, it is a one time expenditure of capital nature, the payment of which has been staggered over 5 years because, as per company’s own projection, the company being in loss, was to pick up its car sale business and generate profit. It is for this reason that is was decided to make the payment of technical know how fees in 5 equal installments. As such this was an act of convenience for a one-time capital expenditure. The appellant’s plea that the know-how related to manufacturing process is usually an expense in the year in which it is incurred, has no force because, as discussed above, this is not a case where the business was already in existence. The technical information provided is not for day-to-day running of the company and as such cannot be treated as a revenue expenditure.” 57. We also find from record that at the time of entering into “Technical Know-how” agreement, HMCL had only 60% of share holding in HSCIL/Assessee but only in AY 2004-2005, it increased its share holding to 99% and above and thus got virtually entire control and ownership over the alleged joint venture. A.O. has found this exercise as diversion of profit. Assessee explained it to be in accordance with Government policy. Even if the same aspect is ignored, as a relevant consideration for deciding the questions up for consideration before us, yet we find that reasons given in the light of various clauses of the agreement so as to treat “Technical Know-how” fee as “Capital Expenditure” is well founded but unfortunately Tribunal while taking otherwise view has impressed itself with superficial approach treating ownership of “Technical Know-how” fee by parent company and limited tenure etc. without appreciating various clauses of agreement in entirety and thus has erred in law. We are therefore, of the view that A.O and CIT(A) were justified in recording their finding and reasons to treat payment of “Technical Know-how” fee and ‘Royalty’ as “Capital Expenditure” and not “Revenue Expenditure”. Reasonings given by the said two authorities similar to what we have also noticed in addition to our discussion have our affirmance. The view taken by Tribunal otherwise is unsustainable and cannot be accepted. 58. Reasonings given by the said two authorities similar to what we have also noticed in addition to our discussion have our affirmance. The view taken by Tribunal otherwise is unsustainable and cannot be accepted. 58. In these facts and circumstances, we have no hesitation to hold that both the payments to foreign company are in respect of a benefit which is not only of enduring nature but for the purpose of acquiring of an asset and hence a ‘Capital Expenditure’ and not ‘Revenue Expenditure’. 59. As already noticed, argument was raised on behalf of the Revenue that there is no distinction between foreign company and joint venture company, looking into the number of share holding inasmuch as foreign company holds 99% share and here is a fit case where by applying “doctrine of lifting of veil”, Court will find that the alleged foreign company and joint venture company are virtually same, hence, there is no transfer at all and hence alleged payments are nothing but income of Assessee. We have given our serious consideration to this aspect and find that this issue is of substantial importance but since it has not been raised before authorities below, hence we do not find it expedient to allow appellant to raise this issue for the first time before this Court and leave it open to be considered in an appropriate case. 60. In the result, all the questions, formulated above, are answered in favour of Revenue and against Assessee. All the appeals are allowed. The judgment and order of Tribunal, impugned in these appeals, taking an otherwise view are hereby set aside.