Commissioner of Income Tax vs Tata Yadogawa Ltd.

These are applications u/s 256(2) of the I.T. Act, 1961 (hereinafter referred to as "the Act").

The Income Tax Appellate Tribunal, Patna Bench '' B '' (hereinafter referred to as " the Tribunal "), has rejected the application of the Reven''ue u/s 256(1) of the Act on the ground that the question of law raised by the Department was merely academic in nature.

There was an agreement between the assesses on the one hand and a Japanese firm, namely, Yodagawa Steel Works Ltd., on the other. The assessee is functioning in collaboration witb the aforesaid Japanese firm. After setting out the relevant clause of the agreement, the Tribunal recorded its findings in these terms :

" It is clear that the assessee by virtue of payment under Clause 22A acquired the knowledge for know-how in order to make the rolls accurately, quickly and efficiently as they are manufactured by the Japanese firm. Clause 22B only refers to the payment for use and services of this knowledge after the company starts its commercial operation. Thus the acquisition of knowledge is one thing and to put such knowledge into use is another thing. The lirst thing, if it is acquired by way of sale from the other party it is capital expenditures in the hands of the receiver, whereas, the second item is always in the nature of revenue because the fund of knowledge which is acquired by a person is utilised for manufacturing process. The fund of knowledge gained by a person from another person cannot be kept idle and it must be pressed into action so that the result of knowledge must come out in the shape of a material thing. The exact position of the above situation is present if clauses 22A and 22B of the agreement are analysed. Clause 22A refers to the acquisition of the fund of knowledge whereas Clause 22B refers to the use and services of the knowledge in the commercial production. "

Furthermore, the Tribunal held that-

" Clause 22B differs from Clause 22A materially. The payment under Clause 22B would only start aiter the commercial production has started. Thus, it is clear that the assessee would pay under Clause 22B for the use of various knowledge and services thereof to the Japanese firm in course of production operation. This restriction has not been placed under Clause 22A. Therefore, it is clear that the second payment was related only to the use of such knowledge which was provided by the Japanese firm and the knowledge which would be used practically in course of production."

Having so recorded its findings, the Tribunal has applied the principles of law in connection with revenue expenditure vis-a-vis capital expenditure, as laid down by the Supreme Court in the case of Commissioner of Income Tax, Bombay Vs. Ciba of India Ltd., , which principles have been universally followed by both the Supreme Court itself and the various High Courts. In this context, the Tribunal held that the questions of law sought to be referred were merely academic. Learned senior standing counsel appearing on behalf of the Department (petitioner) contended that the. construction of the various clauses of the agreement in question was itself a question of law and that, therefore, the application u/s 256(2) ought to be allowed.

Learned counsel appearing for the assessee, apart from placing reliance upon the decision of the Supreme Court in the case of Ciba of India Ltd., also placed reliance upon a decision of the Supreme Court in the case of Commissioner of Income Tax, West Bengal Vs. Indian Mica Supply Co. P. Ltd., . Learned council for the assessee further submitted that the Supreme Court has laid it down in the case of Commissioner of Gift Tax, Bombay Vs. Smt. Kusumben D. Mahadevia, that each and every question of law arising from the order of the Tribunal is not imperative to be referred if the principles laid down by the Supreme Court of India have been correctly applied. We think, there is much substance in the submission of Mr. Vyas, learned counsel for the assessee, that in view of the decision of the Supreme Court laid down in Commissioner of Income Tax, West Bengal Vs. Indian Mica Supply Co. P. Ltd., , no statement need be called for u/s 256(2) of the Act.

In the result, therefore, we reject the applications. There will be no order as to costs.