- (1.)A reference has been made to this Court at the instance of the applicant M/s.Lipi International. The questions of law which have been referred are as under :
"1) Whether, on the facts and in the circumstances of the case and on a proper construction of the Agreement of sale dated 22.12.1977 the Appellate Tribunal was right in law in holding that the lumpsum of Rs.5 lakhs was a revenue receipt.

2) Whether on the facts and in the circumstances of the case the Appellate Tribunal was right in law in holding that since in the hands of the payer the payment was held as not resulting into acquisition of any capital asset or advantage of any enduring nature, the receipt in the hands of the payee has necessarily to be treated as revenue receipt -

(2.)A few facts may now be set up. The applicant -assessee is a registered firm and in terms of Deed of Partnership was carrying on the following business :
(a) Designing, manufacturing and selling high pressure of burner and hearing system for boilers and furnaces ;

(b) Manufacture of pressure vessels, beat exchangers etc.

(c) Erecting of plant equipments;

(d) Carrying on such other business as may be mutually agreed upon by the partners;

On 22-12-1977, the assessee firm entered into an agreement for sale of five different models of boilers and fuel firing equipments with different capacities based on different fuel systems identified by respective drawings, designs, layouts, specifications, technical data and write-up on manufacturing processes, more particularly described in schedule B to the agreement and forming part of the agreement. In the recital to the agreement it was set out that the assessee had decided to concentrate on its other activities to the entire exclusion and discontinuance of the manufacture of the boilers and fuel firing equipments and hence agreed to sell the five models developed and owned by it to the applicant for a total consideration and price of Rs.5,00,000.00 (Rupees Five lacs only) on the terms and conditions etc. set out therein.

Clause 2.2 of the terms which were the essence of Contract of Sale read as under :

"2.2 THE SAID FIRM undertakes not to engage itself in the manufacture either alone or in association with some-one else, of any of these models which have been sold by it to the SAID COMPANY or any other type of boilers".

Another relevant clause is clause 3.4 which reads as under :

"3.4 The SAID FIRM assures the SAID COMPANY that each of the MODELS sold by the SAID FIRM to the SAID COMPANY is the only MODEL of that capacity and of the system developed by the SAID FIRM and it has no other MODEL which is capable of competing in size and capacity or in technology with the models sold by the SAID FIRM to the SAID COMPANY under this agreement as on date".

The transaction was completed and in lieu thereof the firm has paid total consideration of Rs.5,00,000.00 (Rupees five lakhs).

(3.)The applicant was assessed for the assessment year 1978-79. The assessing officer came to the conclusion that the receipt is not self generated or on goodwill account since the assessee's fundamental expertise and know-how is put to use in a commercial sense as an integral part of its business. It held that the receipt is not a capital receipt nor in nature of capital gains. The income, therefore, was taxed as a revenue receipt. The applicant aggrieved preferred an appeal. The Commissioner held that the agreement is not for designing of boilers, but is for an outright sale of the technical know-how. The applicant had relied on the judgment in the case of Commissioner of Income Tax V/s. Ralliwolf Limited, 143 ITR 720. The Commissioner (Appeals) accepted the contention of the applicant that the amount of Rs.5,00,000/ received was for sale of entire boiler technology and system and does not refer to the sale profits of five models of boilers as such and as such held that the said amount of Rs.5,00,000.00 is a capital receipt.