- (1.) The appeal is directed against a judgment and order dated December 1, 2005, wherein the learned Tribunal held that the one-time lump sum payment made by the assessee for acquiring technical know-how for a period of six years was a capital expenditure. On that basis the views to the contrary expressed by the Commissioner of Income-tax (Appeals) were set aside and the appeal preferred by the Revenue was allowed. Aggrieved by the aforesaid judgment and order, the present appeal has been preferred by the assessee.
(2.) With the joint efforts of Tata Iron and Steel Co. Ltd. and Timken Co., an existing company under the laws of the State of Ohio, United States of America, a new company by the name of Tata Timken Ltd. was incorporated under the Companies Act, 1956. Tata Timken Ltd. (TTL for brevity) in order to expand its business agreed to take technological assistance from Timken Co. on the terms and conditions contained in an agreement dated September 10, 1998, which included payment of compensation as follows : "Article V - Compensation for licence of technical information A. TTL agrees to pay to Timken a lump sum amount of USD 300,000 net of taxes, according to the following schedule : USD 100,000 within sixty (60) days after this agreement is filed with the Reserve Bank of India; USD 100,000 within sixty (60) days of delivery of technical documentation from Timken to TTL; and USD 100,000 within sixty (60) days of the commencement of commercial production, or four years after this agreement is filed with the Reserve Bank of India, whichever is earlier. Lump sum payments made hereunder by TTL to Timken shall be made without deduction of any present or future tax assessment or other Governmental charge, statutory levy or cess imposed upon such payments by the Government of India (or any political sub-division or taxing authority thereof or therein) and such taxes, assessments or charges, if any, shall be borne and paid by TTL. TTL shall send to Timken all certificates or other verification on such tax payments as may be required by Timken as soon as practical after such payment. B. In addition to the lump sum payment under article V(A) above, TTL agrees to pay to Timken a royalty of three per cent of the net ex factory sales price of the products sold in the Republic of India and a royalty of three per cent of the FOB price invoiced and realised for products exported, or sold for export, from or in, as the case may be, the Republic of India during the six (6) years period commencing with the start of commercial production."
(3.) A question arose as to whether the amount of USD 3,00,000 paid by TTL to Timken during the assessment year was to be treated as a revenue expenditure? The assessee naturally was interested in contending that it is a revenue expenditure whereas the Department was of the opinion that it is a capital expenditure. The Commissioner of Income-tax (Appeals) upheld the contention of the assessee which was challenged before the learned Tribunal which restored the views expressed by the Assessing Officer that the expenditure was capital in nature.;