ANUP ENGINEERING LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) MESSRS . Chinubhai Manibhai and Shrenik Kasturbhai entered into an agreement dated December 28, 1961, with Messrs. Machinefabriek Reineveld, a company incorporated in Holland with limited liability ('foreign company' for short), under which the foreign company agreed to place at the disposal of the limited liability company, which Messrs. Chinubhai Manibhai and Shrenik Kasturbhai intended to incorporate in India all the present and future know -how, the use of patents and all technical details with complete workshop drawings for manufacture of their engineering products, on the terms and conditions set out in the agreement. Such technical collaboration was for a period of ten years from the date of incorporation of the said limited liability company or from the date effective steps were taken in execution of the agreement, whichever was later. It was provided in the agreement that, notwithstanding the expiry of the agreement, after the stipulated period of ten years, the said limited liability company was to continue to use the patents licensed under the agreement for the unexpired period of the patents for which it is valid under the Indian Patents and Designs Act, 1911, or any Indian Act relating to registration of patents. The agreement provided that the foreign company shall, as a consideration for manufacturing and selling rights, use patents, know -how, workshop drawings and other technical collaboration provided by them, as detailed in clause (1) :

(2.) IN pursuance of the said agreement. The limited liability company -Anup Engineering Limited, the assessee herein - was incorporated on November 14, 1962. The board of directors, of the assessee -company, at its meeting held on August 31, 1963, adopted and approved the said agreement dated December 28, 1961, entered into with the foreign company. March 26, 1963, is the date on which the assessee -company commenced business as per the certificate issued by the Registrar of Companies. The first instalment of Rs. 50,000 for workshop drawings was paid on November 27, 1963, and the second installment of Rs. 50,000 on November 15, 1968. The assessee -company commenced production under the said collaboration agreement in December, 1963, and the first sale was effected in 1969. It may be mentioned here that allotment of equity shares of the value of Rs. 2,50,000 was made on May 8, 1965.

(3.) THE assessee -company allocated the payment of Rs. 2,50,000 on account of technical know -how as under : Rs.(a) Manufacturing and selling rights 50,000(b) Use of patents 1,50,000(c) Technical know -how for a limited periodof 10 years 1,00,000 - - - - - - - - -Total 2,50,000 - - - - - - - - -