Law:

Section:

Section 4 of the Income-tax Act, 1961 - Income - Chargeable as - Assessment year 1978-79 - Whether if there is a complete disposal of asset with know-how resulting in parting of asset for a lump sum, with no reference to anticipate user, consideration received for disposal of such asset would be a capital receipt - Held, yes FACTS The assessee-firm was engaged in the business of (a) designing, manufacturing and selling high pressure burner and hearing system for boilers and furnaces, (b) manufacturing pressure vessels, heat exchangers, etc., and (c) erecting of plant equipments. By virtue of an agreement, it sold five different models of boilers and fuel firing equipment for certain consideration to a company. Under the said agreement, the assessee further agreed not to engage itself in manufacture either alone or in assistance with someone else, of any of these models which had been sold as also any other type of boilers. The assessee also assured the said company that it had no other model of that capacity and of the system developed which was capable of competing in size and capacity or in technology with the models sold to the company. The Assessing Officer treated the sale consideration as revenue receipt holding that receipt was not self-generated or on goodwill account since the assessee's fundamental expertise and know-how was put to use in a commercial sense as an integral part of its business. The Commissioner (Appeals) held that the receipt in question was capital receipt. The Tribunal held that the said receipt was revenue receipt. On reference : HELD One of the tests to decide whether the receipt partakes the character of a revenue receipt or capital receipt, is whether the receipt from the transfer of know-how is of capital or revenue nature. That would depend on the nature of the transaction out of which the receipts arose and the context in which the receipts are received. If the imparting of know-how is really in the nature of services rendered without anything more, the receipt must be treated as a revenue receipt. However, when the consideration is received for imparting know-how in association with the disposal of capital asset, then the…

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