Law:

Section:

Section 4 of the income-tax act, 1961-capital or revenue receipt-assessee, a non-resident company having large export market of its goods in india, entered into agreement with one r in india to form a new company for manufacturing certain tools- Under the agreement, in consideration for issue of a fixed number of shares of new company, assessee agreed, without further payment, to supply new company certain selected tools, drawings and information-whether value of said shares was capital receipt in assessee's hands-held, on facts, yes Facts The assessee, a non-resident company, engaged in the manufacture of electric power tools, had a large export trade with India since 1933. In 1958 it agreed with one R in India to form a new company, RF, for the manufacture of certain tools. An agreement was arrived at between the assessee-company and R whereby R agreed to take 55 per cent of the issued share capital of RF and the assessee agreed to take the remaining 45 per cent of such share capital in lieu of which the assessee agreed to supply to RF, without further consideration or payment, certain selected tools, drawings and other information, etc. Further, the assessee also provided two technicians to be in direct employment of RF. This agreement was to remain in force for an initial period of ten years subject to renewal or modification. In the assessment year 1960-61, the ITO brought to tax 40 per cent of the face value of the shares, held by the assessee in RF in consideration of technical know-how, in the hands of the assessee-company under section 5(2)(b ) read with section 9(1)(i) on the ground that the shares were given in return for the obligation to provide drawings, etc., and confidential technical information for the establishment of the factory and production of selected tools in India. On appeal, the AAC held that the entire face value of the impugned shares was received by the assessee on revenue account. He, however, held that no part of this amount accrued or arose or could be deemed to accrue or arise to the assessee during the relevant accounting year in India. While the cross-appeals were pending before the Tribunal, the transaction was held as…

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