Law:

Section:

Section 4 of the Income-tax Act, 1961 - Income - Chargeable as - Assessment year 2003-04 - Assessee was a manufacturer of different types of carburetors required for automobile and two wheeler industries - It entered into a technical collaboration agreement (TCA) with a Japanese company 'K' Ltd. - As per said agreement, assessee acquired rights and licenses from 'K' to use manufacturing technology as well as technical know-how with related technical assistance as to production of carburetors for which assessee agreed to pay certain consideration to 'K' - As per section 8 of said TCA, assessee was entitled to use any improvement made by 'K' in its technology of carburetors during term of aforesaid agreement - Subsequently, 'K' developed another carburetor 'B' which was in compliance of Y2K emission norms - Assessee requested 'K' to provide same - 'K' refused to provide any technology advice as regards newly developed carburetor - As there was no amicable settlement, matter was referred to Arbitration Tribunal before Internation Court of Arbitration - Consequently, said Tribunal awarded certain compensation as well as interest to assessee - For relevant assessment year, assessee claimed that said receipts were in nature of capital receipts and were not taxable - Assessing Officer brought to tax entire receipts by treating same as revenue receipts - On appeal, Commissioner (Appeals) held that compensation awarded by Arbitration Tribunal to assessee was in nature of capital receipt and was not taxable but as regards interest, he confirmed order of Assessing Officer - Whether Commissioner (Appeals) was justified - Held, yes FACTS The assessee-company was a manufacturer of different types of carburetors required for automobile and two wheeler industries. It entered into a technical collaboration agreement [TCA] with 'K' Ltd., Japan. In pursuance of the said agreement, the assessee acquired rights and licenses from 'K' to use the manufacturing technology and technical know-how with related technical assistance in respect of the production of the carburetors, specifically Model No. 10PB-OOB()() against which the assessee agreed to pay certain consideration to 'K'.…

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