Summary
The lump-sum technical collaboration fee paid in five instalments for establishing Honda’s new car-manufacturing business was capital expenditure. A limited licence and retained foreign ownership of know-how did not alone determine its character. The agreement was integral to bringing the new enterprise into existence, rather than improving an existing business.
Issues
- Whether the lump-sum technical know-how fee was capital or revenue expenditure.
Held
- Classification required a practical assessment of the entire arrangement; neither a limited licence nor an enduring-benefit formula was an inflexible standalone test. Know-how used to improve an existing business could differ from assistance creating a new one. (¶ 18–21)
- The collaboration agreement and associated arrangements together enabled establishment of the new manufacturing undertaking. Its duration, termination obligations and renewal terms connected the manufacturing activity to the collaboration; the fee was capital despite instalment payment. (¶ 22–24)
- The cited Delhi High Court decision concerned technical improvements to an existing two/three-wheeler business, whereas this agreement established car manufacture for the first time. (¶ 25)
Result
Assessee’s appeals dismissed with costs; capital treatment of the disputed lump-sum fee upheld.