Commissioner Of Income-Tax, Bombay v. Ciba Of India Ltd

%r*Tk15 1967 .( 7?IT?HT%' ^^?ft %o ^ft° ^o U»T?qT*Tt sflfo )k^E ( 1922 qjT 11 ) VKiq 10 (2) (xii) ( xv )g7^[ (giJw gqg^gT ^iqgl ^ gn^r =g^T litst7 I pT'^fr^g) ^ rggirg ^ q^rg; ^ qs^qg) qsr Mra^rq % trrgtg h gqr l Jtqsftq ^fs^rg ^ fgg?l^g7 glgr ^\w, ^fg^gr grg^ g:Rr^ r^qr gqr ^ qsr^qR jgr^qr^ glqr (?fegr) fefir^g- gr^r =g^(t^\it lit I ftgg qsTqjft ^i fggife} % gl=g crq; qi^K qrg ^ f^q; |?rr ftjrgg?f^'> ^ Rqg qiml gqsgM gOT qsRqr^ =g5rn2: srr^ ^| r?ggqiTqg) g^qgrr ^ni ^i gl I sg^ fg qrg % r%q; ^?:r f%Jir3iqgl glqmr ^ q?^ ^g?r# gq^s^r l grg ft rgglf^dy ^sr^r 5q&g: qf qra qs^:^ ^ irfgfqs: l^r gqr «ir fq? q? gtqglg 5ir;r=sR^r?qg qi^qgl ^ gJRrg m r^K f^r q^ q^r^ 'r w: q;^ i itr^ ^ f^qeqiTqgl ^ ^ sqjqR qir gqtg q;^^ ?7 pjqf.it gf qll qf fq;^ q^ ge qii^Rp^% qiqgrg ^ ^ qra qi^g m qgqfgg # qr gfg7 ^7 igg qfjgfg q;7 ?rt q? g7 q7 Pq; ^g gxqyqT ^7 qrPq^R: qf^ f7^i fqo; go; ^ qf qr qi^R q;7 gR7?q ^ q^rg; qjgqqi f^q;gq% gTq?q ^ fg ?f^pg qq ?i?r q linr I Piq?ftg7 ^g?q7^7 girqgr qr^ ^ ^ffqfR ^ gf^qf^Rg?? qi qrgqyq ffqr qr Tq; qf fq^gq^<R ?Tirqg ?Tk qi^r^ ^^7 ^rarqfq gq; ^ f7 5^5 qTtqg7* ?irgfr f^qgqiTqg7 ^ qs7gi I fg jrr ^ qfggRf ^ fqq?r?g7 ^ f^qg q^qgl ^7 fqrfRqq^T%q*t ^ fqqkqi ^ qiiqViffq't r qf ^qr Tqiqr fq; ^ ffqjqlfg ^qs 1922 Iq;7 qRr (lO) (2) (xii) qf rrf 10 (2) (xv) ^ qrq7q qrgRq ^ItfgqT q7 Ir?qg qRqg7 ^ cfllqs’ q;7 ^ IqR ^ q;^ ^r fqiqi qr I ^ ^qq^ RRg R rRR^gr^ft ^ g:q ^ ^qR 'qgir ^ I gg ^?:r % ^ [1968]1 248 ^ q^q^ ^ qi^R f^r q q;qi-fg^ # wq gfiq T^rii^i ^ ^ q>fqqq35qr^ ^ qiqq ?iqqq^qq;R'^ ?r3^=g qi?^^ i qi^R ^ 6 ^k\5^ qra 'R iC Tq; sq s^qi^ ^ qiqq qr qrrqf^sfi't sifqqfqq % iircp:s3r qi^^ % TOqf q>^^T gsi^ql gqqqiiR |?rr wqi^ql ^ q# ’q=q q ?fiqq ^ q^iq^ qts i ^^ ^qq q^g fq ^ fqq? qf qiP^qs^q qi^t |q; Tf q^qi^: q>rqqqif^^ ^ qRqtq ^ ?ira^qq f%qr I, q;^ qrs^ q'Rqq fq^qr i t 5?!^Iqs: ^ ^ ?q%' qt ^ qi^R % ?qqg 5 ^ f'^^^ I f^qq qs^qq^^ ^ 9?^ ^qi^: gq ^ ^rqqi ^ fqqr I fqq^f^al ^ ftqg qs^qqt ^nrq’jfq I qi ^q>q g^ ^ qsiqqn'y ^ gg^ qifqsqr fqi qi qRi lo (2 ) (Xv) ^ qiqt^r ^ qiltdt 11fqqV r^q; 'qi^ q^: ?qiqraq ^ q|^ ^rq ^ qrqq rq^^r^at % q^ ^qi qirqrqq^^qi r^qr q? qRi lO (2) ( xv) q; ^rq^q at ?i3^q qi^atI rq?3 qi qRi lo (2 ) (xii) % ?fqtq 9gt q.^at qit 11 ^rq q^tqiqg qi ^rrgfqqtRa Tqiqr ff qi^r^^q^^dt qitli ^ijqqi^:fqqtftat s-RT ^nft^ qit *1? I ?^ffffg<a!R:g (i) (Iqtqa sqq ^ mjf^ ^ o^^ I Tg^q) qf sqq qtfig} sqfTB % qiRqR I l^ifqq; qlq^Tr ^ ^qtqr qqr qi fqiqr qqrqRr 10 ( 2 ) ( xii ) % ^iiqt^ ?i3$q ;?tqi sg qqrr ^ itar I f^gq q^sqq PrqtM ^qiqr qqr qr T^qr gqr 11 q?sa qrq^ q f^g qqqq't ^t3t at ^q>q rqq^fiat q5 qsrtqr^: 9 g^qf^qg ^airq^ g^qqii Tq^ifel srtq ^qit qf q sqq qtt qf qf I larf^q; qlqqir q?: f^g) ?Fq sqfai scr^r gqgasqq % =qil qr?a^qcqr fq^tf^at ^t 'srq^T q|^i a*t q't gg 5^121 ^ %q;gg ?i?q 3qf% ^'t q^iqjl q5 f^q; Pfqr qqr g^rq gg ^Tg-^rq, T^eqqf g^qjr fqq^ftat I ^q; qr gg# ^ # qr ?:#9:gr sqq aCtl #pqqtfta ^ qsRqR ^ g’^qfq ^ ^qiqr qqr I qr r^qr qqr 11 sra: qf qRr 10( 2 ) ( xii ) % qr#q qt^ ^»q | q|t Ir?53 qi qRr 10 ( 2 ) (XV ) qi ?rqtq ^rgaq q*t^ I qqtr^ qf fqq!-r?:a't ^ qii^qR ^ q#qq^ i%q: 'j’qa: qr 3rqjqa: ^qrqr qqyqr o^^ f%qrgqr qr f.#qa °^^ # q^ra qir qff qr I feg qi^qqt ^ sqrqR# qrqa srq?q f^ qs^R # qsr^iqrq ^ feq; q't fqqlftal # m q|f qr,gg9 ^ qiq^ qi ^rTq^r^ ?r^a r«qr qr T? ?rqqr ^r^r =q^r9 % qqtgq %I f^q; qf qRgtfta qir^rqpq a^ ftqg qqqal ^ a^aT# frta # ^rq q vrrar 1gg afat# ma # ma ^ f?qg 3rq9 ^rtqR # iM 5nf?a 9aft ft a faqtRa't 9 m'h qir^qr^: ^ ^ f^q; f^^qrqt affa#grrfei qr 'Eiq^r ?ir^ ftiqt I ?r^ffSI q^rif iitRqral' (?rr'R %|5I ) 37 s7o g)-o 540, Km f^Pfl^ 40 s>oelo 443 q?f?: ^^\^ f^TR^ 41 g^o 656Pif^V ff q; jtq; I COMMISSIONER OJ.' 11"COME-TAX, BOMBAY CIBA OF INDIA LTD. December 15, 1967 (J. C. ~HAI!. V. RAMASWAMI AND V. BHARGAVA, JJ.J Income-tax Act ( 11 of 1922), ss. 10(2) (xii) ar,,J (xv )-Scop• of. A Swiss compan), Ciba Ltd. of Basle, carried on ~he business of selling its products in India, through a subsidiary called Ciba (India) Ltd. Afler the incorporation of the ~e the activities of the Swiss Co. in India were bifurcated : the pharmaceutical section was taken over by rbe assessee Ciba of India Ltd. and the other Jines of business were continued by Ciba (India) Ltd. An agreement was entered into between the Sv.·iss Co. and the asscssee for providing the la:ter with technical assistance for running the business. The SY:iss Co., which was continually carrying on research had agreed to make the results available to rbe assessee. and the assessee was expressly prohibited from divulging confidential information to thir.d partie<; without the consent ~f the Swiss Co. A li'.'Cnce was granted to the assessce to use the Swiss co·s patents and trade marks in India. The licence was to be for a period of 5 years liable to be terminated in certain eventualities even before the expiry of that period. It was subject :o rights actually granted or which may be granted after the date of the agreement to others. In consideration of the right to receive scientific and technical assistance the ass~ee stipulated to make certain recurrent contributiOns deipcndent up~n the sales and only for the period of the agreement. 'Pur.mant to this agreemcll!, the assessce paid diverse sums of money to the Swiss Co. and claimed them as ad-mis&ible deductions either under s. 10(2) (xii) or s. 10(2) (xv) of the Indian Income-OJ< Act, 1922, in proceedings for assessment to tax. The Swiss Co. had also en:ered into an agreement with May and Baker Ltd. of England, who were also carrying on business as pbarroa-ceutieal manufacturers in India. By that agreement the two comp•nies nrutually agreed to grant to one another a non-exclusive licence in respect ot · certain products in different countries including India. By cl. 5 of the agreement the two companies agrocd to take all necessary •tel" to defend patents granted to or applied for in respect of th00e products against infringement, and agreed to share equally all costs incurred. In a suit insti:uted by May and Baker against Mis. Boots Druit Co. alleging that the latter· has infringed the Indian patents of the plaintiffs. May and Baker had co incur certain costs and the Swiss Co. paid its share to May and Ba);er as per the terms of cl. 5 of the agreement. The as.sesoee reimbursed that amount to the Swiss Co. and claimed it as a permissible deduction under s. 10(2) (xv) in proceedings for assessment to tax. The High Court, on reference, held in favour of the ~ that the first claim .was an admissible deduction under s. 10(2)(xv) but not under s. 10(2)(xii), and held that the =ond claim was not a permissible deduc-tion. that the Jn. appeals, by the Commissioner of Incomc<ax and the assessec, HELD : (I) Expenditure (not being in the nature of capital expendi-ture) laid out or expended on scientifio rtsearch relating to the busiaess of a person is an admissible allowance under s. 10(2)(xii) if the ex-penditure was laid out or expended bv the jlSOOSSee. ln the present case, the amounts paid to the Swiss Co, were not laid out or expended by the assessee on s·cienti.fia research relating to the business of the assessee. Pay-ment made Ito recoup another for eixpenditure for s'cientific research in-curred by that other person, even if it may ultimately benefit the assessee is, unless it is carried on for or on behalf of the assessee, not expenditure laid out or expended in relation to the business of rt:he assessee. The.re-fore, the expenditure was not allowable under s. 10(2) (xii). [701 G-H; 702 A-BJ ( 2 ) ftw ^K ^ q)'=q |it qi?:R ^ ^ qj^gr?:^fdqq TiRcftq r T'Fi ^% ^ ^ ?i?7 ^ flq?r qiTqjft ^ ^ % qifqqm f^q; ^ I?iq: qf^TR’Hr ?I|Tf qi7 sq g^g| ^ If^ ^ qw I fq?nTR I 3q.;- ^qRl 3iflfR f|q« fiqjft ^ |q: ?rq| qi^;R % ?i^fl?r Rq?feft ft qR ^ |Siq I etqr ( fR?qr ) I vtqqlq fR^R ?rq| fjq ^ f^qr gql^fsf sqrqR ^R?qt ^rpqfR f|q^<^t ft^qR^ frit^t qq;^ qR fi fit g^ji I Tf qrq ^ ?fRf I If? I gqqq Tfqr qrm qsil fI feg fTqqt ft ^ qfsqqr qt qf g'tqi ( ^feqr )|gjql 3jq^: # 3I flqtftql ft qrlfqq f?: f^qr 1 qrq: ^il f7 qrqqflqff^dt qs fqq^^ ^rfufiiqkqi 3^ RiqiqR I stf # Tfqr |''l ^qt^ ^fl'qjTfciT; 1967 ^ fefl^ qq^t^r ^fo 9 ^ 161981 ^ qriqf^: TqlV q giqf 3^q RRRq ^ 20/21 SRqsrt 1965 cIR7?q qi^flqfq ^K ?rr|qr ^ Pqq? ?iq75i 5iqtrf ^t ^ ( 1967 ^ ^rqtqr HO 6 ^ 13 ^q; tSIRST? 1967 ^ ^q75i ^-o 14 ^ 16 If ) «ft ^o ?Tt 5n?:® tRo^"t ?qt?: ^ ( 1967 # fkfl^ spft^ HO U ^ 16 gq; If)sRqsrt 1967 ^ qqqtH 6 ^ 13 ^ ) : 8Tt qo $0srt ^7o q:o ngr^sTTqfT«ft ^oRiqrnq fi Ikqfq RrqiJjf^* |o g^o ^Rr rqqr qqr ?riqf^ qrq7^ siflf^qr I srI g^q Riqi^q fl ^^s'qq i?^H-tqg 1922 f7 qRr 66(1)% ?i^7q qt w rqpqq Tfq; I:( 1 gqrq rqqttol ^ g^qr M^^; ft 17-12-1947 grO^ qi^f^R% ?i39Hir H f%qi' qr, qqr Hint % g«qt % ?iiqR q^ ^ rit^^ ft^H® fn® «J0 32 [1968]1 <3;io^ot?o 250 t q| ^ 10 ( 2 ) (Xii) ^ ^?r«ftJi srga a l>,at qqr ai *ima: qiI ?rr^raqq 10 (2) (xv) ^ ^r^'ta qs^tat I ?( 2 ) 1946 ^ go 890 ai^ aR % sa^ ^ ^ 15-11-1944 ^18-6-1948 arO^a ai^ ^ Taa^qat I ^rgaR f^ai aar ^a^ia aaiiTFiT^ ^ a«at ^ atiaK a^ aRf^ara^ ^ar^i 10 ( 2 ) ( XV ) $ ?fata jftaa>a saa I ?”ai^ a^a ^ 3^i; a ^rai^a ^ ai airwa affaf^fea fasai ^a^ia TaaM ^ atar T^fa^ Ifa^ ^t 17 Taa^ar, 1947 atO^a ai^ mK '.^ arg^Rai ^ i^ar ar, ai ?;^a-^aa ^ ait ani 10(2)('xv)| sia'ta^ ?r3aa ^at I f%?g aa arfataair # aKi 10 ( 2 ) (Xii ) % aia7a §;atailtat aCt 11 JRa ajr aair^r^aa; f^ar aar 1 ai^ ^ ^=a^:'arfafsfea ffar aar ar faa? 3ira^^ arrga; ^ aratar aJt I ^ ^aa:jr?a a^ sTfar^fea P^ar aar ar ae^ Paa^ Paa!P:dt ^ ^rat^ ^ 11faalf^at ar^^a ^ atar arra! %Pa^ aia I a^raa f^ar aar ar l a^?rr5i^^ ai alar ^rrar ?Paa-ar fera^a’ aia ^ aira Iai alar P^Pa^a-,IPa^ ( Pa^ aa^a^aTfi: ‘P?aa asiaat’ PaP^'^s f^ar aar I) ^'1 areataeasaal | ^aal ^ aataala ^aa'ta faPaPiat ^ faasraj PaPrarai faa?!^ 5ia'l 11 ar^^a ^ P^aa a^aal a ara^ s^at^ ^ air air^ar^|t alai (ifear) f^Pas^ ataas qf aagaa'l ^^aal ^ ai’^a st^r, ai^:dt at l13 ^grai: 1947 ^*t Paafet ^ faaaa % ai aira^f^ra ^ ftaa ai^a^% ai^a a ^ Pi^at a aTs P^t^ aq I ^a^ita 3igara at 1 siaaO 1948 %faatP?:al i:r^r ^ f^r aar a^a?«ft ^t^;ar^ ^1' ^r^ar^ alar ( ^Pa^ar) P^Pa^a aiaai aa# aagaa't ai^aat 5HT a^iit siratIalar ffaaar f^Pa^^ asr ara ar? ^ alar ^rfa P^Pa^ P?aT aar I' l7 f?aTa^) 1947 ^ ^rrOia ar^ f^’a sr^r f^a ^^aal ^ ‘?ra^ ar^ala^^st ^T/ar sarar^ Paft ^ aala ^ P^a; aaiatad aaaan^a^ ?iPa?raai^^ ^ nPcrai^r ^ f^a; Paatftal ^ a? ai^r^ Paar Pai ai ai^aat ?ra^ aaaair^aai^ra ^ aP^ajia^t ^*1 aiT aa?, stiT a 3a a^ar?! I a^a^ ft, ^ 3car? ai^^ t Paatftdl 5:r5[r faPaPaa Paa; sir r:| ^ ar as^ira faa; sir ’il ^ ar %% ^r^ ar €t flaa a^aal ^ >jatiTt?a ^ af^ a Pralf^al sr^ raPrfaa fa^ ar^ar aa?iia fa^ sir^ ar ar^ aa,^a a^ I a.^ii at a^araar ^ at?aar^ % 3%t fa^f^f^a aft:aaiV I ••alar ara! ^ ^at^ aar^, a?^^ PsPa^r a^^ ^ araat a?rta<l qPa'?rPa? a^ ^11 aar ^car?t % *f^a?:ar arpaife sn^Ti; ^I?? ggr=^^ 11 'EPt? ^sqr'Tf if?r s^riir^ ^rgqw | ^^icft g7^rft^gcT sra*!^ ^?ri'?i^: ura- 11 mt ^ 59^ qf ftrqr I Ps el^r’t;[it?, ^ g^ g^qi^ ^r fg^V ge% ¥if^;c]t2i^r sqiqi?: f=q^ qsr sqqtir qi^c^ ^ T^q;3i^R glqr qi^ l g?qt^l ^rlq^unirq; ^rOq^iq ^ l^rfq?^?:ciqjqM eirqcrr ^ ^<3; q;qi qrliwl |7gRil qf ^ q^qiqqr^ qftiq q^q^FT^qq; ^rq =q^i^ ggqjr fq^ig % rao; elqr^ <3=^ ^ ^T qiqq: g5r ^3; ^qr IiRcirqqT ^ ?r3=^c[ ?rgg;^^qr qf I q# 3ig?£q7 ^ ^qRcftq ^ q^q^: ra[(T 113; ^ ^>3: fccqlq ?t3g;.qt ^^qrqr?: r^fI qiq q^q^ f^q; i>3: ^ I ?i3^^ 1 ^ q^ gqq^qq qr: But, it was an admissible allowance under s. 10(2) (xv), because, •!he expenditure in.curr~cJ by the assessee was not an allowance of the nature described in els. (i) to (xiv) of s. 10 (2), it was laid out or ex-pended wholly or exclusively for the purpose of the business of the assessee, and it was riot of a capital nature. 'The 'assessee did not become entitled exclusively even for the period.of the agreement to the patents and trade marks of the Swiss Co.; it acquired merely the right to draw, for the purpose of carrying on. its business upon the technical knowledge af the Swiss Co. for a limited period ; by making that technical know-ledge available the Swiss Co. did not part with any asset of its busines. nor did the assessee acquire and asset or advantage of an enduring nature for the bene·fit of .its business. [702 B-C, H; 703 E-F] Evans Medical Supplies Ltd. v. Moriarty (H, M. Inspector of Taxes), 37 T.C. 540; Jeffrey v. Rolls Royce Co. Ltd. 40 T. C. 443 and Musker v. English Electric Co. Ltd, 41 T.C. 556, referred to. (2) From the terms of the agreement between the Swiss Co. and the assessee, the assessee was entitled to certain Indian patents, but they did not include the Indian patents of May and Baker obtained by :he Swiss Co. from May and Baker. It could not therefore be assumed that the rights to patents standing in the name of May and Baker were available to the assessee under its agreement with t..he Swiss Co. The rights to the patents and trade marks did not devolve upon the assessee when it took over the pharmaceutical business from Ciba (India) Ltd., nor was there any proof that the obligaition of the Swiss Co. to pay a share of the costs of the suit, incurred by May and Baker was taken over and transmitted by .Ciba (India) Ltd., to the assessee. Therefore, the High Court was right in holding against 1:he assessee regarding the second claim. [707 E-G, H; 708 A-BJ CIVIL APPELLATE JuRJSDJCTJON: Civil Appeals Nos. 9 to 16 of 1967. · Appeals from the .iudgment and order dated January, 20, 21 of 1965 of the Bombay High Court in Income-tax Reference No. 67 of 1961. B. Sen, S. K. Aiyar and R. N. Sachthey, for the appellant (in C.As. Nos. 9 to 13 of 1967) and the respondent (in C.As. Nos. 14 to 16 of 1967). A. K. Sen, B. A. Palkhivala and J. B. Diulachanji, for the appellant (in C.As. Nos. 14 to 16 of 1967) and the respondent (in C.As. Nos. 9 to 13 of 1967). The Judgment of the Court was delivered by Shah, J. The Income-tax Appcl!Jtc Tribunal referred two questions to the High Court of Judicature at Bombay under s. 66( I) of the Indian Income-tax Act, 1922: " ( 1) Whether on the facts and in the 'circumstances of the case, the payment niade by the asscssee to Ciba Ltd. Basic in pursuance of the agreement dated 17-12-194 7 is an admissible deduction -under the provi-sions of s. 10(2 )(xii) ofihe Income-tax Act. and if not. under s. I 0(2) (xv) of the Act, either in part or whole? ( 2) Whether on the facts and in the circumstances of the case. the payment made in accordance with the terms of the agreements dated 15-11-1944 and I 8-6-1948 for meeting the expenses of Suit No. 890 of 1946 is an allowable expense under s. I 0(2)(xv) of the Income-tax Act?" In answer 'lo the first question the High Court recorded that the · payment made by the assessee to Ciba Ltd., Basic, in pursuance of the agreement dated December 17, 1947 is an admissible deduc-tion under s. 10(2) (xv) of the Income-tax Act, but not under s. 10(2) (xii) of the Act. The second question was answered in the negative. Against the answer recorded on the first question the Commissioner of Income-tax has appealed. and against the answer recorded on the second question the assessce has appealed. ‘‘1. q7qr ?rq^ qlq^di^qf ^ qf^qiiq ^qr^ii qJt^/qiq^qr q?iq? % ?T5^lq q^ qiT qq; sqf^q 5c|qy 5i|T q^ I^tb3tqr^ % qtqg; I qt qlqr q?rq? s:Rr q|^ % il rqfqfqq qr f^c:5ir ^11 qr 1% m I ?rqqr qt ^qr Ife^ % g;q^gqt^ ^ q;q^q?^rci;qlqr qrrql rqfqfqq qr- q^fq f^q; sin^ qr ^ sir^, siq rq>q7fqfqfq q;i fqfqqfqi qr sre?qi3;qr, ^'t^r ^ ^q^gqt^q ^ q^qr 'ftr^5[qr qjq^ ^rq q r^^qr srio; qq gq& q^qs: ^rrqfi^: ^3: sqrqr^:fqf q5r gqqtq q;?:^ % feq; ?rg^f^ ii in ^ Tqq-^'t ^srgqr^ q7qr qiiirf ft ^ 5i(i3;q> 1 ^g ^r^g q g'tqi qc qqgq^qf^ql I ff qf ?rlqr qrrJrf ft gq; g^qr^ I rqfqiiki qr n^f^qi %q^q^ qqt qpfqr^, frg,'^, l^iPif frTft, ftqqr^q q^q^qt PqqjT^ grqr^ ^ g?^, ^ q'tqr IPq^ ft n^qqir^r^ ^ fqfr^ qa;I qqtr: fqfpqq ffq; qij; |, qf^^g f^gt siif qf q*qq it q|T qfqi ^q7 qq IgrPrf q?q q.q't q*q?qt qq grqfRt, qr srrqiq^*t ?rgqq rqftfqql ft qi^q g =q^r^ ?nt^ gg^ f^fq ft qiPrif^ f^:^^ f^q; gqqig) it, qlqr figt ft ^q ^q7 1 2, q'tqr frqt qi w?: f^qt I Pf qi ?q f^rq; % srqtq q'tqr ^Pq?i % qrq ft| qtqqtq qiqfr^t q'tqr ^pqui ft q^HPg I Pqqr q^: sqf^qt qq;afz qft f^qt fqfqgq: qf f^r^: f^q't I Pf qf pqPrqtm al^qr^% qqqj qq ?rtfft ft qrqqt qr^irq^q fqqr<t ^ 3;#:q7 I”fig^q II % ^qqg’ ( 2) s:t3:t ftqq f^q^ ^ Pgqtftiq't ^ grqr ^qsq^q ^ % gtatg, ^'t fi^qt 1 H ql |, gq ^ fg% gg;qrqqt [1968]1 ^o^oiio 252 % 3qql>T, q^*T ^ grqj'qlj ?I3?J?7 H q aqqfqj^ SJirqR, ^gqqtq ^ ^ q^r, “|i^ ^rg^rra-,”srg^Tt ^ 1 ftqa qs^qal % ^TRatq ^ ?rqlq fqVrf^y qir^rrqqsn: sir q? ^q^t^SsRr aq> glfaqqTrq; ftqa qsiqift 5T^r q^sqrqjq qsl qf fq?iqta ^ra^Paqi sraas aff ?jTcrT qt 1€T«T iT- f^qg qirqql ^ q| ^ifqfr *ft ^rq^ ir«i a f^r sir fq; q? <r sqfeql^ .^fq ?i^ra qi’CR l ni % ^^^ gRI ^% ;5qqf^>qa qr:“qig^q l ll q qrgq^c ^ qrsqqi^ s^qr lf^5i # qfafciw^q^q qlqr m! qi wi: I viqqlq giqig atqrq;rn? sRr ^fanra qi qg^fq Tqiq; sq^it / qr qq aq^If^S^Tqqiq qfqqrq qiPi5[rq ^qr Ifg^ ^ 51: sn^ qq q ^q7 ;(q;) ^ qq; gqiqlqit TOnqf ^ qsl ^i qqsfl-^y ^qr ^qq; q^i qiiq qt srPi^tq 5 qfa^rq (^) «^q qqq ^ f^q; qsiq q qf q**^!qrqqt 5iiqq q^ ^rfq^iq3 ( q) qtqr qiiq"i SRF qsiq q ^riq; qq; sqrqR fq# v ^qifq^q,2 qfq^q% 10IV % fqqff^l 'R ^ fqq?q qrfq^rqq f^q; qq; ^ I ^qq q?gqqf'qq qr : ‘‘1 qirq? ^ qrrq^ qit^ qrsqqr3r*t q?t q|qr Ifg^ qi7fefeq qiqfq.% fqqr qqgr^ff q qsM; qqr 2—q^qr W, gtqr ^fg^, ^ ^ / qi ^qrqR f^ft?iqtq gq-qi^fa g|qr ^pg^ "jq g^qfg^ fqgr?rg^=g q qiM 1” sigq^g V qRi^ qit srfer^qrqfq qf ^qqfjqg qr i qqqaiq ^ g’^q^q qI gg^ “1—q| ^i:r 1 5iqcR% 1948 ^ qi^ Itqr ?lk qT=q qq ¥)• ^Miqfq ^ feq;afg qqr ^|qr I qf^ a^q^Rt ^ I gg qs^R ^ qqq^ql ^ ar^qqr ^rgar^iq q ^tnar^ ^lai t ^ a^^R sqfg^q qi^ a^?R^aq SRI qr #.q^ siq g|q qrg ^ q,qqT ^qR qi^R;^ g^qr I .2—q^ olqi Ifg^i ?5rq^ Maai ^ ari^ % q>R’n ^ q^ar aw? t sra^3ia^ qq qr gqq ^ Pqsgl srqtfer qr gq% Pq^q feo ^iCl 253 I eft glt ?rr^^R it^ir T^ ^ %e ^r ^rs^riei ^q ^qqqHi?r qs^ ^ I3 —59 q,?:r?: qqqerr^ f%et Igq; ^ fq^j; 'str^ q?: gtqr qim'r 59 q^sqiqr?: qsr, r I, ^ f%qiq, ^qqtJif% qft:rqiei ^ 5fiq;ift ^ gg gqq gg^ ir*i ^ tt ^qr If^^t qr sqfTR^ ^r, ^“t gg % rgn? gtqr sr^r RseB f%q;5inf, 3g qiRw't, l^rrg? ^ffqi^qr giuqtqlt, qft g'tqr Ifg^r ^ ^gqRR I ?ratg g| MI ?Rt^ gq gg^ qss^ ^ |, gq qfgqT qrqg qs? ^g7^ Tfgt 5:91 siR^iO-, t^rgq; ?ffqift qj HRqt ^t, ^ g5 59 q.?:n: ^srqlg qR 1^ It, gtqr t Thr fqsgt sgfg; -g^f qr qiJqgt ^ g^l^erqi^ 5 ?qffg: fq^ 5il9t I”?13^^ vi q Iir«?5qn qi^R r^qr |qrr qr I 15 ^r|, 1949 gRliqqri ^ q| sTHr^rq, qi rqq'rflgt k\i\ in ^ ^iqlg fqsqrsirqr qr, ^q^itq g^qi^t qlt fqqsq ^}jTg ^10 qfggg %e qfg^qi^ r^qr qqr I eg qi^i^ ^ qrgg^qr q fgqiM 5 feg qw! qt fqr'ttRqq^iftrqf qq qf qqf gq et I The assessee which was originally floated in the name of Ciba Pham1a Ltd .. and is now called Ciba of India Ltd. is an Indian subsi.diary of Ciba Ltd., Basie (hereinafter referred to as 'the Swiss Company') which is engaged in the development, manufacture and sale of medical and pharmaceutical preparations. The Swiss Company originally carried on business in India of selling [ts pro-ducts through a subsidiary called Ciba (India) Ltd. After the incorporation of the assesscc on December 13. 1947 the activities of the Swiss Company in India were bifurcated : the pharmaceu-tical section was taken over by the assessee from January I. 1948. and the other lines of business relating to dyes and chemicals were continued by its subsidiary Ciba (India) Ltd., the name whereof was later changed to Ciba Dyes Ltd. By a deed dated December 17, 1947 the Swiss Company agreed with the assessce in consideration of payment of a "tech-nical and research contribution for the use of its Indian patents and/or Trade Marks", to communicate the results of its research work, insofar as they relate to the products which were already manufactured or processed or sold by the asscssce or which may. with the prior approval of the Swiss Company. in future be manu- factured or processed or sold by the assessee. . The preamble of the agreement, inter alia, recited : "Ciba Pharma has installed its own tabletting ampoule filling and finishing work and has an organisa-tion suited for the distribution and · promotion of. the said products. Ciba Pharma wishes to acquire the extensive knowledge and practical experience in the pharmaceutical field that Ciba Basie commands by reason of its long and extensive research work and scientific and practical experience. Therefore the parties have agreed that Ciba Pharma shall pay to Ciba Basie a technical and research contribution for the use of its Indian patents and/ or Trade Marks referring to the said product~. The technical and research contribution is at the same time a consideration for the scientific and technical assistance and will refund partly Ciba Basie's costs and expenses for the maintenance and development of the research work described in this Preamble." The preamble was followed by six Articles and two Schedules, the first Schedule setting out the numbers of the Indian Patents, and the Second Schedule setting out the names and numbers of the Indian Trade-Marks. Article 1 provided : "1. Ciba Basie will communicate currently and/ or at request of Ciba Pharma all the results 'of its research work, insofar as they relate to the said products which are already manufactured or processed or sold by Ciba Pharma or which shall hereafter with the prior approval of Ciba Basie be manufactured or processed or sold by Ciba Pharma. Whenever manufacture or processing of a preparation is taken up by Ciba Pharma with the prior approval of Ciba Basie, the pertaining patent right and Trade Marks will be licensed to Ciba Pharma according to the terms of Articles II and III. In this case Ciba Basie undertakes to deliver to Ciba Pharma all pro- · cesses, formulae, scientific data, working rules and p,res-criptions pertaining to the manufacture or processing of said products, which have been discovered and deve-loped in Ciba Basie's laboratories and will forward to Ciba Pharma as far as possible all scientific and biblio-graphic information, pamphlets or drafts, which might be useful to introduce licensed preparations and to pro-mote their sale in India. . 2. Ciba Pharma agrees not at any time to divulge to third parties without Ciba Basie's consent any confi-dential information received .under this Agreement from Ciba Basie and in particular to keep all data connected with the manufacturing processes under lock and key." geiq Rqg qs^qqt ^ fqq; gu; ^ gg ql qiqg 1949-50 %1953-54 gq; ^ fgqkqi qqt ^ T^o; q?; fgqkqi ql qRqril g q| erqr fqqrgqr fq 5 eftfqg e?qg tqg 5q^, 1922 ql qRi 10 (2 ) (xii) ^qa:i5q ?rrq ql gqqigr g % q gtq 11 qrrqq^ qrrr'qg^ ^ (ftrqlfel eRr 'qiR g ^ru: qu: sqrqR fq^ r: ^qifgeq ^ g;q g et qf^^rg ^ Tfgrq 5 go;gei^ ^ fgqR) q| erqr grg^^ qR f^qi 1 ggqr qf ?rr^?r qrqt^ g qrqM gfrqqs:r^T 3? qe: T^qr gqr I qriqq?: qrqt^ ^rfqq^qj 5 qi qrfgfgqrftg Tqqrftqffeft era ftqg q’^qgt q*t fqq; gq; ^q, qRj 10(2) (xii) ^ ?rqtg glq^R^ qft^: 1^: ejjg g 5 qRr 10 ( 2 ) (xv) ^ ^iqtg gt glq qlR q il |efeqg tqg qt qRr 10 ( 2 )( xii ) ^ 3rqlg sqq qt qr^qgr ^qrl ^ qrfqq^iq ^ gg ^ g^g jqrqr^q qr gg gil fg^r, fq-a gt qrfqqwql qi gg grR qr fq qf qi^r lO ^2) (xv) ^ fqrqr^q5 ^ gg wqgRr I gg^ stq it5 qe: ^rr^gr ql ?ft5c I ?rrtq Tqqr gqr 11( ^glgg sqq ql gi^Pg | ^ sqq fqyq ) q| sqq^ ^ IqR5gTqp=qg Igrfqqr g^qqjr g ?tgrqr gqr I qiTqqrgqr I, rqqrftgl %qr^qr?: ^ qg5q ^rgl ^*t^ ^rpg^rgt ql ggqigr q^^ ^ efgs'qg i?qg-tqiql qRr 10 ( 2 ) ^ qrqlg ?i^q glq 11 qi^r 10 ( 2 ) ^ giq^ (xii)q; srqlg gtq ql ?i3gqgr ql i?q | ^g qf fq wf sqq iiqfqq; g^qqir qr:fgq^ftgl sRr qrgiqr gro; qr ftiqr gro; I gl ^qg rgqtfel 5 ql 5 Rqif^gl^ qRqR % g^qf^qg qgrfgq g^qqjr q^ fgqffcrl SRr g ^grl gt ql g sqq 254 qtll«T [1968]1 gupf^oq© »it «ff 1 »ilw 'R rw7 sqfg; si^r I =5i| srt-atuc^r 'fit 'Tfi^r t|% ^ ^ ^ feij; ?jhi^ r^u; Twr w ae I fg^Wj ft?^ fee; m I sir ^iF I, ^ar | sqq R^t ^ fiiRFr^ci'F% fr^:5iR % ei^f^ IfiiPa^ »il^<!ir q^: ?i»iiqr »iqrqr fq.qr aqr 11 ?ia:^F ^i^r 10 ( 2 ) (xii) % ?rtfFa iiFqi ^ ftits; »hj:^ 3^^ jqrqraq ^ sFf iF ^iRsi 11 fa^Fr^dF % qta % ^“F »it ^a^F r'^*^ ^F 10(2 ) (XV) % ?r«fF^ liF^J qF«i sqji ^ ^q ^ €\m |7 rirt nqi 11 q>w ^PrqjRaF % 3t«fFiT fhe f^q^F ^—1—qi ^aqwr fm\ 5Tr h q| fa^i^fe'F qsF a^qi^ ^ fqftnW ^\avfF sifeqii^, q;ij(^, Igifaq; ?iTq,t. 'fiR=^ra=T«Tq?«fF f^qiT ^ 3cqi^ ^ 3^t, ^'F fee q.TqdF qiF a«fi»T-^rai?FF H «dFsi Taqiii jiu; |, ^ ^qiftra T^q; ttr; |, qf^^rt qiMsi^ aqq ^ giraf ^ 3if«i?5dF a^'^F aq shr^i^F,qi qre;q, €F ?i^ FafqfdqF ^F ^ aal f^qsq^F ^ f^q; aqqFdF fa«iFfi;dF ^F vta ^dF (?i3^^ i q;r1) ^?: ( 2 ) fa^FfcfF ^F iiT^ci ^ 3?r ^sF % ?jdFa, ^?i3g.=dF I H ^ I, 33R Taffg 3^qiqRF ^ aqdF»i, qqF»i ^arsp^FF^?jR?q ^ ?rg^=3 qlF ?i3^=dF n ^ rFFijrsqiqi?: r^fF qii aqdFn ^ ^rsq ^dF h q; f^q; ?i3^^^F I qi ^"Ffira dF fq; 33 seF 3RF?q sRpTfidF51^:1 ^3 rq?mT3 qr ae ^ q^^rc^ flqa ^qdF SRrq?: 5q^.qF ^F ^la^'a # 3| ara^fk aa srPa^R ^ ?r3^fi ^ ?p^ aCF?iidF dF: (9r3^^ n ^r ’qqa’ 2 ?r3^q il qsr ’q’li' 3) i^ ^^^F# airqarqnr qi?:F qi aPaw^q^q fdqlP^dFF qf^^R fq>qr qr q| (qi) ^ ^idFa f^qa ^»qaF & ara ^Ft alqdFqsiraqiRF aa^F a^irfa ^ ftar v. sqfrfiqF q^ a^ aiF q;FaF (I?3Ji5 2); («q) P^a qjjqqF ^F P^fea a^qpa ^ pqar qs^i^ qs q;iqFarrays aiF ^FaF qr P^qa qs^qaF % sqiqR p=q^ ^ aqqtaaPqqr ?r3^ aiF q^FaF ( ^ra^^^ IV, ^aa 1^2); qi aFqRR Pfiqr (a) q;^R ^r q^qaR fqiaF laq»^ ftq; q^ ^^ sqtqR qir 3qqFa % q^fq^a iF araaF ^ fiqa qpqdFqfiF aa araqsRF, larfaq; srTq;^ qr araaF ^F, ^ aaF al ^dFaq afitqr qiqa qR ^aF ^ fi:aF ^laqsRF, lar^rq? #PfF ay arariF (5^^) [ 5^® ^ ] 255^*t, ^'t 3^ JH'^ it it, Tf^ s'lra ^ a^r^ ^(V 3)1 ftwa.^Tqqt ^ ^st s^nqR r=q^ ?r3?qfq5 %ik ^qii^nr^r ^ %q: jft T^'^rfr^at ^t q>’:R t: ^«fR sii'=ci ait *ir i at ^qsftqqaqiat^t siRqiF't iii '4=^ ^^’fqift aFC^Rat 11 fa fa^Vftat f?qa qsrqjft ^ a^T'^7 ^ra ^r qft-^ftra qiraRr^r % 3f3^fRWTit it qi ^ qi ?rfqq5R ^ «Tr af33q.Tq?ft ^ 5’^T'TK ^ aqita ^ I Pi^ilr^a't # qf If% q>Miqf^ ^ q.TiqR ^ ^ f^q; fa a^al^t ^rq|a qi^ ^ %q; ?f3^Ta f^q; % i^q; ftiqr aar ?ifiifR ^ffa-^qa^ 1922 qlt ^[^r 10 (2 ) (XV ) ^ f^qfaat % 3Riaa sn sircir 11 aifara% ^ f^q; aifR^ I aif aq; sa^i aqq?a qf I: ‘‘Such profits or gains shall be computed after making the following allowances, namely ;— ( iv ) any expenditure not being an allowance of the naturedescribed in any of the clauses ( i ) to ( xiv ) inclusive,and not being in the nature of capital expenditure orpersonal expenses of the assessee laid out or expendedwholly and exclusively for the purpose of such business,profession or vocation.” By cl. 2 of Article II, the Swiss Company granted to the assessce "full and sole right and licence" in the territory of India under the patents listed in Sch. I, to make use, exercise and vend the inven-tions referred to therein, and to use the Trade-Marks set out in Sch. II in the territory of India. By cl. 3 the sole right of the asscssee under the Swiss Company's Indian patents was limited by existing licences granted by the Swiss Company to third parties. and right was also reserved to the Swiss Company to conclude othc• licence agreements with third parties. By the first clause of Article I II, it was provided : "As consideration for Ciba Basie's obligations stipu-lated in Article I and II, Ciba Pharma agrees to pay to Ciba Basic half-yearly the following percentage contn-butions of the total of the net selling prices of all phar-maceutical products manufactured or processed and/ or sold by Ciba Pharma : (a) Contribution towards technical consul-tancy and technicaf service rendered and research work done. 5 '7o (b )Contribution towards cost of raw material used for experimental work. 3% ( c) Royalties on trade marks used by Ciba Pharma. 2% Article IV imposed certain restrictions upon the assessee. provided : "I. Ciba Phanna shall not assign the benefit and the obligations of this Agreement without the written consent of Ciba Basic; and 2. Ciba Phanna shall not grant any sub-licence under the patents and/ or trade marks of Ciba Basie without its previous written consent." Article V dealt with duration and termination of the agreement. It provided : "I. This Agreement comes into force on January I st, 1948, and shalfcontinuc in force for a period of 5 years. Therefore provided that if one of the parties fails to perform or observe the provisions of this Agree-ment the other party may cancel the same by giving to the party in default 3 months' notice by registered letter or by cable. 2. If Ciba Basie shall be compelled for any reason beyond its control to transfer or part with all or any of its shares in Ciba Pharma, it will have the right !o imme-diately determine this Agreement. 3. Upon the termination of this Agreement for any cause Ciba Pharma shall cease to use the patents and trade marks to which this A