TMI Blog2004 (9) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... ee appeals arise between the same parties, i.e., the same assessee (respondent herein) and secondly, the appeals involve more or less common substantial questions of law except the difference being they arise in different assessment years. This is an appeal filed by the Revenue (Commissioner of Income-tax) under section 260A of the Income-tax Act, 1961, against an order dated November 20,1998 (wrongly mentioned in the memo of appeal as October 20, 1998 at page 1 of paper book of I.T.A. No. 17 of 1999) passed by the Income-tax Appellate Tribunal in I.T.A. No. 974/Ind/94. This appeal was admitted for final hearing on the following substantial question of law by this court on May 8, 2000: "Whether on the facts and in the circumstances of the case and in law the Income-tax Appellate Tribunal was justified in holding that the provisions of section 35AB in respect of technical know-how expenses are not attracted as the same are of revenue nature, even though the provisions of section 35AB are applicable to technical know-how expenses irrespective of the facts whether the same are of revenue nature or of capital nature?" The facts insofar as they relate to answer the aforesaid quest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s amount as a revenue expenditure incurred for running the business in the relevant assessment year. The question, therefore, arose before the Assessing Officer as to what is the true character of the payment made by the assessee to its sister concern, viz., whether it is in the nature of capital expenditure, or whether it can be regarded as revenue expenditure or whether it can be treated as expenditure incurred for acquiring know-how so as to be taxed in the hands of the assessee under section 35AB ibid. As observed supra, the contention of the assessee was that the payment of Rs. 1,03,742 being in the nature of revenue expenditure the same is an allowable deduction. The Assessing Officer by order dated March 18, 1991 held the payment to be in the nature of capital expenditure. The Assessing Officer then further held that notwithstanding the finding, recorded by him treating the expenditure to be in the nature of capital expenditure, the amount can be brought for deduction under sections 35A and 35AB because it is paid for acquiring patent rights, copyrights and technical know-how. Accordingly and in view of the alternative finding the Assessing Officer directed the deduction t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l in favour of the assessee so far as this appeal is concerned to the effect that the payment in question is in the nature of revenue expenditure. In other words, no substantial question of law is framed at the instance of the Revenue (appellant herein) on the issue as to whether payment made by the assessee can be regarded as capital expenditure or revenue expenditure so far as this appeal is concerned. In view of this position emerging from the record of the case, we have to proceed on the basis by accepting the finding of the Tribunal that the true character of payment in the given case was in the nature of revenue expenditure and not capital. The question that really arises for consideration in this appeal is, whether the provisions of section 35AB are attracted in the facts of the case notwithstanding the finding recorded by the Tribunal that the payment in question made by the assessee to its sister concern is in the nature of revenue expenditure, or in other words notwithstanding the fact that the payment in question made by the assessee to its sister concern is regarded as revenue expenditure, whether the provisions of section 35AB are attracted for claiming deduction, or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n proved then, the provision of section 35AB(1) gets attracted thereby entitling an assessee to deduct one-sixth of the amount in computing the profits and gains of business for that previous year and the remaining to be deducted in equal instalments for each of the five immediately succeeding previous years. This is subject to the condition that the payment is made against acquiring of know-how as defined in the Explanation appended to the section. In other words, it must be proved that the payment is made by the assessee for acquiring that know-how which satisfies the requirement contained in the Explanation appended to section 35AB ibid. It is not in dispute that the assessee obtained the know-how for manufacture of goods from its sister concern and utilized it effectively in manufacturing the goods and its sale in the market. It is also not in dispute that a lump sum consideration of Rs. 1,03,742 was also paid by the assessee prior to April 1, 1998 to its sister concern for obtaining the use of know-how. In such circumstances, in our view, the requirements of section 35AB are satisfied. The question that may arise for consideration and the same was decided in favour of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplicability of section 35AB, the nature of payment namely, whether capital or revenue is not decisive. What is material is, whether the payment made satisfies the requirement of section 35AB, or not? Since, in this case, all the requirements of section 35AB are satisfied, we are of the view that the Assessing Officer was partly justified in working out the profits and gains in the light of the method provided in section 35AB. We are not, however, called upon to examine as to whether the case falls in section 35A because no substantial question of law is framed for examining the applicability of section 35A ibid. Accordingly and in view of the aforesaid discussion, the appeal succeeds and is allowed. The impugned order of the Tribunal insofar as it deals with the question referred to supra is set aside. The question framed is answered in favour of the Revenue (appellant) and against the assessee (respondent). It is answered that in the facts of this case, the provisions of section 35AB will apply. This takes us to the other two appeals being I.T.A. No. 41 of 1999 and I.T.A. No. 44 of 1999. These appeals arise out of the assessment years 1989-90 and 1990-91 respectively. In th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... now-how expenses are not attracted as the same are of revenue nature, even though the provisions of section 35AB are applicable to technical know-how expenses irrespective of the facts whether the same are of revenue nature or of capital nature?" In these two appeals challenge is laid to the nature of transaction by the 27 Revenue whereas in earlier appeal, i.e., I.T.A. No. 17 of 1999, no such question of law was framed for that assessment year. Be that as it may, in our opinion, in view of the finding recorded by us in I.T.A. No. 17 of 1999, it may not be very necessary or material to examine and answer question No.1, wherein this court has held that notwithstanding the fact that though payment made by the assessee was in the nature of revenue expenditure, yet the provisions of section 35AB ibid will apply. In any event, in our opinion, keeping in view the law laid down by the 28 Supreme Court in the cases of CIT v. Ciba of India Ltd. [1968] 69 ITR 692; Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1 ; CIT v. Avery India Ltd. [1994] 207 ITR 813 (Cal); CIT v. M. B. Umbrella Industries [1984] 145 ITR 292 (MP) and the nature of the agreement dated August 12,1986, the payments made b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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