TMI Blog1993 (2) TMI 156X X X X Extracts X X X X X X X X Extracts X X X X ..... he agreement was the sale of documentation/know-how/drawings and such other technical data pertaining to the licensed products by the foreign company. The licensed products were the complete range of Transpak (R) Transmitters. The consideration was a lumpsum of pound 35,000. One-third of this amount was to be paid within 30 days from the date the contract is taken on record by the Government, one-third on presentation of invoice and receipt of the documentation and the balance within one year from the commencement of production. One of the terms stated that the foreign company may with prior agreement of the assessee make the know-how available to other parties in India. The foreign company also required that the standard of the product sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id. In reply it was submitted on behalf of the assessee that even if the agreement were to be considered under section 35AB, the deduction should be 1/6 of the entire amount payable under the agreement. 5. We have considered the submissions of both sides and perused the agreement. The first question that arises is whether the expenditure incurred is of capital or revenue nature. The general understanding of the law on the subject is that if the assessee has an enduring benefit as by way of acquisition of any right, it would be an expenditure of capital nature. In the present case, the agreement itself says that it is for the sale of documentation and the amount paid is a lumpsum amount. The other aspects emphasised by the assessee such as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id in the previous year by the assessee shall be deducted in computing the profits and gains of the business for that year, and the balance amount shall be deducted in equal instalments for each of the two immediately succeeding previous years. Explanation : For the purpose of this section, ' know-how ' means any industrial information or technique likely to assist in the manufacture or processing of goods or in the working of a mine, oil well or other sources of mineral deposits (including the searching for, discovery or testing of deposits or the winning of access thereto). " The Finance Minister in his Budget Speech said : " With a view to providing further encouragement for indigenous scientific research, I propose to provide that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts or the winning of access thereto). The proposed section will apply in relation to the assessment year 1986-87 and subsequent years. " Circular No. 421 dated 12-6-1985 explained this provision thus : " Deduction in respect of expenditure on ' know-how ' 15.1 With a view to providing further encouragement for indigenous scientific research, the Finance Act has inserted a new section 35AB in the Income-tax Act. The section provides that any lump sum consideration paid by the tax-payer for acquiring any know-how for use for the purposes of his business will be allowed as deduction by spreading it over 6 years, namely, the year in which the lump sum consideration is paid and the five immediately succeeding years. Where the ' know-how ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r more than a year this amortisation puts paid to conflicting claims of assessee and revenue. The essential facts of this case viz., lump sum consideration for acquisition of know-how to assist in the manufacture of goods for use in the business of the assessee falls squarely within the scope of this section. Whatever be the position earlier, since this section applies to this assessment year, we have to confirm the view of the authorities below that the expenditure incurred by the assessee must be dealt with only under section 35AB. 7. However, that section provides for a deduction of 1/6 of the amount paid as lump sum consideration. Section 43(2) defines " paid " to mean actually paid or incurred according to the method of accounting up ..... X X X X Extracts X X X X X X X X Extracts X X X X
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