9911796707
TMI Blog2004 (12) TMI 629X X X X Extracts X X X X X X X X Extracts X X X X ..... rming the disallowance of Rs. 19,99,848, paid by the assessee-company to Industrial Design Consultancy Limited, UK, on the ground that the same constitutes capital expenditure. It is also contended that in any event, the CIT(A) should have allowed deduction under section 35AB in respect of the said expenditure. 3. The assessee-company is engaged in the business of manufacture of electrical motors for the refrigeration, air conditioning and home appliances. The major customers of the assessee-company are original equipment manufacturers viz. Godrej GE Appliances Limited, Carrier Aircon Limited and Voltas Limited. During the relevant previous year, the assessee made a payment of Rs. 19,99,848 to M/s. Industrial Design Consultancy Limited for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otally new product, with the technical know how acquired from the foreign company, so as to expand its business. He was also of the view that the assessee had decided to launch a totally new product which it had never manufactured in the past, nor did the assessee have the capacity to manufacture same, for expanding assessee's business mainly because the assessee's present business was not bring adequate profits. He was also of the view that in a situation in which the expenditure was for development of a totally new product, expenditure incurred is required to be treated as capital in nature even if the project was abandoned mindway. The CIT(A) further added that even if the said expenditure is held to be relatable to the existing business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt input for the production of vacuum cleaner. The mere fact that the assessee needed a special kind of motor to be used in the proposed end product, by itself, cannot lead to the conclusion that the assessee was in a new and unconnected business. The expenditure incurred on the said business cannot be said to be un-relatable to the existing business. Accordingly, in our considered view, the expenditure was incurred for the purposes of business. The next question then is when the expenditure is incurred for the purpose of business whether it is deductible. In the present case, the assessee incurred expenditure for obtaining the know how. There is no dispute that the line of activity in which the said know how could be used by the assessee i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the effect that the expenditure incurred on acquiring the know how in question has resulted in enduring benefit to the assessee. However, the Assessing Officer has not examined whether or not the said know was of, or capable of being of use in some other purposes by the assessee. This aspect of the matter, in our understanding, is important and is required to be examined before the nature of expenditure can be established. 6. For the reasons stated above, we consider it necessary to remit the matter to the file of the Assessing Officer for examining the matter as to whether the know how purchased by the assessee was of any commercial use to the assessees even after abandoning the vacuum cleaner project. In any other case, it cannot be sai ..... X X X X Extracts X X X X X X X X Extracts X X X X
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