TMI Blog2012 (7) TMI 598X X X X Extracts X X X X X X X X Extracts X X X X ..... r: Akil Kureshi: 1. Revenue has challenged the judgment of the Income Tax Appellate Tribunal ('the Tribunal', for short) dated 12-4-2001. The issue pertains to deduction claimed by the assessee for the expenditure on technical consultancy fees. Revenue contends that such expenditure should be treated as provided under section 35AB of the Income Tax Act, 1961 ('the Act', for short). The Tribunal upheld the view of C.I.T. (Appeals) and rejected the revenue's appeal and hence, this present tax appeal before us. 2. At the time of admission of the appeal, the following substantial question of law was framed:- Whether the ITAT has substantially erred in law and on facts in treating the technical consultancy fees of Rs.5,86,277/- as revenue expenditure of the year when the provisions of Section 35AB were clearly applicable? 3. In the order admitting appeal itself, it was recorded that revenue's appeal raising identical question being Tax Appeal No.326/2000 is admitted and is pending. 4. We may briefly record the facts. During the previous year relevant to the assessment year 1990-91, the assessee had incurred expenditure of Rs.5,86,277/- towards technical consultancy charge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... improving the efficiency and not on any expansion or development of new product or setting up of a new plant. Thus, the Commissioner taking into account the relevant clauses of the agreement came to the conclusion that such expenditure did not result into any enduring benefit but was only for improving the existing efficiency of the assessee company. 9. Before us, though the revenue did contend that even if the expenditure is revenue in nature, such expenditure should be amortized as provided under section 35AB of the Act, in this respect, while dismissing the revenue's appeal in case of Sayaji Industries Ltd. in Tax Appeal No.326/2000, we had negatived such a contention making the following observations:- 18. From the submissions made before us, central question that calls for our consideration whether in fact the revenue is justified in applying section 35AB of the Act, or whether the assessee, as held by the Tribunal, was correct in contending that the said provision would have no application. Before going to such question, we may recall that the Assessing Officer, in clear terms, held that the expenditure was revenue in nature. CIT (Appeals) did not disturb this finding, bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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). 19.1 Sub-section (1) of section 35AB of the Act provides for a deduction for any lump sum payment made by the assessee for acquiring any know-how for use for the purpose of its business. Such deduction, however, was to be spread over a span of six years, during each of the six years starting with the year when such expenditure was incurred, the assessee being eligible for deduction of the one-sixth of the total expenditure. 20. The moot question is whether such provisions contained in section 35AB of the Act would cover also revenue expenditure. In this context, we may peruse the decision of the Apex Court in case of Commissioner of Income Tax v. Swaraj Engines Ltd. (supra) more closely. The said decision was rendered in an appeal filed by the revenue challenging the decision of the Punjab Haryana High Court in the case of Commissioner of Income Tax v. JCT Electronics Ltd., reported in (2008) 301 ITR 290 (P H) . In that case, the assessee had claimed a deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5AB, would certainly come into play. . With the above observations, the Apex Court proceeded to remand the matter before the High Court observing that such question needs to be decided authoritatively by the High Court as it was an important question of law, particularly, after insertion of section 35AB. 21. This decision is significant for our purpose and we have taken note of the background leading to the appeal before the Apex Court due to such reason. The Apex Court decision would suggest that for determining whether certain expenditure would fall within section 35AB or not, it would be important to examine the nature of the expenditure. If it is found that the same is revenue in nature, the question of applicability of section 35AB of the Act would not arise. On the other hand, if it is found to be capital in nature, then the question of amortization and spreading over, as contemplated under section 35AB of the Act would come into play. It was in this background that the Apex Court desired that this question, that is, the question of the nature of expenditure, whether revenue or capital, be first decided before final answer to the applicability or otherwise of section 35AB c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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