TMI Blog2013 (4) TMI 11X X X X Extracts X X X X X X X X Extracts X X X X ..... ision would not apply to a revenue expenditure even if the same was incurred for acquisition of technical know-how. Deduction on such expenditure was available even before the introduction of section 35AB of the Act and such deduction cannot be curtailed or limited by applying section 35AB. In that view of the matter, taking such an expenditure out of section 37(1) of the Act, would not arise. The tax appeals are dismissed. - TAX APPEAL No.76 of 2003 With TAX APPEAL No.42 of 2002 - - - Dated:- 10-7-2012 - MR. AKIL KURESHI AND MS. HARSHA DEVANI JJ. Appearance: MRS MAUNA M BHATT for Appellant(s):1, MR MANISH J SHAH with MR JP SHAH for Opponent(s):1, COMMON ORAL JUDGMENT (Per: HONOURABLE MR. JUSTICE AKIL KURESHI) 1. These appeals involve the same assessee as also identical issue of applicability of section 35AB of the Income Tax Act, 1961 ('the Act', for short) pertaining to expenditure incurred by the assessee for acquiring technical know-how. 2. In Tax Appeal No.76/2003, we are concerned with the assessment year 1990-91. In Tax Appeal No.42/2002, we are concerned with the assessment year 1991-92. Slightly different worded questions have been framed in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d lump sum payment. It had also come on record before the Tribunal that such technical know-how was used for the purpose of manufacturing the existing items which the assessee was manufacturing since years. In short, without saying so many words, the Tribunal also confirmed the view of the revenue authorities that the expenditure was revenue in nature. If that be so, the question arises whether deduction of such expenditure can be limited by applying section 35AB of the Act. 19. As already noted, as clarified by the CBDT circular dated 12.6.1985, such provision was made in the statute in Finance Act, 1995 (with effect from 1.4.1985) with a view to providing further encouragement for indigenous scientific research. Section 35AB of the Act, which was later on deleted with effect from 31.3.1999, reads as under: S. 35AB. Expenditure on know-how . (1) Subject to the provisions of sub-section (2), where the assessee has paid in any previous year any lump sum consideration for acquiring any know-how for use for the purposes of his business, one-sixth of the amount so paid shall be deducted in computing the profits and gains of the business for that previous year, and the balance a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the Commissioner (Appeals) against such a decision contending that under the said agreement, the assessee had not become the owner of the technical know-how and no benefit of enduring nature had been received by the assessee. The CIT (Appeals) granted benefit to the assessee to the extent such expenditure represented the royalty calculated on the basis of the sales including excise duty and sales tax. The CIT (Appeals) held that such expenditure was revenue in nature and accordingly, allowed the assessee's appeal. The Department, thereupon, approached the Tribunal. The Tribunal rejected the revenue's appeal. The Tribunal referred to various clauses of the agreement between the assessee and the know-how provider to hold that such expenditure was revenue in nature. When the matter reached the High Court at the hands of the revenue, the High Court rejected the appeal on a somewhat different ground. The High Court held and observed that effort of the revenue to bring the expenditure within the domain of section 35AB of the Act was totally misplaced since the pre-condition for application of section 35AB of the Act was that the payment had to be a lump sum consideration for acquiring ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. Swaraj Engines Ltd. (supra), we also would like to place reliance on the clarificatory circular issued by the C.B.D.T. bringing out the nature of the benefit being provided under section 35AB and the purpose for introduction of such provision in the statute. Such provision, as was clarified, was made with a view to providing further encouragement for indigenous scientific research. Thus, such statutory provision was made for making available the benefits which were hither to not available to the manufacturers while incurring expenditure for acquisition of technical know-how. To the extent such expenditure was covered under section 35AB of the Act, amortized deduction spread over six years was made available. If such expenditure was capital in nature, prior to introduction of section 35AB of the Act, no such deduction could be claimed. With introduction of section 35AB, to encourage indigenous scientific research, such deduction was made available. Such a provision cannot be seen as a limiting provision restricting the existing benefits of the assessee. In other words, the revenue expenditure in the form of acquisition of technical know-how which was available as deduction und ..... X X X X Extracts X X X X X X X X Extracts X X X X
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