TMI Blog2006 (5) TMI 57X X X X Extracts X X X X X X X X Extracts X X X X ..... he order dated December 3, 2001, passed by the Income-tax Appellate Tribunal, Chandigarh Bench (A), for the assessment year 1991-92 in I. T. A. No. 1443/Chd./94 was admitted for consideration of the following substantial question of law: "1. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the payments made by the assessee to M/s. Kirloskar Oils Engines Ltd. under the agreement dated October 19, 1989, do not fall within the ambit of section 35AB of the Income-tax Act, 1961 ?" 2. We have heard Shri Yogesh Putney, advocate for the Revenue and Shri P. C. Jain, advocate for the respondent and with their assistance have gone through the orders on record. 3. The assessee filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Income-tax Act, 1961. Royally at the specified rate has been held as allowable in H. Dear and Co. P. Ltd. v. CIT [1966] 60 ITR 546 (SC). Even excess royally for increase in selling price rate is allowable as decided in Associated Stone Industries (Kotah) Ltd. v. CIT [1971] 82 ITR 896 (SC). Not only royally paid but even the technical fees for new line of business has been held by the Bombay Tribunal as allowable revenue expenditure as decided in the case of First ITO v. Kakad Gas Service [1982] 2 ITD 508 (Bom)." 4. After consideration of the reply filed by the assessee the Assessing Officer came to the conclusion that the payment made by the assessee was covered under the ambit of section 35AB of the Act and according ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before the Tribunal. 7. In appeal before the Tribunal, besides, relying upon the order passed by the Commissioner of Income-tax (Appeals), the assessee further contended that the agreement dated October 19, 1989, was entered into with M/s. Kirloskar Oil Engines Ltd. to achieve the desired level of quality for the products already being manufactured by the assessee and the same was not entered into for outrightly acquiring such technical know-how. Another argument raised by the assessee before the Tribunal was that the Department had already allowed the claim of similar expenditure for the assessment years 1989-90 and 1990-91 as revenue expenditure. Even for the year 1993-94 also similar payments by the assessee had been considered and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al know-how or the assistance given by M/s. Kirloskar Oil Engines Ltd. as per the terms of the agreement was only relatable to production. It further means that the assistance or technical know-how obtained by the assessee under the agreement pertained to the products already manufactured by the assessee and not for new products and this agreement further indicated that what was stipulated in the agreement was an improvement in the operation of the existing business and its efficiency and productability. We are further of the opinion that since the agreement was for better conduct and improvement of the existing business of the products already being manufactured by the assessee, so, in these facts, the impugned royalty amount paid by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 amount shall be deducted in equal instalments for each of the five immediately succeeding previous years." 10. The effort of the Revenue to bring the expenditure within the domain of section 35AB of the Act is totally misplaced since the pre-requisite for application of section 35AB of the Act is that the payment has to be as lump sum consideration for acquiring any know-how. This pre-condition is totally missing in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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