2002 (9) TMI 97 - HC - Income Tax

Capital Or Revenue Expenditure, Technical Know-how - whether this expenditure by the assessee was of a capital or a revenue nature. The Assessing Officer had held the expenditure to be of a capital nature and allowed depreciation but disallowed total deduction. - We are still less concerned with the provisions introduced in 1998 in section 32(1)(ii) of the Income-tax Act which relates to depreciation of know-how which is used for the purposes of the assessee s business. - Since these sections are not involved and the matter does not require any consideration of any still unsettled point of law, the appeal petition is summarily rejected.

Summary

Issues:
1. Nature of expenditure - capital or revenue?

Detailed Analysis:
The High Court of Calcutta heard an appeal by the Revenue challenging the order of the Income-tax Appellate Tribunal dated March 30, 2001. The issue at hand pertained to the nature of an expenditure amounting to Rs. 22,83,890 incurred by the assessee during the assessment year 1985-86. The Assessing Officer had initially categorized the expenditure as capital in nature, allowing depreciation but disallowing total deduction. However, both the Commissioner of Income-tax (Appeals) and the Tribunal ruled in favor of the assessee, considering the expenditure as revenue in nature.

The expenditure in question was a payment made by the assessee to Japanese suppliers for technical know-how related to a sophisticated paint finishing system used in manufacturing motor vehicles. The assessee then passed on this information to its clients for a consideration equal to the amount paid to the Japanese suppliers. The agreement between the assessee and the Japanese suppliers stipulated that the information could only be shared with third parties after a subsequent tripartite agreement and government approval.

The Commissioner of Income-tax (Appeals) and the Tribunal both concluded that the information acquired by the assessee was akin to a stock-in-trade that was sold off, with no enduring benefit discernible to the Department. The Court noted that the controversy over the nature of expenses being capital or revenue often arises, but in this case, the issue was straightforward, not warranting an admission of appeal on any legal grounds. Therefore, the Court upheld the findings of the lower authorities that the expenditure was revenue in nature.

Furthermore, the Court clarified that the introduction of Section 35AB from April 1, 1986, allowing deduction of know-how expenditure at six different stages, was not relevant to the assessment year in question. Similarly, the provisions of Section 32(1)(ii) introduced in 1998 regarding depreciation of know-how were deemed irrelevant to the current matter. As there were no unsettled legal issues requiring consideration, the Court summarily rejected the appeal petition and confirmed the Tribunal's order, with no costs awarded to either party.