2014 (4) TMI 1246 - HC - Income Tax

Allowability of development expenses incurred on technical knowhow u/s 37 - payment made for providing knowhow to manufacture engines of specific parameters - allowability u/s 35AB - HELD THAT - Appeal admitted on the following substantial questions of law (A) Whether on the facts and in the circumstances of the case and in law the Income Tax Appellate Tribunal was justified in allowing development expenses amounting to ₹ 8,93,56,131/which were incurred on technical knowhow under Section 37 of the Income Tax Act even though such expenditure was covered under Section 35AB of the Income Tax Act ? (B) Whether on the facts and in the circumstances of the case and in law the Income Tax Appellate Tribunal was justified in remitting to the file of the Assessing Officer the issue concerning allow ability of development expenses amounting to ₹ 10,69,09,754/being payment made for providing knowhow to manufacture engines of specific parameters even though such expenditure is clearly for technical knowhow and was covered under Section 35AB of the Income Tax Act ?

Summary

Issues:
1. Allowance of development expenses under Section 37 vs. Section 35AB of the Income Tax Act.
2. Remittance of the issue concerning the allowability of development expenses for providing knowhow to manufacture engines.

Analysis:
1. The first issue in this case revolves around the allowance of development expenses under Section 37 versus Section 35AB of the Income Tax Act. The court admitted the appeal on the substantial questions of law related to this matter. The primary concern was whether the Income Tax Appellate Tribunal was justified in allowing development expenses amounting to a specific sum, which were incurred on technical knowhow under Section 37, even though such expenditure could potentially fall under Section 35AB of the Income Tax Act. The court sought to determine the appropriate legal provisions applicable to the nature of the expenses incurred and whether the Tribunal's decision was in line with the law.

2. The second issue pertains to the remittance of the matter concerning the allowability of development expenses for providing knowhow to manufacture engines. The court questioned whether the Income Tax Appellate Tribunal was justified in remitting this issue back to the Assessing Officer for further consideration. The specific concern was the payment made for providing knowhow to manufacture engines of specific parameters, and whether such expenditure, although related to technical knowhow, should have been covered under Section 35AB of the Income Tax Act. The court aimed to address the legal correctness of remitting this particular issue for additional review, considering the relevant provisions of the Income Tax Act.

3. The court, after considering the arguments and reasons presented in the order, concluded that the other questions raised were not substantial questions of law. As a result, the appeal was rejected to that extent. The respondent waived service, and the case was scheduled to be heard along with another related Income Tax Appeal. The judgment highlighted the importance of clarifying the legal aspects surrounding the allowance of development expenses and the proper application of relevant sections of the Income Tax Act in such matters.