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2018 (5) TMI 443 - HC - Income TaxDeduction u/s 80HHC - Excise duty paid exclusion from the total turnover for purposes of computation of deduction - Held that - It is an agreed position between the parties that this question stands concluded in favour of the applicant assessee and against the respondent Revenue by the decision of this Court in Commissioner of Income Tax Vs. Sudarshan Chemicals Industries Ltd. 2000 (8) TMI 73 - BOMBAY High Court . Entitlement to deduction u/s 35AB as against under Section 37(1) - assessee had acquired the ownership rights in the technical know how included in the agreement - Held that - As on the application of law to the facts in the present facts, the expenditure on account of technical know how incurred under the Agreement dated 19th June, 1984 is classifiable under Section 35AB of the Act and not under section 37 of the Act. Therefore, question no.(ii) is answered in the affirmative in favour of the respondent Revenue and against the applicant assessee.
Issues Involved:
1. Whether excise duty paid by the assessee should be excluded from the total turnover for the purpose of computing deduction under Section 80HHC of the Income Tax Act, 1961. 2. Whether the assessee acquired ownership rights in the technical know-how included in the agreement, thereby qualifying for deduction under Section 35AB rather than Section 37(1) of the Act. Issue-wise Detailed Analysis: Issue 1: Excise Duty and Total Turnover for Section 80HHC Deduction - Agreed Position: Both parties agreed that this issue is resolved in favor of the applicant assessee based on the precedent set by the Bombay High Court in Commissioner of Income Tax Vs. Sudarshan Chemicals Industries Ltd. 245 ITR 769. - Judgment: The court answered this question in the negative, favoring the applicant assessee and against the respondent Revenue, consistent with the Sudarshan Chemicals Industries Ltd. case. Issue 2: Ownership Rights in Technical Know-how and Applicable Deduction - Facts and Findings: The assessee claimed a deduction for an amount paid for technical know-how, arguing it was revenue expenditure as they did not acquire ownership of the know-how. The Assessing Officer allowed only a partial deduction, treating the expenditure under Section 35AB, which spreads the deduction over several years. - Relevant Provisions: - Section 35AB: Allows deduction of one-sixth of the amount paid for acquiring know-how each year, with the balance spread over the next five years. - Section 37: Allows deduction of expenses not covered by Sections 30 to 36, provided they are not capital or personal expenses. - Applicant's Arguments: - The payment was not a lump sum as it was made in installments. - The agreement only provided a license to use the know-how, not ownership. - The expenditure was revenue in nature and should fall under Section 37. - Respondent's Arguments: - Installment payments still qualify as lump sum. - Acquiring a license to use know-how qualifies as acquiring under Section 35AB. - Section 35AB applies irrespective of whether the expenditure is capital or revenue in nature. - Section 37 excludes expenditures described in Sections 30 to 36. - Court's Analysis: - Lump Sum Payment: The court cited Commissioner of Income Tax Vs. Raymond Ltd., holding that installment payments can still be considered lump sum if the total amount is fixed. - Acquisition of Know-how: The court found that acquiring a license to use know-how constitutes "acquiring" under Section 35AB. The dictionary meanings of "acquire" include gaining possession or control, not necessarily ownership. - Nature of Expenditure: The court emphasized that Section 35AB does not distinguish between capital and revenue expenditure. Section 37 excludes expenditures covered by Sections 30 to 36, including Section 35AB. - Precedents: The court noted conflicting High Court decisions but emphasized that the Supreme Court in Commissioner of Income Tax Vs. Swaraj Engines Ltd. did not conclusively decide that Section 35AB only applies to capital expenditure. - Judgment: The court concluded that the expenditure on technical know-how falls under Section 35AB, not Section 37. Thus, the question was answered in the affirmative, favoring the respondent Revenue. Conclusion: - Question No.(i): Answered in the negative, in favor of the applicant assessee. - Question No.(ii): Answered in the affirmative, in favor of the respondent Revenue. Disposition: - The Reference was disposed of with no order as to costs.
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