2001 (3) TMI 228 - AT - Income Tax

Summary

Issues Involved:
1. Clearance from Committee on Disputes (COD)
2. Deduction of Know-how and Technical Fees as Revenue Expenditure
3. Nature of Rights Acquired under Foreign Collaboration Agreements
4. Allowability of Depreciation and Investment Allowance

Issue-wise Summary:

1. Clearance from Committee on Disputes (COD):
The appellant, a Public Sector Undertaking, required clearance from the Committee on Disputes (COD) to pursue the appeal. The COD granted permission to contest the issue regarding the payment of know-how and technical fees for increasing production capacities and product range.

2. Deduction of Know-how and Technical Fees as Revenue Expenditure:
The appellant claimed a deduction of Rs. 4,78,49,147 for know-how and technical fees paid during the assessment year 1984-85. The claim was based on the crystallization of legal position due to the insertion of section 35AB of the Income-tax Act. The appellant argued that the expenditure was for acquiring technology for new projects under implementation and should be considered as revenue expenditure, citing various judicial pronouncements.

3. Nature of Rights Acquired under Foreign Collaboration Agreements:
The appellant contended that the agreements with M/s. Technomont, Italy, and Du Pont, USA, were for acquiring a license or right to use the know-how, not ownership rights. The agreements included clauses on confidentiality, termination, and assignment, indicating that the appellant acquired only the right to use the know-how. The appellant relied on several judgments to support the contention that such expenditure is revenue in nature.

4. Allowability of Depreciation and Investment Allowance:
The appellant agreed to the withdrawal of depreciation and investment allowance granted in the year under consideration and subsequent years if the amount is allowed as revenue expenditure. The Tribunal directed the Assessing Officer to allow the deduction of Rs. 4,64,31,317 as revenue expenditure and simultaneously withdraw the depreciation and investment allowance granted on the said amount.

Conclusion:
The Tribunal concluded that the lump sum payment made by the appellant for acquiring technical know-how for improving existing products and expanding the business is allowable as revenue expenditure. The Assessing Officer was directed to allow the deduction and withdraw the depreciation and investment allowance granted on the said amount.