9911796707
TMI Blog1995 (4) TMI 114X X X X Extracts X X X X X X X X Extracts X X X X ..... paid under section 37(1) of the Income-tax Act, 1961. 2. The relevant facts are that the assessee is a company in which public are not substantially interested. The assessee is engaged in ship repairing. The assessment year involved is 1986-87 for which the accounting year ended on 31-3-1985. The assessee paid technical know-how fees of Rs. 1,58,202 to M/s. Metalock International Association Ltd., U.K. and claimed as a deduction under section 37(1). The Assessing Officer held that the case of the assessee fell under section 35AB inserted by the Finance Act, 1985 with effect from 1-4-1986 according to which any lump sum consideration paid for acquiring any know-how for use for the purpose of the business 1/6th of the amount so paid shall b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement was for manufacturing or processing of goods required for effecting repairs in the ship. He also stated that the effecting of repairs in ocean going vessels did not merely confine itself to the removal of wear and tear. It would also employ processing or manufacture of various parts required in the ship. Therefore, he has concluded that it is for the manufacture/or processing of these parts that relative techniques and processes were utilised according to the established quality/standard and specification of metalock. Therefore, he held that the fees paid by the appellant falls within the category of a lump sum consideration paid for acquiring know-how which is likely to be of assistance in the manufacture,or processing of goods requi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in India and for the transfer of technical information and also provision of accessibility to the assessee at all times to the technical information on the Metalock process. In other words, not only the existing know-how of Metalock process has been obtained but also future know-how was accessible to the appellant. Royalty is also fixed as payable on the basis of net exfactory sale price of the product exclusive of excise duties, etc. It is also based on the registered capacity plus 25% in excess thereof or on such capacity as is specified in the approval letter obtained from Government of India. In case of production in excess of this quantum prior approval of the Government would be obtained regarding the terms of payment of royalty in r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tled to deduction under section 35AB. The Tribunal held that the intention of Legislature was to allow deduction if only one condition was fulfilled i.e. the knowhow is required for business purposes. This deduction was admissible only from out of profits and gains in the business carried on by the assessee. 7. In the case of the assessee mere patch up work alone was not required to be done but as contemplated by the agreement, the Metalock technique could be used for repairing cracked, fractured and weakened machine parts or pressure vessels of cast or forged metal and which process could be utilised in ship repairing and other industries. If the version of the assessee, viz., only patch work was done the royalty prescribed under the agr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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