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TMI Blog2014 (7) TMI 92X X X X Extracts X X X X X X X X Extracts X X X X ..... s Act for short] challenge is made to the impugned Order of the Income Tax Appellate Tribunal, Ahmedabad [ Tribunal for short] dated 01.03.2000 rendered in ITA No.3106/Ahd/1992 for A.Y 1989-90, proposing the following substantial questions of law for our consideration : (A) Whether, the Appellate Tribunal is right in law and on facts in directing the Assessing Officer to allow relief to the assessee holding that technical know-how fees of Rs.24,04,000/- as allowable expenses under Section 37(1) of the Act? 2. We have heard Mrs. Mauna Bhatt, learned counsel for the appellant-Revenue and learned advocate Mr. Shah appearing for the respondent- assessee. 3. The assessee-Company claimed technical know-how fees of Rs.24,04,000/- in the Profit Loss Account. The Assessing Officer, after detailed consideration of such expenditure, held this to be revenue in nature. It also held that the assessee' s request for applying Section-37 is also incorrect. The expenses of technical know-how is covered by the provision of Section-35AB of the Act and there would not arise question of applicability of provision of Section-37 of the Act and accordingly, such technical know-how ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, or whether the assessee, as held by the Tribunal, was correct in contending that the said provision would have no application. Before going to such question, we may recall that the Assessing Officer, in clear terms, held that the expenditure was revenue in nature. CIT (Appeals) did not disturb this finding, but proceeded to hold that the same would be hit by section 35AB of the Act and therefore, not allowable deduction under section 37(1) of the Act. The Tribunal noted the nature of such expenditure. Significant features thereof were that the assessee had not purchased or obtained ownership of such technical know-how from the foreign company. The assessee was merely a licensee under which license it could use a know-how for the purpose of its business temporarily. For such acquisition of know-how, the assessee paid lump sum payment. It had also come on record before the Tribunal that such technical know-how was used for the purpose of manufacturing the existing items which the assessee was manufacturing since years. In short, without saying so many words, the Tribunal also confirmed the view of the revenue authorities that the expenditure was revenue in nature. If that be so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oner of Income Tax v. Swaraj Engines Ltd. (supra) more closely. The said decision was rendered in an appeal filed by the revenue challenging the decision of the Punjab Haryana High Court in the case of CIT v. JCT Electronics Ltd., [2008] 301 ITR 290. In that case, the assessee had claimed a deduction of a sum of Rs.26.65 lakh (rounded off) paid to one M/s Kirloskar Oil Engines Ltd. As royalty on the basis of an agreement for the purpose of acquiring technical know-how for the manufacturing of diesel engines. The Assessing Officer was of the opinion that such expenditure was covered under section 35AB of the Act and the same could not be treated as a revenue expenditure. After considering the assessee's reply, the Assessing Officer applied section 35AB of the Act to such expenditure. The assessee approached the Commissioner (Appeals) against such a decision contending that under the said agreement, the assessee had not become the owner of the technical know-how and no benefit of enduring nature had been received by the assessee. The CIT (Appeals) granted benefit to the assessee to the extent such expenditure represented the royalty calculated on the basis of the sales includin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g over, as contemplated under section 35AB of the Act would come into play. It was in this background that the Apex Court desired that this question, that is, the question of the nature of expenditure, whether revenue or capital, be first decided before final answer to the applicability or otherwise of section 35AB could be given. We may recall that the Punjab Haryana High Court in the decision under challenge before the Supreme Court had not given any clear finding on this aspect though the Tribunal had confirmed the view of the CIT (Appeals) that the expenditure was revenue in nature. It was precisely for this reason that the Apex Court remanded the proceedings for authoritatively declaration on this point by the High Court. 22. In addition to the decision of the Apex Court in the case of Commissioner of Income Tax v. Swaraj Engines Ltd. (supra), we also would like to place reliance on the clarificatory circular issued by the C.B.D.T. bringing out the nature of the benefit being provided under section 35AB and the purpose for introduction of such provision in the statute. Such provision, as was clarified, was made with a view to providing further encouragement for indig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of section 37(1) of the Act, would not arise. 24. We are unable to concur with the view of the Madras High Court in case of Commissioner of Income Tax v. Tamil Nadu Chemical Products Ltd. (supra), which was in any case rendered prior to the decision of the Apex Court in the case of Commissioner of Income Tax v. Swaraj Engines Ltd. (supra). 25. Before closing, we may clarify that in the present case, the Assessing Officer himself proceeded on the basis that the expenditure was revenue in nature. In that view of the matter, the interpretation that we have adopted would apply and the case of the assessee would not fall under section 35AB of the Act. In a given case, if the expenditure is held to be capital in nature, further question of applicability of section 35AB of the Act may arise. In essence, therefore, each case would have to be examined separately and on the strength of material on record. Learned counsel Shri Patel however requested that the matter be remanded to the Assessing Officer for consideration whether the expenditure was capital or revenue in nature. We find that when the Assessing Officer had himself held that it is revenue expenditure, there would ..... X X X X Extracts X X X X X X X X Extracts X X X X
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