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TMI Blog2018 (5) TMI 443X X X X Extracts X X X X X X X X Extracts X X X X ..... EP K. SHINDE, JJ. Ms. Aarti Sathe with Mr. Rajesh Poojary i/b Mint and Confreres for the applicant Mr. P.C. Chhotaray for the respondent JUDGMENT: (Per M.S. Sanklecha, J.) 1. This Reference under Section 256(1) of the Income Tax Act, 1961 (the Act) by the Income Tax Appellate Tribunal (the Tribunal) seeks our opinion on the following two questions of law. (i) Whether on the facts and in the circumstances of the case and in law, the Tribunal was right in law to hold that the excise duty paid by the assessee is not to be excluded from the total turnover for purposes of computation of deduction under Section 80HHC of the Income Tax Act, 1961? (ii) Whether on the facts and the circumstances of the case and in law, the Tribunal was right in law to hold that the assessee had acquired the ownership rights in the technical know how included in the agreement in contra distinction to lease of rights in such know how and accordingly the assessee was entitled to deduction under Section 35AB as against under Section 37(1) of the Act ? 2. This Reference relate to Assessment Year 1986 87. 3. Regarding question no.(i) : (a) It is an agreed position between ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nning of access thereto.): (Emphasis provided) Section 37 of the Act reads as under : General 37. (1) Any expenditure (not being expenditure of the nature described in section 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head Profits and gains of business or Profession . Explanation 1. ... Explanation 2. .... (2) to (5) .......... 6. Ms. Sathe, learned Counsel appearing in support of the Reference invited out attention to paragraph 9 and 10 of the order of the Tribunal which is referred to in the statement of case as setting out the facts leading to the Reference. In particular, she invited our attention to the Agreement dated 19th June, 1984, entered by the applicant with M/s. Oldham Batteries Ltd. U.K. In terms of the above agreement, the applicant was to receive outside India a license to transfer and import information, know how, advice, materials, documents and drawings as required for the manufacture of Miners Caplamp Batte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a) Section 35AB of the Act requires a lumpsum consideration to be paid for acquiring any technical know how. In this case, admittedly payment of 100000/ was was made in 3 installments, therefore not lumpsum payment. Therefore, outside the scope of Section 35AB of the Act; (b) There is no acquisition of a technical know how in the present facts, as the applicant merely obtained a lease / license of the rights to use such technical know how. Therefore, not having any ownership rights over the technical know how, the requirement of acquiring the know how under Section 35AB of the Act is not satisfied. Thus, outside the mischief of Section 35AB of the Act; (c) The technical know how as obtained by the applicant under the Agreement dated 19th June, 1984 was to be used in the regular course of its business of manufacturing batteries. Therefore, would be revenue in nature. It is submitted Section 35AB of the Act would apply only where the expenditure is in the nature of a capital expenditure. Therefore, Section 35AB of the Act would not apply and the expenditure for obtaining technical know how being of revenue nature, would fall in the residuary Section 37 of the Act. ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it would not cease to be a lumpsum payment. This was so as the amount payable was fixed and not variable. It must also be borne in mind that words used in Section 35AB are lumpsum payment and not one time payment. Therefore, making of lumpsum payment in 3 installments would not make the payment any less a lumpsum payment. Thus, in the face of the decision of this Court in Raymond Ltd. (supra), the submission that payment made in installment would ipso facto cease to be a lumpsum payment, is not sustainable. Therefore, not accepted. 10. The applicant next submitted that the word acquiring as used in Section 35AB of the Act would necessarily mean acquisition of ownership rights of the technical know how. Mere lease / license, Ms. Sathe submits, would not amount to acquisition of technical know how. In support placed reliance upon the dictionary meaning of the word acquisition as found in The New Oxford dictionary, Clarendon Press, Oxford 1998, which reads as under : acquisition : 1. an asset of object bought or obtained. Typically by a library or museum. An act of purchase of one company by another. buying or obtaining assets or objects western culture ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the technical know how which has been obtained by the applicant is used in the regular course of its business of manufacturing batteries. Thus, it would necessarily be in the nature of revenue expenditure allowable under Section 37 of the Act. This submission cannot be accepted for the reason that Section 35AB of the Act itself specifically provides that any expenditure incurred for acquiring know how for the purposes of the assessee's business and as further detailed in the Explanation thereto the knowhow to assist in the manufacturing or processing of goods would necessarily mean that any expenditure on know how which is used for the purposes of carrying on business would stand covered by Section 35AB of the Act. Moreover, as rightly pointed out by the Revenue Section 37 of the Act itself excludes expenditure of the nature described in Sections 30 to 36 of the Act without any qualification. Therefore, we would need to examine whether Sections 30 to 36 restrict its benefit to only capital expenditure. On examination, it would be found that Section 35AB of the Act as pointed out above, makes no such exclusion / inclusion on the basis of the nature of expenditure i.e. Capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... du Chemical Products Ltd, 82 ITR 259 have taken a view that expenditure incurred for acquiring technical know how would fall under Section 35AB of the Act. This irrespective of the fact that whether the expenditure is revenue or capital in nature. It is the above decisions of the Madhya Pradesh and Madras High Courts, Mr. Chhotaray contends the Court should follow / accept. 14. We note that the decisions of the Gujarat High Court in Anil Starch Products Ltd. (supra) and Sayaji Industries Ltd. (supra) did not agree with the view of M.P. High Court in Bright Automotives and Plastics ltd. (supra) and Madras High Court in Tamil Nadu Chemical Products Ltd. (supra). The Karnataka High Court in Diffusion Engineers Ltd. (supra) did not agree with the Madras High Court in Tamil Nadu Chemical Products Ltd. (supra). The basis of all the above three decisions was the subsequent decision of the Apex Court in Commissioner of Income Tax Vs. Swaraj Engines Ltd. (2008) 301 ITR 284 . The above case before Apex Court arose from the decision of the Punjab Haryana High Court in Commissioner of Income Tax Vs. Swaraj Engines Ltd. 301 ITR 294 (P H) that payments made on account o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contentions on both sides expressly open. 16. Thus, the entire issue whether Section 35AB of the Act would apply only in case of capital expenditure and not in case of revenue expenditure has not been decided by the Apex Court in Swaraj Engines Ltd. (SC) (supra). This would have to be decided by the Punjab Haryana High Court on the basis of the submissions made by the respective parties. However, we are informed that in view of low tax effect, the Revenue has not pressed its appeal before the Punjab Haryana High Court (Order dated 14th July, 2016 in ITA No.131 of 2004). It is clear that the Apex Court in Swaraj Engines Ltd. (SC) (supra) has not concluded the issue by holding that Section 35AB of the Act would only apply where the expenditure is capital in nature. In fact, the Apex Court has observed as extracted hereinabove that where the nature of expenditure is capital, then, it must certainly fall under Section 35AB of the Act, but where the nature of expenditure is revenue in nature, it may not fall under Section 35AB of the Act. Therefore, the above was only a tentative view and the issue itself was left open to be decided by the Punjab Haryana High Court o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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