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TMI Blog1999 (9) TMI 112X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 192 ITR 608 (Guj), CIT vs. Gaekwar Mills Ltd. (1991) 99 CTR (Guj) 19 : (1992) 193 ITR 734 (Guj) and the decision of the Tribunal Wellman Incandescent India Ltd. vs. Dy. CIT (1997) 57 TTJ (Cal) 562 : (1995) 55 ITD 555 (Cal). 3. After hearing both the sides and in view of the decisions of jurisdictional High Court referred above, we direct the AO to allow the expenses. 4. The next issue is regarding disallowance of Rs. 1,92,150 on account of fluctuation in foreign exchange rate. The learned counsel on behalf of the assessee does not want to press this ground. Accordingly, this ground of appeal is dismissed. 5. The next issue is regarding disallowance of Rs. 1,16,219 under s. 37(3) of IT Act r/w r. 6D of IT Rules. 5.1. The AO disallowed the aforesaid amount being reimbursement of expenditure incurred by the employees on conveyance, telephone and trunk call charges, laundry, typing charges, etc. during the out station tour for the purpose of business. The finding was confirmed by the CIT(A). 5.2 The learned counsel on behalf of the assessee placed reliance on the decision of the Tribunal in Sundram Finance Ltd. vs. IAC (1984) 18 TTJ (Mad) (SB) 348 : (1984) 7 ITD 845 (Mad) (SB) a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid during the year under consideration, the foreign company shall retain the ownership of the right and the assessee is only a licensee for using the know-how in its existing business, the assessee did not acquire the know-how, which remained the property of the foreign company. Therefore, s. 35AB cannot be invoked. The contention of the assessee was not accepted by the AO and the claim of the assessee as revenue expenditure was rejected. The AO further directed that 1/6th of the total expenditure should be allowed in six equal instalments under s. 35AB of the Act. The finding of the AO was confirmed by the CIT(A) against which the assessee is in appeal before us. 7.2. Shri J.P. Shah, learned counsel on behalf of the assessee has brought to our notice the provision of s. 35AB of the Act and also the newly inserted provision i.e. Expln. 4 to s. 32(1) of the Act which came into effect from 1st April, 1999. The learned counsel on behalf of the assessee has submitted that from asst. yr. 1999-2000, no claim can be allowed under s. 35AB of the Act because technical know-how has been placed as intangible asset in s. 32(1) of the Act for the purpose of depreciation. The provision of s. 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artmental Representative has relied on the decision of Supreme Court in Madras Industrial Investment Corpn. Ltd. vs. CIT (1997) 139 CTR (SC) 555 : (1997) 225 ITR 802 (SC). A written submission has also been filed by the learned Departmental Representative wherein it has been stated that : (i) the argument of the assessee that s. 35AB is applicable in relation to capital expenditure is not correct; (ii) by amendment in s. 32 w.e.f. 1st April, 1999 by which intangible asset like know-how has been included for the purpose of depreciation that does not mean that it is a capital expenditure, and (iii) even if the assessee is only a licensee to use the know how the provision of s. 35AB is applicable because nowhere in the said provision, it has been mentioned that the assessee has to purchase the exclusive ownership right of the know-how. In some and substance, the argument of learned Departmental Representative is that the specific provision of s. 35AB has to be applied in the present case. The expenditure is not a revenue expenditure. 7.4. We have heard both the sides and perused the materials on record. For the purpose of appreciating the fact of the present case, we quote below the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. (1968) 69 ITR 692 (SC), it has been held by the Hon'ble Supreme Court that the payments made for the right to have access to the technical knowledge and the fruits of continuing research and experience of a foreign company and to use its patents and trade-marks is of revenue expenditure. (ii) In the case of CIT vs. British India Corporation Ltd. (1987) 60 CTR (SC) 54 : (1987) 165 ITR 51 (SC), the Supreme Court held that the lumpsum payment made to a distributor nominated by the foreign collaborator of the assessee as a condition of an agreement which entitled the assessee to the benefit of using the trade marks and special processes of the collaborator, is revenue expenditure. (iii) In the case of Alembic Chemical Works Company Ltd. vs. CIT (1989) 77 CTR (SC) 1 : (1989) 177 ITR 377 (SC), the Supreme Court again held that a lump sum consideration paid for obtaining technical know-how in order to achieve higher levels of production by better technology was allowable as revenue expenditure. (iv) In CIT vs. B.N. Alias & Co. (P) Ltd. (1987) 60 CTR (Cal) 144 : (1987) 168 ITR 190 (Cal), the Calcutta High Court held that if under the agreement there was no out and out transfer of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l) 562 : (1995) 55 ITD 338 (Cal) held as follows: "From the above we are of the view that the assessee has not acquired any technical know-how or information or patent once and for all so that the lump-sum consideration can be held to be capital payment. In our opinion, having regard to the various clauses of the technical know-how agreement and applying the tests laid down by the Supreme Court and the Calcutta High Court to them, the assessee has only obtained a right to use the technical information for the purpose of installing the furnace for TISCO at Jamshedpur. The expenditure is, therefore, revenue expenditure allowable under s. 37(1) of the Act. The provisions of s. 35AB do not cover a case where there is only a right to use the technical know-how without any acquisition of the same. The present case is a case of such type." Before the Calcutta Bench of the Tribunal, the assessment year was 1991-92 i.e. after the provision of s. 35AB came into force. The Tribunal having considered the above mentioned decisions of Supreme Court and Calcutta High Court came to the conclusion that if the expenditure is incurred by the assessee to acquire the know-how i.e. to have the ownersh ..... X X X X Extracts X X X X X X X X Extracts X X X X
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