https://www.taxtmi.com/css/info/rss_sitemap/rss_feed.css?v=1746094055 https://www.taxtmi.com Business/Tax/Law/GST/India/Taxation/Policies/Legal/Corporate Tax/Personal Tax/Vat Law/Legal Information/Tax Information/Legal Services/Tax Services Tax Management India. Com / MS Knowledge Processing Pvt. Ltd. All rights reserved. One stop solution for Direct Taxes and Indirect Taxes https://www.taxtmi.com/caselaws?id=56009 https://www.taxtmi.com/caselaws?id=56009 Interpretation of Statutes - Applicability of s. 35AB - disallowance of drawings and design expenses - Whether the expenditure resulted in acquiring advantage of any asset of enduring benefit to the assessee - HELD THAT:- The assessee had not acquired any advantage in capital field. The advantage consisted merely of facilitating the assessee s manufacturing and trading operation to be carried on more profitably while leaving other capital untouched. Moreover, every enduring advantage is not of capital nature. The Supreme Court s decision in Empire Jute Co. Ltd. vs. CIT [ 1980 (5) TMI 1 - SUPREME COURT] makes this position very clear. Again in these days of fast changing world of technology the advantage under the agreement could not be considered as advantage of enduring nature. In view of the above discussions it could be said that the expenditure in question was a revenue expenditure. As regards the applicability of s. 35AB , no doubt, the use of the words in lump sum consideration for acquiring know-how and the absence of words like expenditure of a capital nature in the provisions which have been used in ss. 35A and 35ABB give prima facie impression that the view of the JM, i.e., that s. 35AB is applicable to both capital or revenue expenditure, was correct but the issue is not that simple. The provisions of s. 35AB have to be understood in the light of the scheme of the IT Act and other relevant provisions. No non obstance clause like notwithstanding contrary contained in any other provisions of the Act or notwithstanding anything contained in sub-s. (1) of s. 37 has been used in s. 35AB which would mean that it does not override sub-s. (1) of s. 37, under which the revenue expenditure is allowable as deduction in full. Sec. 35AB is an enabling as well as incentive section, which allows deduction of lump sum payment for technical know-how in six equal instalments, i.e., 1/6th for six years. How can it be said to be an enabling and incentive section, if it brings within its mischief a revenue expenditure also, which is allowable in full in the relevant year u/s 37(1) of the Act. Therefore, the interpretation that s. 35AB is applicable both to capital expenditure and revenue expenditure will defeat the very purpose of s. 35AB and the legislative intent of introducing this section as vividly brought out in Finance Minister s speech and memorandum explaining the said provision. Sec. 35AB is an enabling section and not disabling or prohibitive one and, therefore, it should be held to be applicable to that consideration paid for acquiring technical know-how, which would otherwise be disallowable as being on capital account. On a careful consideration of the entire relevant facts and the principles of law emerging from the above referred decisions, we are of the considered opinion that deduction in respect of expenditure amounting to Rs. 65,44,703 should be allowed as revenue expenditure in the year under consideration, viz., in asst. yr. 1992-93 on the condition that the AO should simultaneously withdraw deduction of 1/6th amount of the aforesaid expenditure allowed to the assessee in asst. yr. 1992-93 and in five subsequent years. In case the withdrawal of such deduction allowed u/s 35AB in the year under consideration or in any of the five subsequent years is objected to by the assessee or is legally found to be not possible, the deduction as revenue expenditure in the year under consideration will not be allowed. This is to ensure that the assessee does not get double deduction in respect of the same amount in more than one year. In the result, both the appeals are treated as allowed for statistical purpose. Case-Laws Income Tax Fri, 07 Nov 2003 00:00:00 +0530