2012 (7) TMI 491

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....the Tribunal was right in holding that payment for know-how is deductible under Section 37 as a Revenue expenditure, when there is a specific section i.e., Section 35AB covering the same ? 2. The assessee herein is engaged in the manufacture of Pollution Control Equipment, High Pressure Cleaning system and Wind Electric Generators and also undertakes Turn-key Engineering Projects. As seen from the facts narrated, the assessee had an agreement to execute the turn-key project with Sterlite Industries (I) Ltd., and at its request the assessee procured technical know-how from M/s.Swemco USA and Joy Environmental Technologies, USA., and Heem Host Machines, Netherlands. The technical know-how, thus obtained was used for carrying out detailed e....

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....sessee did not carry on any particular manufacturing activity which was general in nature. Having said so, the Commissioner of Income Tax (Appeals) held that the expenditure on technical know-how was allowable only under Section 35AB. Aggrieved by the same, the assessee went on appeal before the Income Tax Appellate Tribunal which upheld the claim of the assessee however, holding that the claim was allowable as revenue expenditure under Section 37. Aggrieved by that, the Revenue is on appeal before this court. 3. Learned Standing Counsel appearing for the Revenue contended that the expenditure incurred in obtaining the technical know-how was not eligible for consideration as revenue expenditure and that the same was eligible to be assess....

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....the question as to whether the expenditure would fall for consideration under Section 35AB or the question as to whether the expenditure is on account of revenue or capital has to be decided by taking note of the facts and circumstances leading to the said expenditure. As pointed out by the Bombay High Court in the decision reported in (1998) 231 ITR 849 ( Commissioner of Income Tax Vs. Kirloskar Tractors Ltd.,), a decision relied on by the assessee, in order to arrive at a just and proper conclusion, one must look at the nature and character of the advantage in a commercial sense having regard to the purpose of the outlay and its intended object and effect. As pointed out by the Bombay High Court, if the expenditure is for carrying on or c....