TaxTMI 
TaxTMI 
2012 (7) TMI 598
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....peal itself, it was recorded that revenue's appeal raising identical question being Tax Appeal No.326/2000 is admitted and is pending. 4. We may briefly record the facts. During the previous year relevant to the assessment year 1990-91, the assessee had incurred expenditure of Rs.5,86,277/- towards technical consultancy charges. The assessee claimed deduction thereon as miscellaneous expenditure. The Assessing Officer, however, called upon the assessee to justify such claim to which the assessee contended that such expenditure was for technical consultancy fees paid to a technical consultant for expansion of the existing business. Such expenditure, therefore, is revenue in nature. The assessee also contended that the same being a revenue expenditure would not come within the purview of section 35AB of the Act. 5. The Assessing Officer, however, was of the opinion that deduction of such expenditure can be of only 1/6th of the amount actually expended during the year under consideration as provided under section 35AB of the Act and the rest of the deduction can be claimed in the later years. He, however, did not decide whether the expenditure was revenue or capital in nature since ....
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....he 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 ....
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....d. (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 Commissioner of Income Tax v. JCT Electronics Ltd., reported in (2008) 301 ITR 290 (P&H). In that case, the assessee had claimed a deduction of a sum of Rs.26.65 lakhs (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 including....
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....templated 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 indigenous scientific rese....