TaxTMI 
TaxTMI 
2013 (4) TMI 11
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....e concerned with the assessment year 1990-91. In Tax Appeal No.42/2002, we are concerned with the assessment year 1991-92. Slightly different worded questions have been framed in each assessment year. We may notice the question as framed by the Division Bench while admitting Tax Appeal No.76/2003. The following substantial question of law was framed:- "Whether use of the know-how for the purpose of business under a license for a temporary period would amount to acquiring know-how for lumpsum consideration for the purposes of the business of the assessee within the meaning of section 35AB of the Income Tax Act, 1961 and was the Appellate Tribunal right in law and on facts in deleting the disallowance made under Section 35AB of the Act?" 3....
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....e. 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 so, the question arises whether deduction of such expenditure....
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....working of a mine, oil well or other sources of mineral deposits (including the searching for, discovery or testing of deposits or the winning of access thereto)." 19.1 Sub-section (1) of section 35AB of the Act provides for a deduction for any lump sum payment made by the assessee for acquiring any know-how for use for the purpose of its business. Such deduction, however, was to be spread over a span of six years, during each of the six years starting with the year when such expenditure was incurred, the assessee being eligible for deduction of the one-sixth of the total expenditure. 20. The moot question is whether such provisions contained in section 35AB of the Act would cover also revenue expenditure. In this context, we may peruse t....
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....cted the revenue's appeal. The Tribunal referred to various clauses of the agreement between the assessee and the know-how provider to hold that such expenditure was revenue in nature. When the matter reached the High Court at the hands of the revenue, the High Court rejected the appeal on a somewhat different ground. The High Court held and observed that effort of the revenue to bring the expenditure within the domain of section 35AB of the Act was totally misplaced since the pre-condition for application of section 35AB of the Act was that the payment had to be a lump sum consideration for acquiring any know-how. Such pre-condition was not satisfied. On this basis, the High Court dismissed the appeal. It was this decision of the High Cour....
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....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 Inco....
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....r six years, of a lump sum consideration paid for acquiring know-how for the purposes of business even if later the assessee's project is abandoned or if such know-how subsequently becomes useless or if the same is returned. The section, which is an enabling section and not a disabling one, should be confined to that consideration which would otherwise be disallowable as being on capital account. A payment for acquiring know-how or the use of know-how which is one revenue account is allowable under section 37, and does not attract the application of this section at all." 23. To our mind, therefore, the provisions of section 35AB of the Act can apply only in case of capital expenditure and of course, provided the conditions set out therein ....