TaxTMI 
TaxTMI 
2015 (5) TMI 8
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.... three equal instalments. For the assessment years 1992-93 and 1993-94, the assessee claimed 100% deduction on amount expended towards procuring technical knowhow as revenue expenditure falling under Section 37 of the Income Tax Act, 1961 (hereinafter referred to as the 'Act' for brevity). The Assessing Officer (AO) rejected the said claim of the assessee and brought the said expenditure under Section 35AB of the Act. Being aggrieved, the assessee carried the matter in appeal before the CIT (Appeals) which was allowed, against which the revenue preferred appeals before the Tribunal. The Tribunal rejected the appeals filed by the department. Being dissatisfied, the department filed appeals before this Court in ITA No.214 & 215/2002 for both the assessment years. This Court after hearing the parties allowed the appeals filed by the revenue and remanded the matter back to the Tribunal to consider the grounds urged by both the parties and to pass an order in accordance with law. The Tribunal, in the light of the directions issued by this Court considered the matters afresh and after hearing the parties, allowed the appeals filed by the revenue. This common order passed for bot....
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....the copyright in all written printed photographed or duplicated matter supplied by WCL under or in connection with this Agreement shall belong to WCL and all such written printed photographed or duplicated matter shall be handed back to WCL on determination of this Agreement 4.3 DEPL during the life of this Agreement and thereafter shall take all steps necessary to preserve the secrecy of Technical Know-how communicated to it or its representatives and shall not disclose the same to any third party (except those of its officers or employees whose duties cannot be fulfilled without such disclosure) for as long as the same are not freely available to the public 6. Chromium Monoborides 6.5. DEPL will enable representatives of or persons authorized by WCL at all reasonable times to visit the places where it manufactures and produces the Product and there to inspect the testing system used and the records of tests made in respect of Indian C.M.'s and to inspect any additional documents relevant to the inspection compliance with the said specifications, and to select and take away and keep free of charge a reasonable number of samples for testing. 6.7. WCL will in using its right....
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.... it was only a transfer of right to use the technical know-how. The effective control of the know how always remained with the WCL and thus, the expenditure incurred towards procurement of know how was a revenue expenditure and not a capital expenditure, as no enduring benefit accrued to the assessee in the course of his business. The learned counsel drew our attention to the CBDT Circular dated 12.6.1985 wherein it is provided as under: "15.2 As a consequence of this amendent , the deductions allowable under Section 35A of the Income-tax Act in respect of any expenditure of a capital nature incurred on the acquisition of patent rights or copyrights and under section 35AB in respect of expenditure on know-how have been withdrawn with effect from the assessment year 1999-2000." 6. Learned counsel further contended that the provisions of Section 35AB are applicable only in the cases of capital expenditure and if it is revenue expenditure, then the provisions of Section 37 shall apply. In support of his contentions, reliance was placed on: (1) CIT vs SWARAJ ENGINES LIMITED - [309 ITR 443 (SC)] (2) CIT vs SHRIRAM PISTONS AND RINGS LTD - [307 ITR 363 (DEL)] (3) CIT vs EMPIRE JUTE C....
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.... effect from 1.4.1986 the relevant paragraph of which is produced herewith: "With a view to providing further encouragement for indigenous scientific research, I propose to provide that lump sum consideration received by scientists for the know-how developed by them would be spread over a period of three years and charged to tax accordingly. I also propose to provide that industry may write off the lump sum consideration paid for acquiring know-how in six annual instalments. In cases where the know-how has been developed in Government laboratories, Universities, laboratories owned by public sector companies and other recognized institutions, the write-off would be permitted over a period of three years." 14. The memo explaining provisions in Finance Bill 1995 as regards deduction in respect of expenditure on know how reads thus: 44. It is proposed to insert a new section 35AB in the Income-tax Act to provide that any lump sum consideration paid by a taxpayer for acquiring any know-how for use for the purposes of his business will be allowed as deduction by spreading it equally over six years, namely, the year in which the lump sum consideration is paid and the five immediately s....
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....of the agreement. 33. As already noted, the agreement was valid only for a period of five years but could be terminated earlier. There is no magic in the word "sold" used in clause 5.0 of the agreement because on a reading of the agreement as a whole, it appears to us that what was transferred to the assessee was only a right to use the technical know-how of Riken and there was no sale of the technical know-how which the assessee could exploit. The assessee's rights were hedged in with all sorts of conditions, clearly making it a case of right to use the technology and not sale of the technical know-how." 18. In the case of Deputy Commissioner of Income Tax Vs. Sayaji Industries Ltd., (Guj), it is held at para-23 as under: "23. To our mind, therefore, the provisions of s.35AB of the Act can apply only in case of capital expenditure and of course, provided the conditions set out therein are fulfilled. In such a case, during the period when s. 35AB remained in operation, the assessee could claim benefit thereof. However, such provision would not apply to a revenue expenditure even if the same was incurred for acquisition of technical know-how. Deduction on such expenditure was....
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....of the agreement for production of the produce with certain conditions, which establishes that the control was with the WCL. The consideration paid is for imparting the knowledge of 'know-how' to the assessee's personnel. 23. In clause-9 "manufacture", it is stipulated that subject to performance by the assessee of his obligations under the agreement, WCL shall grant licence to the assessee to manufacture the product during the life of the agreement. And during the life of the agreement, WCL shall not grant such licence in India to any other person, Company, whether body corporate or not, partnership firm, Corporations etc. without obtaining prior consent from WCL. The "termination" clause at 11.2 stipulates that either party shall have right to give notice of termination (to operate 30 days after being given) if the other party has committed a serious breach of its obligations under this agreement and in the "exclusion" clause, it is specified that no rights or licences are granted by WCL under or by virtue of the agreement except those which are specifically set out therein, and no such rights or licences shall continue to have effect after the termination of the agr....