TaxTMI 
TaxTMI 
2006 (5) TMI 57
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....ee to M/s. Kirloskar Oils Engines Ltd. under the agreement dated October 19, 1989, do not fall within the ambit of section 35AB of the Income-tax Act, 1961 ?" 2. We have heard Shri Yogesh Putney, advocate for the Revenue and Shri P. C. Jain, advocate for the respondent and with their assistance have gone through the orders on record. 3. The assessee filed a return of income for the assessment year in question on December 30, 1991, declaring a total income of Rs. 6,07,103, wherein the assessee claimed deduction for an amount of Rs. 26,65,340 paid by it to M/s. Kirloskar Oil Engines Ltd. as royalty on the basis of the agreement dated October 19, 1989, for the purposes of acquiring technical know-how for the manufacture of diesel e....
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....s been held by the Bombay Tribunal as allowable revenue expenditure as decided in the case of First ITO v. Kakad Gas Service [1982] 2 ITD 508 (Bom)." 4. After consideration of the reply filed by the assessee the Assessing Officer came to the conclusion that the payment made by the assessee was covered under the ambit of section 35AB of the Act and accordingly only 1/6th of the total amount was allowed as deduction during the year in question and the balance was disallowed. The claim of the assessee is that by way of agreement with M/s. Kirloskar Oil Engines Ltd., the assessee had not become the owner of the technical know-how and no benefit of enduring nature has been received by the assessee. 5. Aggrieved against the order, the asses....
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....t entered into for outrightly acquiring such technical know-how. Another argument raised by the assessee before the Tribunal was that the Department had already allowed the claim of similar expenditure for the assessment years 1989-90 and 1990-91 as revenue expenditure. Even for the year 1993-94 also similar payments by the assessee had been considered and allowed as revenue expenditure. During all these years also payments had been made in terms of the same or similar agreement entered into with M/s. Kirloskar Oil Engines Ltd. The facts in these years being identical, principles of res judicata will certainly be applicable. To buttress the arguments, the assessee relied upon the judgment of the hon'ble Supreme Court in Radhasoami Satsang v....
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....in the agreement was an improvement in the operation of the existing business and its efficiency and productability. We are further of the opinion that since the agreement was for better conduct and improvement of the existing business of the products already being manufactured by the assessee, so, in these facts, the impugned royalty amount paid by the assessee and allowed by the Commissioner of Income-tax (Appeals) was in the nature of revenue expenditure and so, was allowable as deduction in computing business profits of the assessee, as has been held in the various citations relied upon by both the parties. We have also considered other arguments advanced by the learned authorised representative for the assessee that such expenditure cl....
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....mediately succeeding previous years." 10. The effort of the Revenue to bring the expenditure within the domain of section 35AB of the Act is totally misplaced since the pre-requisite for application of section 35AB of the Act is that the payment has to be as lump sum consideration for acquiring any know-how. This pre-condition is totally missing in the case in hand as the payment being made to M/s. Kirloskar Oil Engines Ltd. is not lump sum payment, for acquiring of know-how; rather the same was payable periodically on the basis of percentage of invoiced price depending upon the number of engines manufactured. It is not a case of outright sale of technical know-how. So, in our view, it will not fall within the domain of section 35AB of t....