TaxTMI 
TaxTMI 
2018 (5) TMI 443
X X X X Extracts X X X X
X X X X Extracts X X X X
....a­distinction to lease of rights in such know­how and accordingly the assessee was entitled to deduction under Section 35AB as against under Section 37(1) of the Act ? 2. This Reference relate to Assessment Year 1986­87. 3. Regarding question no.(i) :­ (a) It is an agreed position between the parties that this question stands concluded in favour of the applicant assessee and against the respondent Revenue by the decision of this Court in Commissioner of Income Tax Vs. Sudarshan Chemicals Industries Ltd. 245 ITR 769. (b) In the above view, for the reasons indicated in Sudarshan Chemicals Industries Ltd. (supra), this question has to be answered in the negative i.e. in favour of the applicant assessee and against the respondent Revenue. 4. Regarding question no.(ii) :­ (a) The statement of case refers to the following facts as giving rise this question :­ "6. The facts and findings relating to question no.(iii) are found in para nos. 9 and 10 of our appellate order. The assessee had claimed a deduction of Rs. 17,85,000/­ in regard to the amount paid / payable for technical know­how. The expenditure was claimed to be revenue i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....attention to the Agreement dated 19th June, 1984, entered by the applicant with M/s. Oldham Batteries Ltd. U.K. In terms of the above agreement, the applicant was to receive outside India a license to transfer and import information, know­how, advice, materials, documents and drawings as required for the manufacture of Miners Caplamp Batteries and Stationery Batteries. This for a lumpsum consideration of GBP 100,000/­ (pound sterling) in three equal installments and the permission was only to use the know­how and information. There was no transfer of ownership. In particular, she invites our attention to the following clauses in the agreement dated 19th June, 1984, which read as under :­ "2.3 To facilitate the transfer and imparting of information as aforesaid, LICENSOR agrees to make available, at its plant and offices in the United Kingdom to the authorized representatives of LICENSEE, the production and other engineers and personnel of LICENSOR to consult with such representatives in the utilization and implementation of the information and date imparted and transferred herein. 2.4 LICENSEE expressly agrees to utilize the drawings, data and information furn....
X X X X Extracts X X X X
X X X X Extracts X X X X
....its business of manufacturing batteries. Therefore, would be revenue in nature. It is submitted Section 35AB of the Act would apply only where the expenditure is in the nature of a capital expenditure. Therefore, Section 35AB of the Act would not apply and the expenditure for obtaining technical know how being of revenue nature, would fall in the residuary Section 37 of the Act. (d) In the above view, it was submitted that the question as referred to hereinabove be answered in favour of the applicant assessee. 8. As against the above, Mr. Chhotaray, learned Counsel appearing for the respondent Revenue submits as under :­ (a) The payment made in three equal installments continues to be a lumpsum payment; (b) The right to acquire as provided under Section 35AB of the Act, the amounts paid for acquiring any know­how. It does not require obtaining ownership of the technical know­how. The license to use the know how by itself be covered by the words "consideration paid for acquiring any know­how". There is no basis for restricting the plain meaning of the word "acquiring" in Section 35AB of the Act. (c) In this case, the applicant has used the technical kn....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cal know how. In support placed reliance upon the dictionary meaning of the word "acquisition" as found in The New Oxford dictionary, Clarendon Press, Oxford 1998, which reads as under :­ "acquisition :­ 1. an asset of object bought or obtained. Typically by a library or museum. - An act of purchase of one company by another. - buying or obtaining assets or objects western culture places a high value on material acquisition. 2. The learning or developing of a skill, habit and quality, the acquisition of Management Skill" She also relies upon Black's Dictionary, Ninth Edition, which states the meaning of the word "acquisition" as under :­ "acquisition :­ 1. The gaining of possession or control over something (acquisition of the target company's assets) 2. Something acquired (a valuable acquisition) As against the above, we note that the impugned order of the Tribunal has relied upon the "Chambers Twentieths Century Dictionary, 1976 which defines the terms "acquire" means "to gain", "to attain to". 11. We find that the dictionary meaning relied upon by the applicant do not exclude obtaining any knowledge or a skill as in this case te....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Section 37 of the Act itself excludes expenditure of the nature described in Sections 30 to 36 of the Act without any qualification. Therefore, we would need to examine whether Sections 30 to 36 restrict its benefit to only capital expenditure. On examination, it would be found that Section 35AB of the Act as pointed out above, makes no such exclusion / inclusion on the basis of the nature of expenditure i.e. Capital or Revenue. In fact, wherever the Parliament sought to restrict the benefit on the basis of nature of expenditure falling under Sections 30 to 36 of the Act, it specifically provided for so in the provision viz. Section 35A of the Act as in force along with Section 35AB of the Act during the subject Assessment Year 1986­87. In fact, later Sections 35ABA of the Act (w.e.f. 2017) and Section 35ABB of the Act (w.e.f. 1996) has also provided for deduction thereunder only to capital expenditure specifically. Further, we find that wherever the Parliament sought to restrict the expenditure falling within Sections 30 to 36 of the Act only to capital expenditure, the same was provided for in the section concerned. To illustrate section 35A and 35ABB of the Act have specifi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Tamil Nadu Chemical Products Ltd. (supra). The basis of all the above three decisions was the subsequent decision of the Apex Court in Commissioner of Income Tax Vs. Swaraj Engines Ltd. (2008) 301 ITR 284. The above case before Apex Court arose from the decision of the Punjab & Haryana High Court in Commissioner of Income Tax Vs. Swaraj Engines Ltd. 301 ITR 294 (P&H) that payments made on account of the royalty would be liable as deduction under Section 37 of the Act and not under Section 35AB of the Act as contended by the Revenue. 15. Being aggrieved, the Revenue had filed an appeal before the Apex Court which led to its order in Swaraj Engines Ltd.(SC) (supra), wherein the Court while restoring the issue to the Punjab and Haryana High Court, by way of remand, held in the context of the question framed that the High Court should first decide whether the expenditure incurred on making payment of royalty would be capital or revenue in nature at the very threshold before deciding the applicability of Section 35AB or 37 of the Act. In fact, the Apex Court while remitting the matter to the Punjab & Haryana High Court observed as under :­ "At the same time, it is important to....