TaxTMI 
TaxTMI 
1999 (9) TMI 112
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.... CTR (Guj) 22 : (1991) 192 ITR 608 (Guj), CIT vs. Gaekwar Mills Ltd. (1991) 99 CTR (Guj) 19 : (1992) 193 ITR 734 (Guj) and the decision of the Tribunal Wellman Incandescent India Ltd. vs. Dy. CIT (1997) 57 TTJ (Cal) 562 : (1995) 55 ITD 555 (Cal). 3. After hearing both the sides and in view of the decisions of jurisdictional High Court referred above, we direct the AO to allow the expenses. 4. The next issue is regarding disallowance of Rs. 1,92,150 on account of fluctuation in foreign exchange rate. The learned counsel on behalf of the assessee does not want to press this ground. Accordingly, this ground of appeal is dismissed. 5. The next issue is regarding disallowance of Rs. 1,16,219 under s. 37(3) of IT Act r/w r. 6D of IT Rules. 5.1. The AO disallowed the aforesaid amount being reimbursement of expenditure incurred by the employees on conveyance, telephone and trunk call charges, laundry, typing charges, etc. during the out station tour for the purpose of business. The finding was confirmed by the CIT(A). 5.2 The learned counsel on behalf of the assessee placed reliance on the decision of the Tribunal in Sundram Finance Ltd. vs. IAC (1984) 18 TTJ (Mad) (SB) 348 ....
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....bsp; ---------- 7.1. The assessee submitted details of technical know how fees paid to M/s Amylum Belgium pursuant to the agreement entered with that foreign company. According to the assessee, the payment made to the foreign company should be allowed as business expenditure under s. 37 of the IT Act. The AO asked the assessee to explain as to why s. 35AB should not be invoked and 1/6th of the amount should not be allowed as deduction. The contention of the assessee was that the assessee had claimed only the amount to the extent of the instalment paid during the year under consideration, the foreign company shall retain the ownership of the right and the assessee is only a licensee for using the know-how in its existing business, the assessee did not acquire the know-how, which remained the property of the foreign company. Therefore, s. 35AB cannot be invoked. The contention of the assessee was not accepted by the AO and the claim of the assessee as revenue expenditure was rejected. The AO further directed that 1/6th of the total expenditure should be allowed in six equal instalments under s. 35AB of the Act. The ....
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....ific provision under s. 35AB which has to be applied. The expenditure incurred by the assessee even for a temporary use of know-how cannot be allowed as revenue expenditure. It was submitted that opening sentence of s. 37(1) of the Act says that any expenditure not being expenditure of the nature described in ss. 30 to 36 and not being in the nature of capital or personal expenses of the assessee, laid out or expended wholly and exclusively for the purposes of business or profession shall be allowed. Since the present expenditure is allowable under s. 35AB of the Act, therefore, s. 37 has no application. The learned Departmental Representative has relied on the decision of Supreme Court in Madras Industrial Investment Corpn. Ltd. vs. CIT (1997) 139 CTR (SC) 555 : (1997) 225 ITR 802 (SC). A written submission has also been filed by the learned Departmental Representative wherein it has been stated that : (i) the argument of the assessee that s. 35AB is applicable in relation to capital expenditure is not correct; (ii) by amendment in s. 32 w.e.f. 1st April, 1999 by which intangible asset like know-how has been included for the purpose of depreciation that does not mean that it is a ....
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....consideration to the foreign company for using the know-how for the purpose of its running business for a limited period. There is no controversy about the fact that the assessee did not purchase the same from the foreign company. There is no dispute in the proposition that if the expenditure is covered by ss. 30 to 36 of IT Act or it is of capital/personal expenditure, the same cannot be allowed under s. 37 of the IT Act. Therefore, the main issue is that whether the present expenditure is covered by s. 35AB or not, if it is covered by s. 35AB then s. 37 cannot have any application. 7.5 In the case of CIT vs. CIBA of India Ltd. (1968) 69 ITR 692 (SC), it has been held by the Hon'ble Supreme Court that the payments made for the right to have access to the technical knowledge and the fruits of continuing research and experience of a foreign company and to use its patents and trade-marks is of revenue expenditure. (ii) In the case of CIT vs. British India Corporation Ltd. (1987) 60 CTR (SC) 54 : (1987) 165 ITR 51 (SC), the Supreme Court held that the lumpsum payment made to a distributor nominated by the foreign collaborator of the assessee as a condition of an agreement which ....
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....239 ITR 83 (Mad) similar view has been taken. 7.8. The emphasis in all these cases was that if the payment is made for exclusive acquisition of the technical know-how or information the expenditure would be capital, but if the payment is made only to secure the use of the technical know-how or knowledge, it would be allowable as revenue expenditure. It is relevant to note that all the above mentioned decisions are in relation to the period before 1st April, 1986 and thereafter only the provision of s. 35AB came into existence. 7.9. The Calcutta Bench of the Tribunal in the case of Wellman Incandescent India Ltd. vs. Dy. CIT (1997) 57 TTJ (Cal) 562 : (1995) 55 ITD 338 (Cal) held as follows: "From the above we are of the view that the assessee has not acquired any technical know-how or information or patent once and for all so that the lump-sum consideration can be held to be capital payment. In our opinion, having regard to the various clauses of the technical know-how agreement and applying the tests laid down by the Supreme Court and the Calcutta High Court to them, the assessee has only obtained a right to use the technical information for the purpose of installing the f....