(Per : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. Revenue is in appeal against the judgment of the Income Tax Appellate Tribunal ('Tribunal' for short) dated 29th August 2008. At the time of admission of appeal, one of the questions framed as substantial question of law reads as under:
“[A] Whether on the facts and circumstances of the case, Tribunal was right in allowing the claim of expenditure on 'know how' U/s.37(1) without appreciating the specific provisions of section 35AB, under which the 'know how' acquired by the assessee is covered and to be claimed accordingly?”
2. The assessment year under consideration is 1998-99. The issue pertains to expenditure of Rs.5,97,666/- claimed by the assessee as revenue expenditure. The Assessing Officer was of the opinion that such expenditure which was for the purpose of acquiring technical knowhow would fall within section 35AB of the Act. The assessee, however, contended that the Company under an agreement had obtained only to use the knowhow and that there was no acquisition of the same. In any case, such right was restricted only for a period of five years. There was no sale or transfer of the property in the technical knowhow. In other words, the assessee raised two fold contentions. Firstly, that the expenditure was revenue in nature and secondly in any case, such user for a period of five years would not amount to acquisition of technical knowhow. The Assessing Officer, held that the expenditure was for the purpose of gaining an enduring benefit and such expenditure was covered under section 35AB of the Act. The assessee, therefore, cannot get the benefit of section 37(1) of the Act. The assessee carried the matter in appeal. CIT (Appeals) recorded the contention of the assessee in which it was submitted that the assessee Company merely obtained the right to use the knowhow, that such right was restricted for a period five years during which the period the assessee could not sell the information received under the agreement. The Commissioner without opining whether such expenditure was revenue or capital in nature, following the decision of the Tribunal, Ahmedabad Bench in the case of Sayaji Industries gave the benefit to the assessee and deleted the disallowance of claim and upheld the assessee's claim for deduction under section 37(1) of the Act. In further appeal, the Tribunal merely followed the decision in the case of Sayaji Industries and rejected the Revenue's appeal.
making following observations.
“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 are fulfilled. In such a case, during the period when section 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 available even before the introduction of section 35AB of the Act and such deduction cannot be curtailed or limited by applying section 35AB. In that view of the matter, taking such an expenditure out of section 37(1) of the Act, would not arise.
24. We are unable to concur with the view of the Madras High Court in case of Commissioner of Income Tax v. Tamil Nadu Chemical Products Ltd. (supra), which was in any case rendered prior to the decision of the Apex Court in the case of Commissioner of Income Tax v. Swaraj Engines Ltd. (supra).
25. Before closing, we may clarify that in the present case, the Assessing Officer himself proceeded on the basis that the expenditure was revenue in nature. In that view of the matter, the interpretation that we have adopted would apply and the case of the assessee would not fall under section 35AB of the Act. In a given case, if the expenditure is held to be capital in nature, further question of applicability of section 35AB of the Act may arise. In essence, therefore, each case would have to be examined separately and on the strength of material on record. Learned counsel Shri Patel however requested that the matter be remanded to the Assessing Officer for consideration whether the expenditure was capital or revenue in nature. We find that when the Assessing Officer had himself held that it is revenue expenditure, there would be no purpose of such a remand.
26. In the result, the third question is answered in the negative, that is, against the revenue and in favour of the assessee. Appeal is allowed in part and disposed of accordingly.”
4. Counsel for the Revenue, however, submitted that in the present case neither the Commissioner (Appeals) nor the Tribunal had gone into the question of nature of expenditure. In that view of the matter, she prayed that the issue be remanded back to the Assessing Officer for an authoritative finding whether the expenditure was revenue or capital in nature, only upon which the applicability of section 35AB of the Act can be judged.
5. We are, however, of the opinion that in the itself is not very large. Secondly, the assessee had been contending that the knowhow was made available for use only for a period of five years during which period also, the assessee had no other right of user. Further, the case is also an old one. After so many years, only on this count, particularly looking to the tax effect which is not considerable, such request is not accepted.
assessee and dismiss this appeal.
(Akil Kureshi, J.) (Harsha Devani, J.) (vjn)