Section 37(1) of Income-tax Act – Expenditure incurred for imparting technical know-how to assessee’s personnel has to be deducted under section 37(1) and it does not fall under section 35AB
CASE LAWS DETAILS
DECIDED BY: HIGH COURT OF KARNATAKA, IN THE CASE OF: CIT v. Molex (India) Ltd., APPEAL NO: ITA No. 1536 of 2005, DECIDED ON July 13, 2010
8. It is significant to note that the assessee had to directly bear the air fare and other travelling and living expenses of each such technician. Further, the assessee had to pay Molex, fees as was mutually agreed and as was permissible, per man for each day. The said payment was in addition to the air fare and other travelling living expenses of the technicians to be borne directly by the licensee. Therefore, it is clear the amount paid for imparting the necessary know-how and expertise to the assessees personnel cannot be construed as a payment for acquiring the know-how as firstly, such a payment was not made in lump sum as required under section 35AB and secondly, that payment is not for acquisition of know-how but to impart the knowledge of that know-how to the assessee’s personnel for the use and exploitation of the technical data and improvements thereto. Therefore, for attracting section 35AB, three conditions must exist. They are:
(1) A lump sum consideration;
(2) It is for acquiring the know-how and
(3) The said acquisition is to be used for his business.
9. In the case of imparting this technical know-how, firstly, there is no lump sum payment. Imparting know-how to the assessees personnel would arise only after acquiring the know-how and therefore, this imparting is distinct from acquisition of know-how though both of them are for the use of the assessees’ business. As rightly held by the tribunal, it is in the nature of a revenue expenditure incurred by the assessees in his business after acquiring the know-how for a lump sum consideration. Therefore, the entire amount has to be deducted under section 37(1) of the Act and it does not fall under section 35AB. Accordingly, we answer the said substantial question of law in favour of the assessee and against the revenue.