Case Law Details

Case Name : Mahindra & Mahindra Ltd. Vs JCIT (ITAT Mumbai)
Appeal Number : ITA No. 7845/M/2004
Date of Judgement/Order : 29/10/2009
Related Assessment Year :


25.9 In the light of the above discussion, if we consider the facts of the case under consideration, we find that the expenditures were incurred though on technical know-how but in respect of improving the performance of existing product i.e. utility vehicles. It is not the case of the revenue that these expenditures are capital in nature. Payments were intimately linked up with the manufacturing activities of the assessee and not with the capital values of the assets that the assessee would acquire. The Apex court in the case of Swaraj Engines Ltd., though the matter was sent back to the High Court for fresh consideration but while sending back, it was observed that for applicability of section 35AB, the nature of expenditure is required to be decided at the threshold because if the expenditure is found to be revenue in nature, then, section 35AB may not applied. From these observations of the Apex Court we can say that the revenue expenses, if the other conditions are satisfied, the same is allowable u/s 37(1) of the Act. Section 35AB is a special section, which was inserted with a view to provide encouragement for indigenous scientific research. The section provides that lump sum payment which is to be spreading it over 6 years or 3 years as the case may be. If we consider the fundamental concept of section 35AB and section 37(1), we are of the view that any expenditure not being expenditure in the nature of capital expenditure or personal expenditure laid out or expended wholly and exclusively for the purpose of business is allowable expenses in computing income chargeable under the head ‘business or profession’. In other words, the expenditure, other than the expenditure in the nature of capital expenditure, i.e. revenue expenditure is allowable u/s 37(1) of the Act. In section 35AB, the know how expenditure paid in lump sum are allowable in 6 years or 3 years as the case may be. In other words, the expenditure covered u/s 35AB should be in the nature of capital expenditure because the scheme of the Act is that all the revenue expenses are allowable while computing income from business or profession under section 37(1) of the Act. Since in the case under consideration, the expenditure claimed by the assessee is revenue in nature, therefore, the same is allowable u/s 37(1) of the Act and not u/s 35AB of the Act. The above view is supported by the fact that the Finance (No.2) Act, 1998 introduced from the asst. yr. 1999-2000 on wards, the concept of allowance of depreciation on intangible assets like know-how, patent rights, copyrights, etc. As a consequence, sub-s.(l) was also amended so as to provide that any expenditure of capital nature incurred on or after 1st April, 1998 on the acquisition of know-how used for the purposes of business shall not qualify for deduction under the said s. 35AB.

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