Lumpsum Technical know-how Fees deductible u/s. 35AB not u/s. 37

Sub-section (1) of Section 35AB of the Act clearly states that where the assessee has paid in any previous year any lump sum consideration for acquiring any know-how for use for the purposes of his business, then one-sixth of the amount so paid shall be deducted in computing the profits and gains of the business for that previous year and the balance amount shall be deducted in equal instalments for each of the five immediately succeeding previous years. Explanation to the said section says that the word `know-how’ means any industrial information or technique likely to assist in the manufacture or processing of goods or in the working of a mine. If one carefully analyzes Section 35AB of the Act, it is clear that prior to 1st April, 1986, there was some doubt as to whether such expenditure could fall under Section 37 of the Act. To remove that doubt, Section 35AB of the Act stood inserted. In sub- section (1) of Section 35AB of the Act, there is a concept of amortization of expenditure. In the present case, it is true that on account of certain disputes which arose between the parties, the balance amount was not paid by the assessee to the American company. However, the word `for’ in Section 35AB of the Act, which is a preposition in English grammar, has to be emphasised while interpreting Section 35AB of the Act. Section 35AB of the Act says that the expenditure should have been incurred for the purposes of the business of the assessee. In the present case, the Technical Assistance Agreement was entered into between the assessee and the American company for acquiring know-how which was, in turn, to be used in the business of the assessee. Once Section 35AB of the Act comes into play, then Section 37 of the Act has no application. For the afore-stated reasons, we see no error in the impugned judgment of the High Court.

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.1400 OF 2005

M/s. Drilcos (India) Pvt. Ltd. …Appellant(s)

Versus

Commissioner of Income Tax, Madras …Respondent(s)

O R D E R