- (1.) ASST . yr. 1991 -92 in ITA No. 1443/Chd/ 1994 [reported as Dy. CIT vs. Swaraj Engines Ltd. (2004) 91 TTJ (Chd) 671 - - Ed.] was admitted for consideration of the following substantial question of law: "(i) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the within the ambit of s. 35AB of the IT Act, 1961.
(2.) WE have heard Shri Yogesh Putney, advocate for the Revenue and Shri P.C. Jain, advocate for the respondent and with their assistance have gone through the orders on record.
(3.) OF Rs. 6,07,103, wherein the assessee claimed deduction for an amount of Rs. 26,65,340 paid by it to M/s Kirloskar Oil for the manufacture of diesel engines. The AO was of the view that the expenditure on account of acquisition of technical know -how was covered under s. 35AB of the IT Act, 1961 (hereinafter as 'the Act') and the same could not be treated as 1994 submitted as under : "Royalty paid to KOEL is calculated on the basis of sales and it varies from year to year depending on the value of sales. royalty is not covered under s. 35AB on IT Act, 1961. Sec. 35AB relates to expenditure on lump sum consideration for acquiring any know -how for use. As royalty paid every year is not a lump sum amount but is on the basis of percentage of sales as per cl. 10 of technical assistance agreement. To sum -up s. 35AB is not applicable but royalty expenditure is allowable as business expenditure under s. 28/37(1) of IT Act, 1961. Royalty at specified rate has been held as allowable in H. Dear and Co. (P) Ltd. vs. CIT (1966) 60 ITR 546 (SC). Even excess royalty for increase in selling price rate is allowable as decided in Association Stone Industries (Kota) Ltd. vs. CIT 1972 CTR (SC) 498 : (1971) 82 ITR 896 (SC). Not only royalty paid but even the technical fees for new line of business has been held by the Bombay Tribunal as allowable revenue expenditure as decided in case of ITO vs. Kakad Gas Service (1982) 2 ITD 508 (Bom)." After consideration of the reply filed by the assessee the AO came to the conclusion that the payment made by the assessee was covered under the ambit of s. 35AB of the Act and accordingly, only 1/6th of the total amount was allowed as deduction during the year in question and the balance was disallowed. The claim of the assessee is that by way of agreement with M/s Kirloskar Oil Engine Ltd., the assessee had not become the owner of the technical know -how and no benefit of enduring nature has been received by the assessee.;