Agreement, Came To Conclusion That The Technical Know-How Fees Paidpursuant To The Said Agreement Cannot Be Treated As Capital Expenditure.they Have Also Relied v. Cit & 2Bajaj Tempo Vs. Cit Where The Courts Have Held Thatthe Expenditure Incurred By A Party On Account Of Technical Know-Howshould Be Revenue In Nature

Digitally signedby URMILAURMILAPRAMODPRAMODINGALEDate:INGALE2023.07.1110:29:39+0530 IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO. 473 OF 2018 The Pr. Commissioner of Income Tax-3Vs.Suparna Chemicals Ltd. ….. Appellant….. Respondent Mr. Suresh Kumar, for Appellant.Mr. Dharan Gandhi, for Respondent. CORAM:K.R.SHRIRAM, J &FIRDOSH P. POONIWALLA, J. DATED :JUNE 28, 2023 P.C. 1.Two issues that came up for consideration before the ITAT are a)whether the expenditure incurred by respondent on account of technicalknow-how is revenue in nature and should be capitalized? and b) whetherthe expenditure incurred on construction of compound wall made after theold compound wall fell was revenue in nature and should be capitalized?The Assessing Officer (‘AO’) has treated both these as capital in naturewhereas CIT(A) has treated both these as revenue in nature and that hasbeen accepted by ITAT by the impugned order dated 19/04/2017. 2.Having considered the appeal memo along with orders passed by theAO, the CIT(A) and ITAT, all these issues are fact based. As regards thetechnical know-how, both CIT(A) as well as ITAT have considered the agreement that respondent entered into with one Atomergic ChemetalsCorporation, New York for the production of potassium metal andpotassium superoxide and after considering the terms and conditions of the agreement, came to conclusion that the technical know-how fees paidpursuant to the said agreement cannot be treated as capital expenditure.They have also relied upon the legal position in 1Alembic Chem WorksCo.Ltd Vs. CIT & 2Bajaj Tempo Vs. CIT where the Courts have held thatthe expenditure incurred by a party on account of technical know-howshould be revenue in nature. 1Alembic Chem Works 3.It will be useful to reproduce the following paragraph from theAlembic Chem Works Co.Ltd (supra) “It would, in our opinion, be unrealistic to ignore the rapidadvances in researches in antibiotic medical microbiologyand to attribute a degree of endurability and permanence tothe technical know-how at any particular stage in this fastchanging area of medical science. The state of the Art insome of these areas of high priority research is constantlyupdated so that the know-how cannot be said to be theelement of the requisite degree of durability and non-phemerality to share the requirements and qualifications ofan enduring capital asset. The rapid strides and science andtechnology in the field should make us a little slow andcircumspect in too readily pigeon-holing an outlay, such asthis as capital. The circumstance that the agreement insofaras it placed limitations on the right of the assessee in dealingwith the know-how and the conditions as to non- partibility,confidentiality and secrecy of the know-how incline towardsthe inference that the right pertained more to the use of the 1177 ITR 37762207 ITR 10172207 ITR 1017 know-how than to its exclusive acquisition………...” 4.Having considered the agreement entered into between respondentand Atomergic Chemetals Corporation, CIT(A) as well as ITAT haveconcluded that even though lumpsum consideration of Rs.27,95,072/- waspaid by respondent for acquiring the technical know-how, still respondentcan claim 100% deduction of technical know-how fees under Section 37 ofthe Income Tax Act, 1961 instead of Section 35AB. 5.As regards 2[nd] ground of construction of compound wall, CIT(A) hascome to factual finding that no new asset had come into existence whennew compound wall was constructed in place of existing compound wall. 6.Since the impugned order of ITAT is based on factual findings, therecan be no substantial question of law. 7.Appeal dismissed. (FIRDOSH P. POONIWALLA, J) (K.R.SHRIRAM, J)