Kirloskar Cummins Ltd.(Now Cummins India Ltd.)Kothrud, Pune v. Insp.asstt.commissioner Ofincome Tax, Asstt. Range-I,Pune

ORDINARY ORIGINAL CIVIL JURISDICTIONINCOME TAX APPEAL NO.378 OF 2000 Kirloskar Cummins Ltd.(now Cummins India Ltd.)Kothrud, Pune. Vs. Insp.Asstt.Commissioner ofIncome Tax, Asstt. Range-I,Pune. ..Appellant(OriginalRespondent) ..Respondent(OriginalAppellant) Mr.S.N.Inamdar for the Appellant.Mr.Vimal Gupta for the Respondent. (JUDGMENT PER : V.C.DAGA,J.) CORAM :- DR.S.RADHAKRISHNAN &V.C.DAGA, JJ. DATE : 20TH OCTOBER, 2008 2.The Appellant is a Public Limited Companyengaged in the business of manufacture of High Powered Internal Cumustion Engines ("The Diesel Engines" for short) for the last several years. 3.The Appellant on 27th February, 1980, enteredinto an agreement known as " technical collaborationagreement" ("the agreement" for short) withM/s.Gottlob Auburatar GmbH., a German Company toprovide know-how to the Assessee for manufacture ofDiesel Powered Integral Bus with the trade-mark‘NEOPLAN’ ("the Bus" for short). 4. The area of technical services to be rendered by the German Company were as follows: a. Supply of technical drawings designs andother technical information relating tomanufacture of diesel powered integral bus.b. training of KCL personnel in themanufacture of diesel powered integral busi.e. body building assembly designing etc.c. information as to latest development ofdesigns and manufacturing techniques includingquality control technique. d. Supply of drawings design of jigs tools, and fixtures reality to various components and e. use of trade name of GA i.e. Neoplanduring the currency of the agreement. claimed sum of Rs.22,03,690/- paid under clause 11 of the agreement to the German Company as a revenue expenditure. 6.The Assessing Officer vide his order dated an enduring nature and that it was not a business expenditure. 7. Being aggrieved by the aforesaid order, an knowhow related to the manufacture of product which the Assessee company was already manufacturing. 8.Being aggrieved by the aforesaid order of the entirely different businesses as such the expenses incurred are not Revenue in nature. business laid down by the Apex Court from time to time. SUBMISSIONS: product or business has no basis. According to him the said finding is based on no evidence. the Assessing Officer as well as that of the Tribunal. 14.The core issue for consideration is: whether the expenses incurred would constitute capital or revenue expenditure ? CONSIDERATION: an enduring nature and that it was not a business expenditure. 7. Being aggrieved by the aforesaid order, an knowhow related to the manufacture of product which the Assessee company was already manufacturing. 8.Being aggrieved by the aforesaid order of the entirely different businesses as such the expenses incurred are not Revenue in nature. business laid down by the Apex Court from time to time. SUBMISSIONS: product or business has no basis. According to him the said finding is based on no evidence. the Assessing Officer as well as that of the Tribunal. 14.The core issue for consideration is: whether the expenses incurred would constitute capital or revenue expenditure ? CONSIDERATION: 15.It is not necessary to discuss all the casescited at the bar as each case needs to be consideredand decided on its own facts. The Tribunal whileconsidering the case in hand, in paragraph No.22,observed as under:"22. Rival contentions of the parties havebeen considered carefully. In order to claimdeduction u/s.37, it has to be establishedthat (i) expenditure incurred by the assesseeis not capital or personal expenditure and(ii) such expenditure is laid out or expendedwholly or exclusively for the purpose ofbusiness. Section 28 provides that profits ofa business which is carried on by an assesseeat any time during the previous year shall bechargeable to tax. It is this profit which isto be computed in accordance with theprovisions of Section 30 to 43D as per Section29. A combined reading of these provisionsclearly shows that expenditure under Section37 should be that which relates to thebusiness being carried on during the previousyear. Impliedly it means that any expenditurerelating to a business which is yet to becommenced in future cannot be allowed againstthe profits of the existing business.So, in our considered opinion, the expenditureon technical know-how can be allowed only ifit is relatable to the existing businessprovided it is not a capital expenditure.Reference may be made to the decision of theSupreme Court in the case of Alembic ChemicalWorks, 177 ITR 377, which has also been reliedupon by the ld.counsel for the assessee. Inthat case, it has been held that if the expenditure is for acquisition of theknow-how, it cannot be allowed. However, ifthe expenditure is for the use of the know-howto augment the production and profits of theexisting business, it can be allowed asdeduction u/s.37. In that case, theexpenditure was allowed because know-howrelated to the existing business. . In the present case, the expenditure expenditure is for acquisition of theknow-how, it cannot be allowed. However, ifthe expenditure is for the use of the know-howto augment the production and profits of theexisting business, it can be allowed asdeduction u/s.37. In that case, theexpenditure was allowed because know-howrelated to the existing business. . In the present case, the expenditure of Rs.29,85,719/- on technical know-howrelated to the manufacture of Bus under thetrade mark ‘Neoplan’ which was not existingbusiness of the assessee. The existingbusiness of the assessee was the manufacturingof Diesel Engines. The contention of the ld.counsel for the assessee was that manufactureof Buses is merely application of DieselEngine produced by the assessee and therefore,the same could be considered part of theexisting business. In our opinion, thiscannot be accepted and is without force. Theproduction of Diesel Engines and Buses areentirely different businesses. Merely becausethe Engines produced by the assessee would befitted in the Buses to be manufactured by theassessee in future, it cannot be said thatactivity of manufacturing of Buses is part ofexisting business of manufacturing of DieselEngines. If such plea is accepted, then allactivities of manufacturing of Trucks, Buses,Cars, Tractors and Air-craft where the DieselEngines manufactured by the assessee may befitted would have to be considered as part ofthe business of manufacturing of DieselEngine. We are unable to accept such anextreme view. Therefore, the expenditurerelated to the new product cannot be allowedirrespective of the nature of expenditure. Itis, therefore, not necessary for us to decidewhether the expenditure incurred by theassessee was for acquisition of the know-howor for the use thereof. The case-law referredby the assessee are distinguishable on factssince in all those cases, the know-how relatedto the existing business of the assessee. Inthe case of Kirloskar Brothers Ltd., thetechnical know-how related to the manufactureof Centrifugal Pumps which was the existingbusiness of the assessee. In the case of theKirloskar Cummins Ltd., there is a clearfinding that agreement for technicalassistance pertaining to a product already inthe line of established businesses of theassessee. Similarly, in the case of AlembicChemicals Works, the assessee was engaged inthe manufacture of Antibiotics andPharmaceuticals and the know-how related to :8: the existing business of the assessee i.e.manufacture of Antibiotics. . In view of the above discussion, we are unable to sustain the order of CIT(A).Accordingly, the order of CIT(A) is reversedon this issue and the order of AO is restored. (Emphasis supplied) considered in a common-sense way having regard to the business realities. 18.Keeping the aforesaid law laid down by the Tribunal. The Appeal stands dismissed for the reasons recorded. (V.C.DAGA,J.) (DR.S.RADHAKRISHNAN,J.)