Karnataka High Court
The Commissioner Of Income Tax vs M/S Molex (India) Ltd on 13 July, 2010
Bench: N.Kumar, B.V.Nagarathna
IN THE HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS THE 13m DAY OF JULY 2O1O: i'.I. PRESENT THE HON'BLE MRJUSTICE I\I "V AND THE I-ION'BLE MRs.JUs'I?ICE E.Ik" V ITA NO. .2005" 1 BEIWEEN: I. THE " C.R.BUILDING."~.. '_'-- - » 'I ' QUEENS ROAD, . " BANGALORE. _ ' 2. T1--:IE_DEPUTY 'COMMISSIONER OF COMMERCIAL ASSESMENT, SPECIAL RPINGE--6_, ' ' ~~ C.R.;E"CILDINCI " ' .....
'V 1' BANGAI;ORE,_ ...APPELLAN'I'S A :(13:Y_ ADV.) M/S l\/IOLEX (INDIA) LTD., SADARAMANOALA INDL. AREA, ' KAD-UGODI.
BANGALORE -« 560067. ...RESPONDENT (BY SRI.G.SARANGAN SR. ADV. FOR SMT VANI H, ADV.) {L l~.) THIS ITA FILED UNDER SECTION 250A OF_ THE INOCME TAX ACT, 1961 ARISING OUT OF ORDER DATED 17-092004 PASSED IN ITA.NO. 1013/BANG/ 1998 '1'3;_-IE ASSESSMENT YEAR 1995-1996 PRAYING HONBLE COURT MAY BE PLEASED To ~ I ' THIS APPEAL COMING ON FQR HEAE{Ii\¥£;{'_i¥'Pi'IS'*DAY, '*~ 'V N KUMAR J., DELIVERED THE FOLLOWING; .; _" « JUDC}MEI\iT__ 2 This appeal is by th'eeII..:reverII1e,._V_Cifiilleigging the' Order passed by the that the expenses incurred know hOW to the assessee" expenditure under Tax Act, 1961 (for to ;'The Act") and the entire expenditupreis Of 1/ 6"? allowed by the ASSeS"SiI1g The appeal also pertains to two other are now Concluded by the Judgments of the._Ape§é"_§:_oLfi-It';
V " The brief facts leading tO this proceeding is as in " . i
- For the assessment year 199E3-96 the assessee company furnished return of income declaring total income of Rs.1,96,03,O5O/W. It was processeddinder Section 143(1){a) by making prima facie under Section 438 in respect of unpai.d---.sales'--l.:taX .i Rs.2450/». Later the case has scrutiny and accordinglyvriotice blunder was issued to assessee company_. The .ass.esseef%incurred an amount of Rs.2l--,50,000i_/ technical fee which was paidto thf;"ibi'eign"technjicians. The assessee was i'u,5pvon.v;'§.to cause why the said amount shouldlnot be Section 35AB of the Act. The' --a.ssesseeh "contended in terms of the foreign agreernent, technical fee is to be paid in A the Visits by employees of Molex Inc. for far"ni1ia__riZat'ion, inspection, testing and quality control. No_.techr.1ology transfer takes place nor any technology is 7acq'uired under the said agreement and therefore, the 9' "expenditure incurred in this regard is to be allowed V. under Section 37(1) of the Act. However, the Assessing Officer held it is not correct to distinguish this. to technicians from technical know how. deduction claimed was dis~a11owe'd--.anc'_4 deduictiongwas allowed as per the provisions «.
Aggrieved by the said ordeI'~...:l:t'he assessee an' appeal. The Appellateflutholriltyliailfirrnedlthe staid order of the Assessing the appeal.
Aggrieved asse'ssee.__}§freferred an appeal to the interpretation of the between the assessee with held the agreement dated 10.3;l9_94in.'i-parting necessary know how and :tc__the 'personnel in the use and exploiting of data whereas the agreement dated 30"."9.1993 is for assisting the assessee in its V. manufacturing and other operations. By this 'assistance, the assessee did not acquire any know how it "tout only to carry out the manufacturing operation 1'/_ carefully. The persons visiting India had not parted with any technical know how. Thus, the payment is for use of technical expertise rather than for acquirinlgcany technical know how. Acquiring some personnel of assessee when they are trained".by~.:foreign--«.. technician is different than a.cquiAsit;ioln.lOlf"-technicgal know-»how_ fhus, the expenses didnot meaning of Section 35B. be'--.co_nsit¥:lered as revenue expenditure of the Act.
Thus, it heldpthe entiiei: allowable as fol aggrieved by the said order, the revenue is' appeal: " 2 _3. At. theetinie 'oi' admitting this appeal, though th-fele ssuUstantial"qiiestions of law were raised in the it was held question no.2 is already answered "against the revenue in the connected matter by tiiia Court in ITA 134/2005 on 3.3.2010 and question no.3 is answered against the revenue by the 6 Judgment of this Court in COMMISSIONER OF INCOME TAX ('Si ANOTHER Vs BHARAT MOVERS LTD. BEML reported in (2004) 138 = 488 and therefore, the appeal was question no.1. The said questionno-;'_lA'readslllae-, "Whether the Tribunal was correct in holding that a sum of Rs.2.o,48;ooo'/-- paid by the Assessee" to Molex r_:US"A.._for providing technicians to train Ass2tesseep'spersonnel in manufacturing, testingf _inspect_i_on and quality control of'itsfprcducts'_and' to impart know ho'w_lgand=:_ tech.nieal" dfatamfand suggest improI.reme;r1_t's =tl*1er*e.to,.._«- as per the mutual agreement sub«cla§u_.se'---7r.4'=.did not fall under Setctio'11'35AB of the 'Acthbvut was entitled to Stlotalllrelief u7'nder'Section 37(1) of the Act?"
4;.» Learned:'Cou.n'se1" for the revenue contended though the"pa1*ties halxlfe entered into two agreements, ' é5econd..A'agreernent is for imparting the technical llilirioolxiy' employees of the assessee. It is for imparti_ng.the technical know how, consideration is paid it thgoughdnot in lumpsurn and not in a specified manner l'and~"therefore, it cannot be said the aforesaid payment "does not fall under Section SSAB and it is to be treated %/d as a revenue expenditure entitled to deduction under Section 37(1) of the Act.
5. Per contra, learned counsel for'---»t.he assesses». submitted what is payable for aieqtliiriiiigesthel is the "Royalty" and what"iVs"p_aya'h-l.eV'for thhatfl» know how is "Fee". case of lurnpsum payment =.f§)1' E1CClUi1"iT1g 3 know how process.
Thereforeg for providing the to impart that know how Section 35AB as it is a revenue eixpenditur-e. it The tribunal, on a proper ofwthe terms of the two agreements, _l<eepi11.g;"-«._in.'fV-vrnind the statutory provisions (g the Jtidgrrierrtsl A on the point has rightly held that the V. pssessee is entitled to deduction under Section 37(1) of Act and therefore, the case do not call for any it " " interference. V 9 technicians to be borne directly by Licensee. All fees, costs and expenses on account of such technicians shall be paid to Molex within ninety [90] days after receipt of statement or invoice therefore from Molex".
7. Therefore, it is clear from the aforesaid clause, apart from paying consideration for acquiring..th_etlinovvjA how which was by way of lurnpsurn payrgneintg, separate agreement it was agreiedl arrange for the visits of its tgechnicilans plant in India for the purposi--:l.:._Vof assis'tirig'hthefgassessee in connection with 'testing, inspection and thellmproduct and to impart necessa3jy"' expertise the assessee's personnel use and exploitation of the technical ll " data and irnprovernents thereto.
" 'significant to note that the assessee had to air fare and other travelling and living expenses of each such technician. Further, the a.ssessee had to pay Molex, fees as was mutually agreed V 20 and as was permissible, per man for each day. T he said payment was in addition to the air fare and other travelling living expenses of the technicians to be 'borne directly by the licensee. Therefore, it is amount paid for imparting the necessary expertise to the assesses personnel_(;-anriot'V"be.fcoliiisétrueldu V' as a payment for acquiring such a payment Was not as"'1'equired'V: V under Section 35AB fipayment is not for acquisition of lllinovsfihloiiv to impart the knowledge ' the assessee's personnel for the «use of the technical data and irnprovemerits 'therei-'.o.v Therefore, for attracting Section . " conditions must exist. They are:
.[1(}_ consideration;
(2"}>._ It is acquiring the knowwhow and V. A.{3}__ Thessaid acquisition is to be used for his business
9. In the case of imparting this technical knov§_r--how, firstly, there is no lumpsum payment. Impartii'i'g_s:'kr1ow--
how to the assesses personnel would ari_s'e---- oniyf acquiring the knowmhow and therefore, distinct from acquisition of knlowmihow them are for the use of theV»asse_sses"' busines_s;":._;'13is..right1y'at held by the tribunalcit revenue expenditure incurred his business after acquiring theéicnow consideration. 'I'herefore,€- deducted under Section not fall under Section * answer the said substantial questionxof of the assessee and against the rejienue;
V accordingly.
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