By TIOL News Service

MUMBAI, MAY 01, 2018: THE ISSUE BEFORE THE COURT WAS - Whether acquisition of technical knowhow on license basis is akin to acquiring ownership over the know-how for claiming deduction u/s 35AB on the payment made for the same. NO IS THE ANSWER.

Facts of the case

In its returns filed for the relevant AY, the assessee company claimed deduction u/s 80HHC. Moreover, the assessee had entered into an agreement with a UK-based firm, whereupon the assessee was to receive outside India a license to transfer and import information, knowhow, advice, materials, documents and drawings as required for the manufacture of Miners Caplamp Batteries and Stationery Batteries. Towards this, the assessee paid 100,000 Pound Sterling in three equal installments, and only to use the knowhow & information without transfer of ownership.

On assessment, the AO passed certain orders, which were subsequently contested before the Tribunal. Therein, it was held that excise duty paid by the assessee was to be included in the total turnover when computing deduction u/s 80HHC. Regarding, the agreement entered into between the assessee and the foreign firm, the Tribunal held that the assessee had acquired ownership rights over the technical knowhow. Thus, the Tribunal held that assessee to be entitled to deduction u/s 35AB as against u/s 37(1). Hence the present reference was made by the assessee.

On hearing the matter, the High Court held that,

++ the assessee next submitted that the word acquiring as used in Section 35AB of the Act would necessarily mean acquisition of ownership rights of the technical knowhow & that mere lease or license would not amount to acquisition of technical know how. In support placed reliance upon the dictionary meaning of the word "acquisition" as found in The New Oxford dictionary, Clarendon Press, Oxford 1998. The dictionary meaning relied upon by the assessee does not exclude obtaining any knowledge or a skill as in this case technical knowhow for a limited use. The gaining of knowledge is acquired by transfer of knowhow, the limited use of it would not detract from the scope and meaning of the word acquisition. The word 'acquisition' as defined in the larger sense even in the Oxford Dictionary referred to above, would cover the use of technical knowledge knowhow by the applicant assessee which was made available by M/s. Oldham Batteries Ltd. Reliance placed by the assessee upon the decision of the Full Bench of this Court in Smt. Radhabai Vs. State of Maharashtra & Ors. was in the context of the use of the word 'acquisition' with the words 'partition'. Therefore, in a completely different context and does not in terms decide the meaning of the word 'acquisition' to be universally adopted. Thus, no support can be drawn by the assessee from the above case. Thus, the restricted meaning of the word 'acquisition' to mean 'only obtaining rights on ownership' is not the plain meaning in English language. Thus, obtaining of technical knowhow under a license would also amount to acquiring knowhow as the words 'on ownership basis' is completely absent in Section 35AB(1) of the Act. Therefore, accepting the contention of the assessee, would necessarily lead to adding the words 'by ownership' after the word 'acquiring' in Section 35AB(1) of the Act. This is not permitted while interpreting a fiscal statute. Thus, the second submission made on behalf of the assessee is also not sustainable.

(See 2018-TIOL-808-HC-MUM-IT)