Ester Industries Ltd. vs Commissioner of Income Tax

This appeal is directed against the order dated 22-12-2006 passed by the income tax Appellate Tribunal in ITA 3654/Del/2000 pertaining to the assessment year 1992-93. The only issue sought to be raised is with regard to the depreciation claim of the assessee of Rs. 44,65,470 in respect of the capitalized third instalment of know-how fees. The Assessing Officer had arrived at the conclusion that the depreciation claim of the assessee was not allowable inasmuch as there was a specific provision which entitled the assessee to deduction, that provision being section 35AB of the income tax Act, 1961. u/s 35AB, the third instalment of technical know-how fees of Rs. 1,78,61,880 was allowable as a deduction but had to be spread over a period of six years. The Assessing Officer held that 1/6 th deduction would be allowable in the current year i.e. in the assessment year 1992-93 and the balance in the subsequent five years. The depreciation claimed by the assessee was disallowed, however, deduction u/s 35AB at the rate of 1/6 th of the sum of Rs. 1,78,61,880 was allowed in the current year to the extent of Rs. 29,76,980. It is the contention of the learned counsel for the assessee that the department has to either allow the depreciation or allow the deduction u/s 35AB. He submits that in the present case while the Tribunal has affirmed the view taken by the Assessing Officer, it has not given any direction with regard to deductions u/s 35AB for the subsequent five years. The learned counsel for the respondent submitted that the revenue would have no objection to the deduction being given for the subsequent five years because that is the intent and meaning of the orders passed by the Assessing Officer as affirmed by the Tribunal. She, however, submitted that in case any depreciation had been allowed in respect of the third instalment towards know-how fees in the subsequent years, the same would have to be adjusted against the deduction u/s 35AB which the assessee would be entitled to claim.

In view of the aforesaid submissions made by the learned counsels for the parties we feel that no interference with the impugned order is called for except that we clarify that the assessee would be entitled to deduction u/s 35AB with regard to the said third instalment of know-how fees in the subsequent five years. This would, however, be adjustable against any depreciation that may have been allowed against the said third instalment in any of the subsequent five years. With these clarifications the appeal is disposed of.