Case: Drilcos (India) Private Limited Vs. Commissioner of Income Tax, Madras

2. The assessee manufactures equipments which are used for mining. It entered into an Agreement with an American company on 7th June, 1990. The Agreement with the American company called `Licence and Technical Assistance Agreement" under which the American company was required to transfer technical know-how to the assessee for consideration of Rs.2,25,000/- to be paid in three instalments. The first instalment in convertible Indian currency amounting to Rs.17,49,889/- was paid on 29th November, 1990. Subsequently, disputes arose between the contracting paries and the know-how was not transferred by the American company.

Reasoning: 6. In the present case, it is true that on account of certain disputes which arose between the parties, the balance amount was not paid by the assessee to the American company. However, the word `for in Section 35AB of the Act, which is a preposition in English grammar, has to be emphasised while interpreting Section 35AB of the Act. Section 35AB of the Act says that the expenditure should have been incurred for the purposes of the business of the assessee. In the present case, the Technical Assistance Agreement was entered into between the assessee and the American company for acquiring know-how which was, in turn, to be used in the business of the assessee. Once Section 35AB of the Act comes into play, then Section 37 of the Act has no application.