JUDGMENT judgment of court was delivered by Mrs. S. Sujatha J.-This appeal is filed by assessee challenging order passed by Income-tax Appellate Tribunal (hereinafter referred to as "the Tribunal") Bangalore "B" Bench, dated June 30, 2008, pertaining to assessment years 1992-93 and 1993-94. facts in brief are: -that appellant is company form of organisation, which is engaged in production of engineering related products. appellant company on October 9, 1991, entered into agreement with English company based in United Kingdom (U. K.) under name and style "Wall Colmony Ltd." (WCL) for procurement of technology called "Colmonoy Sweat-on-Paste". In consideration of transfer of technical know how, appellant company agreed to pay WCL sum of 50,000 pounds in three equal instalments. For assessment years 1992-93 and 1993-94, assessee claimed 100 per cent. deduction on amount expended towards procuring technical know-how as revenue expenditure falling under section 37 of Income-tax Act, 1961 (hereinafter referred to as "the Act" for brevity). Assessing Officer ("the AO") rejected said claim of assessee and brought said expenditure under section 35AB of Act. Being aggrieved, assessee carried matter in appeal before Commissioner of Income-tax (Appeals) which was allowed, against which Revenue preferred appeals before Tribunal. Tribunal rejected appeals filed by Department. Being dissatisfied, Department filed appeals before this court in I. T. A. Nos. 214 and 215 of 2002 for both assessment years. This court, after hearing parties, allowed appeals filed by Revenue and remanded matter back to Tribunal to consider grounds urged by both parties and to pass order in accordance with law. Tribunal, in light of directions issued by this court, considered matters afresh and after hearing parties, allowed appeals filed by Revenue. This common order passed for both assessment years 1992-93 and 1993-94 is assailed by assessee in this appeal. We have heard Sri A. Shankar, learned counsel appearing for appellant-company as well as Sri Jeevan J. Neeralgi, learned counsel appearing for Revenue at length and perused material on record. appeal is admitted on following substantial questions of law: "(a) Whether Tribunal was justified in law in holding that amount expended for producing technical know-how be allowed as expenditure under section 35AB instead of section 37 of Incometax Act on facts and circumstances of case? (b) Whether Tribunal erred in not holding that deduction contemplated under section 35AB is only in respect of capital nature and deduction of revenue nature is allowable under section 37(1) of Income-tax Act?" relevant clauses of agreement entered into between appellant- company and WCL are extracted and reproduced below: 2. Technical know-how 2.1 Subject to receipt by WCL of payment by DEPL of sum specified into clause 3.2.1 and below WCL shall supply to DEPL such written details and descriptions of technical know-how for imparting to DEPL adequate knowledge of technical knowhow practiced by WCL at date of this agreement for production of product. 2.2 To assist DEPL to manufacture and produce product in India WCL shall provide instruction to DEPL as follows: 2.2.1 WCL shall give access to WCL's facilities in UK for purpose of practical training in and to study technical know-how to not more than two of DEPL's production personnel for not more than aggregate of five days 3. Payment by DEPL 3.5 Without prejudice to any breach by DEPL of any of its obligations hereunder this agreement shall be null and void if payment by DEPL under clause 3.1 and 3.2 to WCL is not received. However, it is condition precedent to grant of permission by Reserve Bank of India that total payments made in accordance with aforementioned clauses should not exceed 8 per cent. of value of sales made by DEPL pursuant to this agreement within period of 10 years from date hereof, or within period of 7 years from date of commencement of commercial production of product, whichever first expires. 4. Confidentiality 4.2 DEPL acknowledges that technical know-how and copyright in all written printed photographed or duplicated matter supplied by WCL under or in connection with this agreement shall belong to WCL and all such written printed photographed or duplicated matter shall be handed back to WCL on determination of this agreement 4.3 DEPL during life of this agreement and thereafter shall take all steps necessary to preserve secrecy of technical know-how communicated to it or its representatives and shall not disclose same to any third party (except those of its officers or employees whose duties cannot be fulfilled without such disclosure) for as long as same are not freely available to public. 6. Chromium Monoborides 6.5. DEPL will enable representatives of or persons authorized by WCL at all reasonable times to visit places where it manufactures and produces product and there to inspect testing system used and records of tests made in respect of Indian C. M.'s and to inspect any additional documents relevant to inspection compliance with said specifications, and to select and take away and keep free of charge reasonable number of samples for testing. 6.7. WCL will in using its rights of control and inspection strive to cause to DEPL no more inconvenience than is reasonably necessary to assure itself that foregoing provisions of this clause 6 are complied with by DEPL and as to preservation of WCL's reputation in relation to product. 7. Trade marks DEPL acknowledges and agrees that all trade marks and trade names and DEPL acknowledges and agrees that all trade marks and trade names and in particular (without limitation)'Colmonoy' and'Colmonoy Sweat-on-Paste' are and will remain exclusive property of WCL and/or any associated company of WCL and may be used by DEPL only while this agreement is in force on products to be exported with prior approval in writing of WCL (such approval not to be unreasonably withheld) for purposes of this agreement. DEPL shall be entitled to use its own trademark or trade name for use on product sold within India. 9. Manufacture 9.4 DEPL shall be entitled to sub-licence manufacture and sale of product and use of technical know-how under this agreement to any other person firm or corporation in India should this be necessary to enable DEPL to comply with its requirements and obligations under this agreement. terms of such sub-licence shall however be subject to agreement of WCL as well as other parties concerned and shall be subject to approval of Government of India. 11. Termination 11.2 Either party shall have right to give notice of termination (to operate 30 days after being given) if other party has committed serious breach of its obligations under this agreement and (if such breach is capable of remedy) has failed to remedy same within 14 days of written notice calling on it to do so and specifying nature of breach. 12. Exclusions 12.1 No rights or licences (whether express or implied) are granted by WCL under or by virtue of this agreement except those which are specifically set out therein, and no such rights or licenses shall continue to have effect after termination of this agreement except so far as specific provision is made therein for such continuing effect." Learned counsel, appearing for appellant, placing reliance on these clauses of agreement, argued that at no point of time absolute transfer of rights over know-how was made by WCL company to assessee, i.e., there was no absolute acquisition of technical know-how by assessee, as it was only transfer of right to use technical know-how. effective control of know-how always remained with WCL and, thus, expenditure incurred towards procurement of know-how was revenue expenditure and not capital expenditure, as no enduring benefit accrued to assessee in course of his business. learned counsel drew our attention to Central Board of Direct Taxes Circular dated June 12, 1985, wherein it is provided as under: "15.2 As consequence of this amendment, deductions allowable under section 35A of Income-tax Act in respect of any expenditure of capital nature incurred on acquisition of patent rights or copyrights and under section 35AB in respect of expenditure on know-how have been withdrawn with effect from assessment year 1999-2000." Learned counsel further contended that provisions of section 35AB are applicable only in cases of capital expenditure and if it is revenue expenditure, then provisions of section 37 shall apply. In support of his contentions, reliance was placed on: (1) CIT v. Swaraj Engines Ltd. [2009] 309 ITR 443 (SC); (2) Shriram Pistons and Rings Ltd. v. CIT [2008] 307 ITR 363 (Delhi) ; (3) Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1 (SC); (4) CIT (Deputy) v. Sayaji Industries Ltd. [2013] 81 DTR 418 (Guj); and (5) CIT v. Molex (India) Ltd. [2012] 344 ITR 156 (Karn). learned counsel appearing for Revenue supported order passed by Tribunal and relied on judgment of Madras High Court in case of CIT v. Drilcos (India) P. Ltd. [2004] 266 ITR 12 (Mad) and judgment of apex court in Drilcos (India) P. Ltd. v. CIT [2012] 348 ITR 382 (SC). Section 35AB(1) of Act reads thus: "35AB. (1) Subject to provisions of sub-section (2), where assessee has paid in any previous year (relevant to assessment year commencing on or before 1st day of April, 1998) any lump sum consideration for acquiring any know-how for use for purposes of his business, one-sixth of amount so paid shall be deducted in computing profits and gains of business for that previous year, and balance amount shall be deducted in equal instalments for each of five immediately succeeding previous year." As explained in case of Molex (India) Ltd. (supra), following three factors have to be necessarily present to attract said provision: (1) Payment by lump sum consideration; (2) For acquiring any know-how for use; (3) For purposes of business. then, one-sixth of amount expended shall be deducted in computing profits and gains of business for that previous years, and balance amount shall be amortised for next five succeeding years in equal instalments. This provision was inserted by Finance Act, 1985, with effect from April 1, 1986, and was in statute book up to March 31, 1999. Section 37(1) of Act reads thus: "37.(1) Any expenditure (not being expenditure of nature described in sections 30 to 36 and not being in nature of capital expenditure or personal expenses of assessee), laid out or expended wholly and exclusively for purposes of business or profession shall be allowed in computing income chargeable under head'Profits and gains of business or profession'." Thus, what could be inferred from this is that only revenue expenditure falling under sections 30 to 36 of Act is attracted and not capital expenditure. Budget Speech of Finance Minister, 1985-86 specifies object for inserting section 35AB with effect from April 1, 1986, relevant paragraph of which is produced herewith (see [1985] 152 ITR (St.) 76, 80): "With view to providing further encouragement for indigenous scientific research, I propose to provide that lump sum consideration received by scientists for know-how developed by them would be spread over period of three years and charged to tax accordingly. I also propose to provide that industry may write off lump sum consideration paid for acquiring know-how in six annual instalments. In cases where know-how has been developed in Government laboratories, universities, laboratories owned by public sector companies and other recognised institutions, write off would be permitted over period of three years." Memo Explaining Provisions in Finance Bill, 1985, as regards deduction in respect of expenditure on know-how reads thus (see [1985] 152 ITR (St.) 155, 166): "44. It is proposed to insert new section 35AB in Income-tax Act to provide that any lump sum consideration paid by taxpayer for acquiring any know-how for use for purposes of his business will be allowed as deduction by spreading it equally over six years, namely, year in which lump sum consideration is paid and five immediately succeeding years. Where know-how is developed in laboratory, university or institution referred to in sub- section (2B) of section 32A, consideration shall be spread equally over three years. 45. For purposes of this section,'know-how' means any industrial information or technique likely to assist in manufacture or processing of goods or in working of mine, oil well or other source of mineral deposits (including searching for, discovery or testing of deposits or winning of access thereto)." Central Board of Direct Taxes Circular dated, June 12, 1985, as regards depreciation to be allowed on intangible assets reads thus: "15.2 As consequence of this amendment, deductions allowable under section 35A of Income-tax Act in respect of any expenditure of capital nature incurred on acquisition of patent rights or copyrights and under section 35AB in respect of expenditure on know-how have been withdrawn with effect from assessment year 1999-2000." In case of CIT v. Swaraj Engines Ltd. (supra), apex court has held that (page 444 of 309 ITR): "if expenditure is found to be revenue in nature, then section 35AB may not apply. However, if it is found to be capital in nature then question of amortisation and spread over as contemplated by section 35AB, would certainly come into play". In case of Shriram Pistons and Rings Ltd. (supra), Delhi High Court was considering question whether amount paid by assessee to collaborator company is revenue expenditure or not, in context of use of technical know-how. It is held thus (page 371 of 307 ITR): "Applying various principles that have been laid down, we find that there was in fact no absolute transfer of any right in documentation given by Riken to assessee. assessee was entitled to use technical know- how for period of five years or for lesser period, in case agreement was terminated before that. assessee did not have free hand to sub-licence technical know-how and that was possible only with prior written permission from Riken. For all other matters, assessee was liable to treat as confidential all inventions, drawings, documents, specifications, etc., furnished by Riken to assessee. Even thought assessee was entitled to use name of Riken in marketing of its products but that right would cease upon expiry or termination of agreement. As already noted, agreement was valid only for period of five years but could be terminated earlier. There is no magic in word 'sold' used in clause 5.0 of agreement because on reading of agreement as whole, it appears to us that what was transferred to assessee was only right to use technical know-how of Riken and there was no sale of technical know-how which assessee could exploit. assessee's rights were hedged in with all sorts of conditions, clearly making it case of right to use technology and not sale of technical know-how." In case of Deputy CIT v. Sayaji Industries Ltd. (supra), it is held at paragraph 23 as under: "23. To our mind, therefore, provisions of section 35AB of Act can apply only in case of capital expenditure and of course, provided conditions set out therein are fulfilled. In such case, during period when section 35AB remained in operation, assessee could claim benefit thereof. However, such provision would not apply to revenue expenditure even if same was incurred for acquisition of technical know-how. Deduction on such expenditure was available even before introduction of section 35AB of Act and such deduction cannot be curtailed or limited by applying section 35AB. In that view of matter, taking such expenditure out of section 37(1) of Act, would not arise." In case of Drilcos (India) (P.) Ltd. (supra), Madras High Court relied on judgment of CIT v. Tamil Nadu Chemical Products Ltd. [2003] 259 ITR 582 (Mad) rendered prior to judgment of apex court in Swaraj Engines Ltd. (supra) and has observed that section 35AB of Act are applicable in context of case where no know-how was made available to assessee in manner required. said judgment of Madras High Court was carried in appeal before apex court wherein, it was held that (page 384 of 348 ITR): "it is true that on account of certain disputes which arose between parties, balance amount was not paid by assessee to American company. However, word "for" in section 35AB of Act, which is preposition in English grammar, has to be emphasised while interpreting section 35AB of Act. Section 35AB of Act says that expenditure should have been incurred for purposes of business of assessee. In present case, technical assistance agreement was entered into between assessee and American company for acquiring know-how which was, in turn, to be used in business of assessee. Once section 35AB of Act comes into play, then section 37 of Act has no application". This was case, where main focus of court was with respect to certain dispute as regards full payment of consideration not being paid by assessee to collaborator company. No finding is given on application of law rendered in case of Swaraj Engines Ltd. (supra). We have given our anxious consideration to relevant clauses of agreement and judgments cited at Bar. Now, first, we have to decide whether amount expended for procurement of technical knowhow is revenue expenditure or capital expenditure. agreement clauses referred to above make it clear that assessee had only right to use know-how procured from WCL and there was no absolute acquisition of technical know-how by assessee. technical know-how supplied by WCL to assessee-company is adequate knowledge of technical know-how, practiced by WCL at date of agreement for production of produce with certain conditions, which establishes that control was with WCL. consideration paid is for imparting knowledge of "know-how" to assessee's personnel. In clause 9 "manufacture", it is stipulated that subject to performance by assessee of his obligations under agreement, WCL shall grant licence to assessee to manufacture product during life of agreement. And during life of agreement, WCL shall not grant such licence in India to any other person, company, whether body corporate or not, partnership firm, Corporations, etc. without obtaining prior consent from WCL. "termination" clause at 11.2 stipulates that either party shall have right to give notice of termination (to operate 30 days after being given) if other party has committed serious breach of its obligations under this agreement and in "exclusion" clause, it is specified that no rights or licences are granted by WCL under or by virtue of agreement except those which are specifically set out therein, and no such rights or licences shall continue to have effect after termination of agreement except so far as specific provision is made for such continuing effect. reading of these clauses makes it clear that no absolute acquisition of technical knowhow was made by assessee. In our view, period of agreement itself is not determinative test to arrive at nature of expenditure whether revenue or capital. Considering over all clauses of agreement, we are of opinion that amount expended by assessee for procurement of technical know-how is in nature of revenue and not capital. Section 35AB of Act is applicable if expenses incurred are held to be capital in nature. As we have noticed, terms and conditions of agreement entered into between parties demonstrates that amount expended are revenue in nature and does fall under section 37 of Act as held by apex court in case of Swaraj Engine Ltd. (supra). Another aspect of matter is that to attract provisions of section 35AB of Act, three main factors i.e, (1) payment of lump sum consideration, (2) acquiring any know-how, and (3) for purpose of business, have to be compulsorily satisfied. As noticed above, there is no absolute acquisition of technical know-how by assessee, no enduring benefit has accrued to assessee. No ownership or domain right was enjoyed by assessee. In such circumstances, we are of view that amount expended by assessee towards procurement of "know-how" is revenue in nature and section 35AB of Act is not attracted. arguments advanced by Revenue that irrespective of expenditure, whether revenue or capital, if it is technical know-how section 35AB of Act are attracted, cannot be accepted in view of law laid down by apex court in case of Swaraj Engines Ltd. (supra). Budget speech of Finance Minister, memo explaining provisions in Finance Bill and Central Board of Direct Taxes Circular dated June 12, 1985, fortifies that section 35AB is enabling provision inserted with effect from April 1, 1986, to provide further encouragement for indigenous scientific research and not to limit or curtail powers of section 37 of Act already existing. reading of section 37 of Act makes it more clear that any expenditure not being expenditure of capital nature described in sections 30 to 36 shall be allowed in computing income chargeable under head "Profits and gains of business or profession". It means that section 35AB is applicable only if expenditure is in nature of capital expenditure. Though Commissioner of Income-tax (Appeals) has held that expenditure incurred by assessee is revenue in nature, falling under section 37 of Act, Tribunal failed to appreciate same in right perspective and has come Tribunal failed to appreciate same in right perspective and has come to conclusion that section 35AB being specific provision for technical knowhow, general provision of section 37 of Act is not applicable, which is not sustainable, in view of judgments discussed above and in terms of contract. We are thus to allow this appeal for two reasons. Firstly, there is no "acquisition" of technical know-how as contemplated under section 35AB of Act, and, secondly, section 35AB would not apply to revenue expenditure. As we have discussed earlier, judgment of apex court in Drilcos (India) (P.) Ltd. (supra) is distinguishable and not applicable to facts of case. On other hand, later judgment of apex court rendered in case of Swaraj Engines Ltd. (supra) is squarely applicable to facts of case. For foregoing reasons, we allow this appeal by setting aside order of Tribunal and answering substantial questions of law in favour of assessee and against Revenue holding that expenditure incurred by assessee towards procurement of technical know how by paying lump sum consideration for use in course of business is revenue expenditure falling under section 37 of Act and provisions of section 35AB of Act are not applicable to present case. Accordingly, appeal stands allowed. *** Diffusion Engineers Ltd. v. Deputy Commissioner of Income-tax