Lumpsum technical know-how fees are deductible only u/s 35AB & not s. 37(1)

Drilcos (India) Pvt. Ltd vs. CIT (Supreme Court)

The assessee entered into a “Licence and Technical Assistance Agreement” with an American company pursuant to which the American company agreed to transfer technical know-how to the assessee in consideration of US $2,25,000 to be paid in three installments. The assessee paid the first installment amounting to Rs.17.49 lakhs. Subsequently, disputes arose between the contracting parties and the know-how was not transferred by the American company. The assessee claimed that as the technical know-how was not received, the amount paid was deductible u/s 37(1) and not under s. 35AB. The AO & CIT(A) rejected the claim though the Tribunal upheld it. The High Court reversed the Tribunal. On appeal by the assessee to the Supreme Court, HELD dismissing the appeal: