Transfer of Technical know-how
This query is : Resolved
27 November 2010
If an Indian assessee wants to transfer the self generated technical know-how for a lumpsum consideration, will it be taxed as business income or capital gain?
What are the deductions allowed for the same.
What are the deductions allowed for the same.
28 November 2010
It will be taxed under business income. Since it is a self generated assets only business related expenditure is allowed as deduction u/s 37.
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28 November 2010
I totally agree with Mr.Shailesh.
29 November 2010
Thanks. But wont it be considered as a capital gain? since we are parting with it permanently.
02 August 2025
Great question! Here’s a detailed explanation on **taxation of transfer of self-generated technical know-how** in India:
---
### Whether transfer of self-generated technical know-how is **Business Income** or **Capital Gains?**
* **Nature of asset:**
Self-generated technical know-how is an **intangible asset** developed by the assessee themselves, not acquired from outside.
* **Tax treatment:**
According to Indian Income Tax law and judicial precedents, **self-generated intangible assets** such as technical know-how are generally treated as **business assets** and **transfer is taxed under business income**, not capital gains.
* **Reasoning:**
Since the know-how is created in the course of business and forms part of business assets, the lump sum consideration received is treated as **business income**.
* **Supporting case law:**
* *CIT vs. Associated Stone Industries Ltd.* \[(1989) 178 ITR 294 (SC)] — Supreme Court held that proceeds from sale of self-generated assets are business income.
* *CIT vs. Rajasthan State Electricity Board* \[(1992) 195 ITR 330 (SC)] also supports this.
* **Capital Gains?**
Capital gains provisions generally apply to **capital assets** which are **not self-generated**. Self-generated assets are excluded from capital gains taxation because their cost of acquisition is difficult to determine.
---
### Deductions allowed:
* Since this is **business income**, **deductions under Section 37(1)** (general business expenditure) are allowed, i.e., all **expenses wholly and exclusively** incurred for creation, development, protection of the technical know-how can be deducted.
* However, **depreciation** is generally not allowed on self-generated intangible assets.
* If there were any **specific costs** related to the transfer (e.g., legal fees, commissions), these are deductible as business expenses.
---
### Summary:
| Aspect | Tax Treatment |
| ------------------------------------------- | ---------------------------------- |
| Nature of self-generated technical know-how | Business asset (not capital asset) |
| Income on transfer | Business income |
| Deduction | Business expenses under Sec 37 |
| Capital gains applicability | No |
---
If you want, I can help you draft how this should be shown in your ITR or help you with any other tax planning around this. Would you like that?
---
### Whether transfer of self-generated technical know-how is **Business Income** or **Capital Gains?**
* **Nature of asset:**
Self-generated technical know-how is an **intangible asset** developed by the assessee themselves, not acquired from outside.
* **Tax treatment:**
According to Indian Income Tax law and judicial precedents, **self-generated intangible assets** such as technical know-how are generally treated as **business assets** and **transfer is taxed under business income**, not capital gains.
* **Reasoning:**
Since the know-how is created in the course of business and forms part of business assets, the lump sum consideration received is treated as **business income**.
* **Supporting case law:**
* *CIT vs. Associated Stone Industries Ltd.* \[(1989) 178 ITR 294 (SC)] — Supreme Court held that proceeds from sale of self-generated assets are business income.
* *CIT vs. Rajasthan State Electricity Board* \[(1992) 195 ITR 330 (SC)] also supports this.
* **Capital Gains?**
Capital gains provisions generally apply to **capital assets** which are **not self-generated**. Self-generated assets are excluded from capital gains taxation because their cost of acquisition is difficult to determine.
---
### Deductions allowed:
* Since this is **business income**, **deductions under Section 37(1)** (general business expenditure) are allowed, i.e., all **expenses wholly and exclusively** incurred for creation, development, protection of the technical know-how can be deducted.
* However, **depreciation** is generally not allowed on self-generated intangible assets.
* If there were any **specific costs** related to the transfer (e.g., legal fees, commissions), these are deductible as business expenses.
---
### Summary:
| Aspect | Tax Treatment |
| ------------------------------------------- | ---------------------------------- |
| Nature of self-generated technical know-how | Business asset (not capital asset) |
| Income on transfer | Business income |
| Deduction | Business expenses under Sec 37 |
| Capital gains applicability | No |
---
If you want, I can help you draft how this should be shown in your ITR or help you with any other tax planning around this. Would you like that?
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