The assessee has transferred a know-how under development (i.e. the know-how was not complete and would require further work and development to become commercially exploitable) and claimed the consideration as exempt capital receipt. The Assessing Officer taxed the receipt as taxable u/s 41(3) as sale of asset representing capital expenditure of scientific nature covered u/s 35. On appeal, the CIT (A) held that section 41(3) will not apply as the know-how was a self-generated asset and thus deduction u/s 35 could not have been claimed. However, the receipt from transfer of the know-how will be taxable as capital gains. Further, based on the provisions of section 55(2)(a), the CIT(A) held that the cost of acquisition will be Nil in case of ‘right to manufacture, produce or process any article or thing’. Aggrieved, the assessee and the Revenue were in appeal against the CIT(A) order. The Tribunal held that the know-how is only under development and does not generate a right. Further, as the know-how was not registered, right cannot be conferred upon the owner. Thus, the Tribunal held in case of know-how under development, cost of acquisition cannot be Nil in terms of section 55(2)(a). As the cost of acquisition is not ascertainable, capital gains would not be chargeable. (AY. 2006-07)