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2014 (10) TMI 651 - AT - Income TaxTransfer pricing adjustments - Restriction of payment of royalty to 2% instead of 5% and 4% of net sales – Held that:- The assessee was being rendered technical assistance through the royalty agreement entered into with Owens Corning Invest Cooperatief U.A., Netherlands and the royalty agreement has been in application from 1.7.2008 - the TPO was incorrect in going into the business expediency of payment of royalty and arriving at the conclusion of the quantum of the royalty – relying upon CIT vs. EKL Appliances [2012 (4) TMI 346 - DELHI HIGH COURT] - if the expenditure has been incurred or laid out for the purposes of business it is no concern of the TPO to disallow the same on any extraneous reasons - the assessee has claimed that the royalty payments were based on agreement which was approved by RBI and hence the TPO cannot question the same. Once the RBI approval of royalty rate was obtained the payment was considered to be held at arm's-length - the TPO erred in holding that no tangible benefits were derived by the assessee out of royalty payments made by it and restricted the payment to 2% of net sales – the transactions made under Royalty agreement approved by RBI are to be considered to be at arm's-length – Decided partly in favour of assessee. Claim of depreciation @ 25% - Whether non-compete fees paid by the assessee company is eligible to claim depreciation at 25% or not – Held that:- As decided in assessee’s own case for the earlier assessment year, it has been held that applying this principle of construction, if the business or commercial right of a patent, trademark, license, franchise etc, fulfilled the condition of being intangible assets, then, the payment made by the assessee company towards non-compete fee also fulfilled the condition by way of a logical corollary - the non-compete right is eligible for depreciation u/s 32 (1) (ii) of the act - when the provisions of the Act make the assessee eligible for depreciation in respect of an intangible asset, assessee has to be allowed the same, notwithstanding any ambiguity which the Income-tax Rules may give rise to, since the statutory legislation, viz., provisions of a statute prevail over the rules framed thereunder - the revenue allowed depreciation for the aforesaid intangible asset in the scrutiny assessment as well - Even though principles of res judicata have no application to income-tax proceedings, principle of consistency has to be respected and followed - payments made towards acquiring marketing network rights have also to be treated as payments made for acquiring commercial/business rights akin to know-how, patent, trade mark, licences, franchises, etc. which are eligible for depreciation – thus, the order of the CIT(A) is to be set aside and the AO is directed to allow the claim for depreciation on payments made by the assessee by way of non-compete fee and for acquiring rights over market network – Decided against revenue.
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