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2018 (7) TMI 2035 - PUNJAB AND HARYANA HIGH COURTPayment of royalty on account of obtaining technical know-how - nature of expenses - revenue or capital expenditure - deciding factor regarding nature of expenditure - HELD THAT:- From the clauses of MoU quoted earlier in the order, it is evident that the appellant established a joint venture with the foreign company for manufacture of lacquers, varnishers, paints etc. It has not been disputed that the appellant-company was incorporated after signing the MoU. The foreign company transferred all technical information for manufacture of planned products which included composition/specification of the material, equipment required, techniques of production and tests & procedures of quality control. Apart from this, the authorities noted the fact that Mrs. Heinz Kohler was deputed for supervising the new products and development to be undertaken by the appellant. As per the MoU, the appellant got exclusive right to sell the products in India. The appellant could use brand name 'BERLAC' for the purpose of sales. The appellant had a right to sell the manufactured products in other countries in mutual agreement with foreign company. The foreign company was assisting the appellant-company for setting up R&D facility for development of new lacquers in India. The appellant had a right to sub-licence the manufacture of planned products. MoU with foreign company resulted in setting up of new business in shape of joint venture. It was not merely transfer of technical know-how, but it extended to the level of rendering valuable services including setting up of factory. Though, the royalty was to be paid over a period of seven years, there was no restriction on the appellant to continue with the manufacture and sale of products thereafter also. In the present case, the expenditure was incurred at the pre-production stage and hence is being held as capital expenditure. In view of the decisions of the Supreme Court in M/s Jonas Woodhead and Sons Ltd., Madras [1997 (2) TMI 4 - SUPREME COURT] and Honda Seil Cars India Limited [2017 (6) TMI 524 - SUPREME COURT] no blemish can be cast upon by the findings arrived by Tribunal holding that the payment of royalty was capital in nature. Since the payment of royalty was being made on percentage basis of sales, therefore, payment was revenue in nature, is not well founded. Though, the CIT(A) had allowed the appeal merely on that basis but had erred as the mode of payment either being made in lump sum or in installments or on percentage of sales, is a decision taken by the parties, as per their commercial expediency. It would not be the sole deciding factor regarding nature of expenditure. - Decided against assessee.
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