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2016 (7) TMI 393 - ITAT DELHIAddition towards payment for Management Consultancy and Business Auxiliary Services - tpa - Held that:- The material produced before the TPO in support of the claim for deduction of expenses, which was found by the AO to be unsatisfactory, was found satisfactory in the MAP proceedings which accepted the genuineness of availing such Management Consultancy and Business Auxiliary Services. In that view of the matter, the AO’s case that the assessee was not entitled to corporate deduction of ₹ 18.09 crore, automatically fails. It is further relevant to mention that similar claim was made by the assessee for payment of Managerial Services and Business Auxiliary Services in its accounts for the immediately succeeding assessment year 2009-10, which was accepted by the AO as such. A copy of the final assessment order passed by the AO for the AY 2009-10 has been placed on record from which it is palpable that no corporate disallowance was made in respect of payment of Managerial Services and Business Auxiliary Services. In view of the foregoing discussions, we are satisfied that the AO was not justified in making the corporate disallowance of ₹ 18.09 crore which is hereby deleted. At the same time, it is made clear that the disallowance of ₹ 71 lac and odd sustained in MAP proceedings will continue and the AO will make addition for this sum. In other words, the corporate disallowance of ₹ 18.09 crore will stand deleted and the addition on account of transfer pricing adjustment would be reduced to ₹ 71 lac. - Decided in favour of assessee Disallowance on account of payment for technical know-how and trademark/logo - Held that:- All the salient features of transfer of technical know-how, show that the assessee paid 3% of selling price of the Joints sold by it for the ‘use of’ technical know-how provided by the Licensor, which is not a consideration for acquiring any know-how. It is a case of parting by the Licensor, for consideration, with the partial ownership of technical know-how, that is, for allowing only a right to use to the assessee; and not a case of parting with full ownership of technical know-how, that is, for transferring the ownership to the assessee. Hence, the amount so paid is eligible for deduction as a revenue expenditure. Payment made by the assessee to GKN Holding, UK, towards royalty for trademark/ brand - When we consider all the relevant clauses of the trademark royalty Agreement, it becomes manifest that the assessee did not acquire any ownership right in trademarks by paying the consideration as set out therein. Such payment was made simply for the use of the trademarks, and that too, by means of a non-exclusive License. It has been made clear in the Agreement that the ownership in the trademarks shall remain the intellectual property of the Licensor and the assessee shall have a mere right to use them. Further, upon the termination, the Licensee shall cease to make any use of such trademarks. Thus, it is patent that the payment has been made by the assessee for ‘use of ’ trademarks and not for acquiring trademarks as an owner. It goes without saying that any payment made for a mere use of an asset falls in the realm of a revenue expenditure and cannot be treated as a capital expenditure. We, therefore, hold that whole of the payment of ₹ 5.19 crore made by the assessee for use of trade mark is a revenue expenditure. - Decided in favour of assessee As we have held hereinabove that the payment for use of knowhow and trademarks is a revenue expenditure, the disallowance made by the AO to the tune of ₹ 4.79 crore, after allowing depreciation at the rate of 25%, shall be deleted. Consequently, the unwritten off portion of this amount carried forward to subsequent years, should also be removed for the purposes of granting depreciation in later years, so that no double allowance is made, once in the year under consideration by allowing the deduction in entirety by treating it as a revenue expenditure and then again as depreciation in the later years by treating it as a capital expenditure. However, the amount of transfer pricing adjustment retained in the MAP proceedings for the year under consideration shall stand as disallowance. The AO is directed to make addition on this score only to the extent of the transfer pricing adjustment retained in the MAP proceedings.
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