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2014 (11) TMI 191 - AT - Income TaxPayment of royalty - Capitalization of royalty expenses – Held that:- The assessee company is a manufacturing company and engaged in the engineering tools - It is a 100% export oriented unit located in Gurgaon, Haryana - This unit is eligible for exemption u/s 10B of the Act on the profit earned - The assessee company was paying the royalty expenses to MACNAUGHT on the various products sold by it as agreed with MACNAUGHT on 19.11.2002. MACNAUGHT is an Australian company - It has no connection with the management of the assessee company - This royalty is being paid by the assessee for putting the trademark MACNAUGHT on the products of the assessee and using drawing etc. - This royalty was linked to the volume of sales- The assessee is using the knowhow, trademark and licenses without any right to the license - The rights remained with the licensor, this payment of royalty cannot be treated as capital in nature - It was paid for use of technology and trademark, therefore, it was revenue expenses - this expenditure has been incurred wholly and exclusively for the purpose of business of the assessee - The assessee has deducted TDS and deposited the same with the Government - The genuineness of the payment is also not in doubt - the CIT (A) was not justified in sustaining/enhancing the addition and the AO was not justified in treating the amount as capital in nature – Decided in favour of assessee.
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