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2017 (1) TMI 729 - HC - Income TaxAmount paid towards "Technical know-how" and 'Royalty' - whether should be treated as "Revenue Expenditure" or "capital expenditure"? - Held that:- As find from record that at the time of entering into "Technical Know-how" agreement, HMCL had only 60% of share holding in HSCIL/Assessee but only in AY 2004-2005, it increased its share holding to 99% and above and thus got virtually entire control and ownership over the alleged joint venture. A.O. has found this exercise as diversion of profit. Assessee explained it to be in accordance with Government policy. Even if the same aspect is ignored, as a relevant consideration for deciding the questions up for consideration before us, yet we find that reasons given in the light of various clauses of the agreement so as to treat "Technical Know-how" fee as "Capital Expenditure" is well founded but unfortunately Tribunal while taking otherwise view has impressed itself with superficial approach treating ownership of "Technical Know-how" fee by parent company and limited tenure etc. without appreciating various clauses of agreement in entirety and thus has erred in law. A.O and CIT(A) were justified in recording their finding and reasons to treat payment of "Technical Know-how" fee and 'Royalty' as "Capital Expenditure" and not "Revenue Expenditure". Reasonings given by the said two authorities similar to what we have also noticed in addition to our discussion have our affirmance. The view taken by Tribunal otherwise is unsustainable and cannot be accepted. No hesitation to hold that both the payments to foreign company are in respect of a benefit which is not only of enduring nature but for the purpose of acquiring of an asset and hence a 'Capital Expenditure' and not 'Revenue Expenditure'. - Decided against Assessee
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