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2019 (10) TMI 855 - AT - Income TaxExpenditure of licence fee - revenue or capital expenditure - payment was made for limited license to use the technical information and regulatory approvals provided by the OLL - HELD THAT:- It is only in the case of the assessee acquiring the ownership of such know-how, the expenditure would fall in the domain of capital, lest the expenditure would be allowable Revenue deduction. Exclusiveness is otherwise of the license only impacts the company to position of the assessee in the market but does not result in creation of new profit earning apparatus. In CIT v. Modi Revlon (P) Ltd [2012 (9) TMI 48 - DELHI HIGH COURT] held that if ownership of know-how remains with the licensor, the royalty paid towards use of such know-how shall be allowable revenue expenditure notwithstanding that the licensee had an exclusive license. We are also not in agreement with the findings of the assessing officer that since the assessee had entered into the agreement to be in force for a period of 15 years, they had obtained a benefit of enduring nature in view of class 16.1 and 18.2 of the agreement where under the assessee is under an obligation to discontinue the use of technical information and regulatory approvals immediately in the event of termination of the agreement as stated therein. The benefit enjoyed by the assessee is co-terminus with the enforcement of the agreement. What is relevant to be seen here is whether the assessee held the rights under the agreements in perpetuity or at least further agreed period of 15 years in continuity or such an agreement had met with a premature termination and such a fact strengthens the argument of the assessee that no endurable benefit had accrue to the assessee under such an agreement. Technical information and the marketing approvals of a product provided by the licensor only facilitates greater acceptable of the products of the assessee leading to higher profitability in the existing business of distribution and marketing of products carried on by it, without addition to the profit earning apparatus and on this premise we return a finding that the length of advantage in terms of time derived by the assessee has no bearing on the question to decide the nature of expenditure incurred by the assessee by way of licence fee. No benefit of enduring nature had accrued to the assessee under the agreement dated 30/06/2012 entered into by the assessee with OLL and OTL and the licence fee paid by the assessee under such an agreement is in the nature of Revenue expenditure, which is allowable. With this view of the matter, we allow the appeal of the assessee.
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