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2020 (11) TMI 951 - HC - Income TaxNature of expenditure - Revenue expenditure u/s 37(1) or capital expenditure - royalty payment for user of technical know-how and intellectual property rights along with the right to manufacture for a temporary period - HELD THAT:- Distinction between capital and revenue expenditure with reference to acquisition of technical information and know-how has been spelled out in various cases and the primary test to ascertain whether a expenditure is a capital expenditure or revenue expenditure is the same viz., enduring nature test, which means where the expenditure is incurred which gives enduring benefit, it will be treated as capital expenditure.See HONDA SIEL CARS INDIA LTD. [2017 (6) TMI 524 - SUPREME COURT]. In the present case from perusal of the relevant clauses of the agreement, it is clear that the assessee is a joint venture company and under the agreement has been granted non transferable licence to manufacture / assemble the Hitachi licence products within the territory using technical know-how furnished by Hitachi and to sell otherwise dispose of the Hitachi licence products. The products shall be sold only under the trade / brand name of Tata Hitachi - even expiry of the 11 years from the date of commercial production, the assessee is entitled to continue the manufacture and sale of Hitachi licence products for the aforesaid term of the agreement. Under the agreement, the assessee has incurred an expenditure which gives him enduring benefit, therefore, the same has to be treated as capital expenditure. AO as well as the tribunal rightly held that payment of royalty made by the assessee is a capital expenditure and is not a permissible deduction under Section 37(1) - Decided against the assessee.
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