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2022 (4) TMI 612 - ITAT DELHIDisallowance of expenditure as capital expenditure being 25% of royalty amount paid - account of use of technical know-how and technical process of licensor - HELD THAT:- All the features of the agreement make it unequivocal that what the assessee, in essence, has acquired under the agreement is a mere right to use the licensed technical know-how in question. A mere access to the technical knowledge by virtue of such license agreement, in our view, could not permit the revenue authorities to artificially assume certain part of the expenditure as advantage of capital nature or something akin to acquisition of any asset or advantage of enduring nature for the benefit of its business. In the case in question, it cannot be said that the Sweden Company had relinquished its command over the impugned technical know-how information in favour of the assessee in any manner. In the absence of any vested advantage to assessee or any indefeasible right, it is farfetched to hypothetically presume any component of capital expenditure implicit in the outgo towards royalty. We find considerable merit in the plea of the assessee for claiming the entire royalty expenditure for use of technical know-how as revenue expenditure. We also find that the judgment rendered in the case of CIT vs. Southern Switchgear Ltd [1983 (3) TMI 18 - MADRAS HIGH COURT] as affirmed by SC [1997 (12) TMI 106 - SC ORDER] weighed in the mind of CIT(A) is in different factual backdrop with real difference. In that case, the assessee was entitled to use the benefit flowing from license even after the termination of license agreement. This feature is the dividing line for inapplicability of decision in Southern Switchgear. Hence, there is no scope of treating the royalty paid for the 'licensed information' as capital expenditure in the facts of the case. Appeal of assessee allowed.
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