TMI Blog2010 (12) TMI 534X X X X Extracts X X X X X X X X Extracts X X X X ..... 5% towards regular course of process of production and 25% towards enduring benefit - Appeal is partly allowed - ITA No. 5007/Del/2007 - - - Dated:- 31-12-2010 - G.E. Veerabhadrappa, I.P. Bansal, JJ. Ajay Vohra, Adv., for the Appellant Amrendra Kumar, Sr. DR, for the Respondent ORDER I.P. Bansal: Captioned appeal was fixed to carry out the directions of Hon'ble Delhi High Court given in ITA No.677/2009. Hon'ble High Court vide paragraph 12 has set aside the order passed by the Tribunal dated 12.12.2008 passed in aforementioned ITA number on the issue relating to disallowance of a sum of Rs.20,60,010/- which was paid by the assessee as royalty to M/s Simelectro France (for short "SO") in pursuance of an agreement of the said concern with the assessee dated May, 1993 supplemented by another agreement dated 20.11.1995. Paragraph 12 of the order of Hon'ble High Court is reproduced below for the sake of convenience:- "12. We are, therefore, of the opinion that while apportioning the sum between capital and revenue expenditure, the Tribunal should have given the rationale for coming to such a conclusion. As that has not been done, we set aside the im ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the extent of 25% was only made by the AO and therefore, the disallowance was upheld to that extent, whereas in the case of the assessee, the AO had disallowed the entire amount being capital in nature and 100% disallowance was upheld by the CIT(A). Whereas the Tribunal though has upheld the disallowance only to the extent of 25% but it has not given any rationale for coming to such a conclusion. As rationale has not been given, the aforementioned order of the Tribunal has been set aside to provide such rationale behind upholding the disallowance only to the extent of 25%. It is therefore the present appeal was fixed. Both the parties were heard on the fixed date of hearing i.e. 27.12.2010. 4. After narrating the facts, it was the case of the learned DR that though Tribunal has rightly held that the nature of amount paid by the assessee was a capital expenditure but the allocation of 25% towards capital was not sufficient as the case of the Revenue is that the expenses so claimed by the assessee were capital in their entirety. 5. On the other hand, it was the case of the learned AR that if the facts of the case of the assessee are seen in the light of various judicial prono ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ving considerable experience in that field, both the parties intended to cooperate with each other to attain long term objectives and such intention of the parties has been described in recital part of the agreement. For better appreciation of the issue, the following clauses of the agreement are reproduced:- "1 - SUBJECT MATTER OF THIS AGREEMENT Parties shall cooperate with each other in the following equipment, irrespective of whether projects where these are utilized or financed by local Indian means or under International funding and also whether CS and/or SO are main contractors: - Isolated Phase Metal Enclosed Busbars used in all electrical power plants all together referred to as "Products". 3 - PRINCIPLES OF COOPERATION 3-1 The Parties shall cooperate solely with each other in the subject matter specified above both for search and negotiation and for the performance of contracts. 3-2 As soon as an enquiry or tender is received by CS they shall forthwith convey the same to SO in the SO format. Likewise, SO will inform CS of any job in India coming through directly or indirectly or through other Contractors. Simultaneously, the Parties would advise eac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for which CS decide to quote and participate under clause 3.4 CS shall seek from SO and SO shall provide all pre-order and post-order assistance as provided for in this Agreement. 5.2 CS shall under this Agreement have access to SO designs, changes therein and other general guidance it may require. Technical information which will be made available by SO to CS would comprise the following: 1 - Pre-order assistance/services: a) Sizes, cross-sectional details and other general information required for preparing the tender and getting the order in line with SO practices. b) Costs and items CS may want to import. c) A letter as per Annexure-1, if required by CS customer, confirming SO assistance. 1.1 - Post-order Assistance/Services. In the event of order, if CS require SO assistance/services or CS are required to seek the same by their customer, the same would be paid for on the basis of minimum manhours SO require to provide such service. SO would convey the estimate in advance. The assistance/services may be of following nature: a) Vetting of all design calculations and drawings prepared by CS. b) Making drawings and providing designs with sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tract on the basis of the net contract value as clearly mentioned and identified in the contract. The net contract value shall mean the total value of the contract less landed cost of any imported items. CS shall pay SO the royalty as computed for such order, on a prorata basis, within 30 days of receipt of each payment as per the payment schedule written in the order. All payments shall be in French Francs to SO. The rate of exchange shall be the Market rate prevailing on the date of computation of the total amount payable. c) It is agreed that all to and fro air fares to India and local expenses in India of any SO personnel will be paid for by CS separately. d) For all engineering services and assistance requested by CS, to be performed by SO, as per Articles 3.4, 4.3 and/or requested as per Article 5.2(i.i) and (5.4) CS shall pay SO for such services and assistance. 8.2 SO will not be obliged to perform any service unless SO has received CS commitment to pay for it. 8.3 According to the Indian Law, if the liability to pay taxes lies with SO, CS shall be free to deduct such taxes at source on behalf of SO from all payments made under this Agreement and submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without any financial obligations to CS. 12.2 In case the pending patent applications filed with the Indian Patent Agency by other Indian domestic and foreign manufacturer may cause adverse impact on the part of CS in terms of the production or sales of the applicable types of Busducts under this Agreement, SO will assist and cooperate with CS by providing and submitting appropriate documentation and information. 12.3 After expiry of this Agreement, i.e. 10 years, according to Article 9 hereof, CS may continue to use the technical information/improvements and the Indian Patent rights of SO and SO may continue to use the information and patent rights of CS furnished to them under this Agreement free of charge. 12.4 In the event of prior termination of this Agreement under Article 9, CS undertakes to stop using the technique and the authority granted by SO under this Agreement." 9. It can be seen from the above clauses that the assistance provided by SO to CS was very vast in nature. The assistance so described in the agreement was not restricted merely for the purpose of production during the subsistence of the agreement but had provided enduring benefit to the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X
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