TMI Blog2013 (10) TMI 515X X X X Extracts X X X X X X X X Extracts X X X X ..... . T.E.I. Technologies P. Ltd. [2008 (2) TMI 275 - DELHI HIGH COURT] - Decided in favour of assessee. - ITA No.4674/Del/2005, ITA No.1705/Del/2007, ITA No.2619/Del/2007 - - - Dated:- 19-6-2013 - Shri I. C. Sudhir And Shri B. C. Meena,JJ. For the Petitioner : Shri Ajay Vohra, Advocate and Shri Gaurav Jain, CA For the Respondent : Shri D. K. Mishra, CIT DR ORDER Per B. C. Meena, Accountant Member :- ITA No.4674/Del/2005 (Assessment Year 2002-03) This appeal filed by the assessee emanates from the order of CIT (Appeals)-8, New Delhi dated 14.10.2005 for the Assessment Year 2002-03. 2. Brief facts of the case are that the assessee is a limited company engaged in the business of manufacturing and sale of shock absorbers, struts and window balancers. The return of income was filed declaring income at Rs.38,50,98,452/-. Assessment was finalized at income of Rs.40,08,88,110/-. In the assessment, the Assessing Officer added 25% of the royalty paid amounting to Rs.1,21,60,191/-, 25% of technical fees paid amounting to Rs.1,09,553/- and 25% of the design and drawing fees paid amounting to Rs.32,70,627/- treating the same as capital in nature. The CIT (A) confirmed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the payment of royalty and held that it was capital expenditure and not revenue expenditure. The respondent/assessee had succeeded before the tribunal vide decision dated 09.01.2009. The Revenue's appeal being ITA No. 56/2009 has been dismissed by a detailed order of a Division Bench, after examining the relevant clauses of the then agreement. It has been held that the royalty paid was, in fact, revenue and not capital expenditure. It has been stated that this decision has been accepted by the Revenue. We fail to understand why, despite this matter being settled in the previous assessment years, the Revenue feels compelled to stir up the same dispute in subsequent assessment years." He further submitted that the terms of Agreement continued the same as entered into 1995. The ld. DR could not bring out any difference between the agreements entered into in 1995 and remained effective for subsequent years also. This agreement was also effective for the year under consideration. In view of these facts, we are unable to uphold the order of the authorities below. In the assessee's own case, the payments were held to be revenue in nature. In the subsequent year also, the clauses of A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The terms "Know-how" means those designs, drawings, standards, specifications and all other technical data, information and knowledge relating to Products design and / or the manufacturing technology of the Products or the Parts (except for the Industrial Property Rights hereinafter defined) which are necessary for the manufacture, assembly, inspection, maintenance, repair or service of the Products or the parts and which LICENSOR owns as of the date of the execution of this contract or will develop or obtain during the term of the Contract and is entitled to license to LICENSEE, and all documents, whether original or copies, containing any such drawings, standards, specifications and technical data, information or knowledge relating to the manufacturing technology. However, excluded are such information and knowledge which may be made public without act or negligence on the part of the LICENSEE. 5. The term "Technical service" means the following: -1. Training of technicians -2. Purchase of facilities and machinery with LICENSEE fund -3. Installation of facilities -4. Design and construction of factory -5. Technical advice and service for start-up of facilities and f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndustrial Property Rights and know-how shall be granted by LICENSOR solely for the purpose of the manufacture, assembly and sale of the Products and the Parts in accordance with and the during the term of this Contract. It is also hereby agreed that the payment of royalty made by LICENSEE under Article 21 hereto shall constitute full compensation for use by LICENSEE by patent rights register in the Territory and forming part of the Industrial Property Rights until the expiring of such patent rights. Article 19. Consideration 1. In consideration for the technical assistance provided by LICENSOR to LICENSEE pursuant to Article 7 hereof, LICENSEE shall pay to LICENSOR the royalty in the amounts and percentage specified below: A) Royalty 1. LICENSEE shall pay royalty to LICENSOR for the products manufactured and assembled within the territory. But the payment of royalty shall become due when the products are sold. II. Royalty to be paid by LICENSEE to LICENSOR shall be three (3) per cent of the ex-factory sales price of the Products invoiced by the LICENSEE." 6. The tribunal, after referring to the said terms of the agreement, came to hold that the assessee was merely gra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c to ignore the rapid advances in research in antibiotic medical microbiology and to attribute a degree of endurability and permanence to the technical know-how at any particular stage in this fast-changing area of medical science. The state of the art in some of these areas of high priority research is constantly updated so that the know-how cannot be said to be the element of the requisite degree of durability and nonephemerality to share the requirements and qualifications of an enduring capital asset. The rapid strides in science and technology in the field should make us a little slow and circumspect in too readily pigeon- holing an outlay such as this as capital. The circumstance that the agreement in so far as it placed limitations on the right of the assessee in dealing with the know-how and the conditions as to non-partibility, confidentiality and secrecy of the know-how incline towards the inference that the right pertained more to the use of the know how than to its exclusive acquisition." 9. In the case of Jonas Woodhead And Sons (India) Limited v. Commissioner of Income Tax, [1997] 224 ITR 342 (SC), the Apex Court, after referring to the decisions in Empire Jute Co. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s turnover of the products of the assessee as royalty. In our considered opinion, in the facts and circumstances of the case the High Court was fully justified in answering the reference in favour of the Revenue and against the assessee." 10. In T.E.I. Technologies P. Ltd., (supra), the Division Bench of this Court was dealing with a scenario where the assessee had entered into a joint venture agreement with the foreign company to carry out manufacturing operation of CRT sockets, electronic components like TV remote control, etc., for the domestic market as well as for exports. The assessee had paid the technical support fee to the foreign companies, namely, Tyco Asia Investment Ltd. as well as Elentec Co. Ltd. The assessing officer held that the benefit received by the assessee was of an enduring nature and, therefore, the amount was treated as a capital expenditure and not as a revenue expenditure. The CIT(A) reversed the finding of the assessing officer on the foundation that there was no transfer of technical know-how in the setting up of the plant and machinery but the payment was only to enable the assessee to manufacture the products. In other words, the technical support ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terminated before that. The assessee did not have a free hand to sub-licence the technical know-how and that was possible only with the prior written permission from Riken. For all other matters, the assessee was liable to treat as confidential all inventions, drawings, documents, specifications etc. furnished by Riken to the assessee. Even though the assessee was entitled to use the name of Riken in the marketing of its products but that right would cease upon the expiry or termination of the agreement. As already noted, the agreement was valid only for a period of five years but could be terminated earlier. There is no magic in the word "sold" used in clause 5.0 of the agreement because on a reading of the agreement as a whole, it appears to us that what was transferred to the assessee was only a right to use the technical know-how of Riken and there was no sale of the technical know-how which the assessee could exploit. The Assessee's rights were hedged in with all sorts of conditions, clearly making it a case of right to use the technology and not sale of the technical know-how. That being our conclusion, we are in agreement with the view expressed by the Tribunal that ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessment Year 2004-05." The ld. AR submitted that all the relevant facts are on record, no fresh investigation is required and this ground was necessitated after the decision of CIT (A) in Assessment Year 2004-05 wherein the CIT (A) has directed the Assessing Officer to allow the expenses in Assessment Year 2003-04. 7. After hearing both the sides, we admit the additional ground. Assessee has also taken the ground no.2 in ITA No.2619/Del/2007 for not deleting the addition. The ground read as under :- "2. That on the facts and circumstances of the case the CIT (A) erred in upholding the action of assessing officer in disallowing Rs.1,01,83,270/- out of power and fuel expenses for computing income for the previous year under consideration on the ground that the same is allowable in assessment year 2003-04." 8. Brief facts of this issue are as under. In the Assessment Year 2004-05, the assessee has claimed Rs.1,01,83,270/- under the head power and fuel. This expenditure was on account of notice issued by SDO, Maruti, Sub Division, Gurgaon for payment of Rs.1,01,83,270/- on 18.04.2003 due to assessment for the slowness of the meter by 31.097% and the other amount of Rs.34,71, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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