TMI Blog2015 (6) TMI 960X X X X Extracts X X X X X X X X Extracts X X X X ..... of company. We find that this issue is squarely covered by the decision of Hon’ble Jurisdictional High Court in the case of JK Synthetics (2008 (12) TMI 21 - DELHI HIGH COURT), wherein held expenditure incurred for grant of License which accords ‘access’ to technical knowledge, as against, ‘absolute’ transfer of technical knowledge and information would ordinarily be treated as revenue expenditure. This issue is also covered by the decision of Hon’ble Jurisdictional High Court in CIT vs. Goodyear India Ltd., (2000 (3) TMI 47 - DELHI High Court ), wherein it has been held that consideration paid for betterment of the product was in revenue field. - Decided in favour of assessee. - ITA No. 1328 /Del/2011 - - - Dated:- 30-11-2012 - SHRI S.V. MEHROTRA AND SHRI KUL BHARAT, JJ. For the Appellant : Shri Sanjay Kumar Jain, Sr. DR For the Respondent: Sh. S.K. Agarwal, CA ORDER PER S.V. MEHROTRA, A.M. This appeal filed by the Revenue is directed against the order of ld. CIT(A) dated 11/01/2011 for A.Y. 2005-06. 2. Brief facts of the case are that the assessee-company, in the relevant assessment year, was engaged in the business of manufacturing, exporti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustries. (ii) The right to manufacture allowed under this agreement is connected and has nexus with receipt of technical information. Without right to manufacture and sale of products, technical information and know how are of no use and hence the payment of Technical Fees is of capital nature. 6. He, therefore, treated the sum of ₹ 43,75,000/- paid as technical fees being capital in nature and disallowed the assessee s claim. 7. Before ld. CIT(A), the assessee, inter-alia, submitted that under the agreement, assessee had merely acquired an exclusive and nontransferable right and license to use DIL s Technology and Technological Assistance. It was submitted that agreement did not result in any acquisition of know-how by the assessee and DIL continue to be the owner of such technology or technical information. Thus, in sum and substance, it was submitted that assesssee had not acquired any asset or benefit of enduring nature and had merely been granted the non-transferable license for the use of an asset owned by DIL. 8. Before ld. CIT(A) the assessee had also relied on following clauses of the agreement in support of its contention: - In order to substantia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ements: - CIT vs. Tata Engineering and Locomotive Co. P. Ltd. [123 ITR 538] DCIT vs. Max India Limited [105 TTJ 1002] Goodyear India Ltd. vs. ITO [73 ITD 189] Amtrex Appliances Ltd. vs. DCIT [94 TTJ 396] Honda Siels Cars India Ltd. vs. ACIT [ITA No. 3173/D/07] Assam Bengal Cement Co. Ltd. vs. CIT [27 ITR 34] Empire Jute Co. Ltd. vs. CIT [124 ITR 1] CIT vs. Ciba India Ltd. [69 ITR 692] Shriram Refrigeration Industries Ltd. vs. CIT [127 ITR 746] Triveni Engineering Works Ltd. vs. CIT [136 ITR 340] S.R.P. Tools Ltd. vs. CIT [237 ITR 684] 10. The assessee in the alternative had also submitted that grant of exclusive and non-transferable right and license to use Daikin Technology relating to licensed products and existing products would fall within the purview of the definition of intangible assets as per sec. 32(1) clause (ii) of the Act. Accordingly, depreciation @ 25% on 43,75,000/- being intangible assets may be allowed. 11. Ld. CIT(A) noted that apart from technology transfer fee, a royalty of 4% by licencee s (i.e. the assessee) net ex-factory sale price was also payable for a period of 10 years from the effective date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or process of manufacture was sold by the licensor to the licensee. Expenditure on obtaining access to such secret process would ordinarily be construed as capial in nature; 12. He also relied on the decision in the case of CIT vs. Goodyear India Ltd. 243 ITR 239, wherein Hon ble Delhi High Court, inter-alia, upheld the following findings of the Tribunal: - (i) that the assessee had entered into an agreement with the American company for enlarging the range of its existing products and had only acquired the right to use technical knowledge to manufacture a new product in the same line of business. The Tribunal had, inter-alia, recorded the findings that the agreement was not made for manufacturing of an entirely new product; the consideration was paid for the betterment of the product in question and the assessee had only enlarged the range of its existing products and the expenditure was an outlay of business in order to carry it on to earn better profits. These were pure findings of the fact which had not been specifically challenged as being perverse. The Tribunal was justified in holding that the expenditure incurred by the assessee was revenue in nature. No question of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsolute transfer of technical know-how in favour of the assessee. The assessee had not acquired the technical know-how but only use of technology was allowed to the assessee. Ld. Counsel referred to page 8 of ld. CIT(A) s order, wherein various clauses from agreement have been reproduced to support his contention that there was no absolute transfer of technical know-how in favour of the assessee. 18. Ld. Counsel also referred to the decision of Hon ble Jurisdictional High Court in the case of CIT vs. J.K. Synthetics, 309 ITR 371 referred to by ld. CIT(A) at page 10 of his order and pointed out that since assessee got only access to technical knowledge as against absolute transfer of technical knowledge, the expenditure incurred by the assessee on technical fees was revenue in nature. 19. We have considered the rival submissions and have perused the record of the case. 20. The facts are not disputed. What is relevant is to see the intended object and effect of the agreement between parties, considered in the common sense manner having regard to business realities. For this purpose if we examine the various clauses of agreement, we find that as per article 2.1 the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th Article 20 21 hereof. 23. Article 22 dealt with effect of expiration or termination of agreement and article 22.2 read as under: - 22.2 For five (5) year period after the termination of JOINT VENTURE AGREEMENT for whatsoever reason, LICENSEE shall not sell any air conditioners to any place or customer located outside the TERRITORY nor shall sell the same to anyone whom LICENSEE knows or has reason to believe may intend to re-sell the same outside the TERRITORY. 22.3 Upon early termination of this Agreement for any reason to which LICENSEE is liable. LICENSEE shall cease to use DAIKIN TECHNOLOGY transferred hereunder and shall, at its sole expense, return and deliver to DAIKIN, without delay, all TECHNICAL DOCUMENTATION therefore, provided to it by DAIKIN hereunder, together with any reproduced copy thereof and shall not keep in its possession any duplicate copy or information whatsoever relating to TECHNICAL DOCUMENTS . 24. From the aforementioned discussion, it is evident that assessee was entitled only access to the technical knowledge and information from Daikin for manufacturing of licensed and existing products and it was not a case of absolute transfer of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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