TMI Blog2012 (12) TMI 1029X X X X Extracts X X X X X X X X Extracts X X X X ..... f income on 30.11.2004 declaring income of ` 6,04,97,857/-, which was assessed at ` 13,38,27,110/- in the order passed under section 143(3) of the Act by making the various additions. On this issue Assessing Officer asked the assessee to show cause as to why the payment of ` 216765792/- on account of technical and marketing fee paid to M/s Seagram Manufacturing Pvt. Ltd. should not be treated as capital expenditure being paid for trade mark and technical know how fees in the facts and circumstances of the case. Assessee responded that it was not personal or capital expenditure; no capital asset was generated; that the expenditure is of enabling in nature to assessee without the same, assessee could not conduct its business. Furthermore, assessee relied upon several case laws. However, the Assessing Officer was not satisfied and he referred to the agreement in this regard and observed that it is clear from the said agreement that the assessee company itself admits that the claim of technical and marketing fee payment was paid to the parent company for using its trade mark and technical know-how. Assessing Officer observed that it is a settled law any payment made for the purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the provisions of section 32 grants depreciation on specified capital asset, if there exists one. That the section cannot be referred to for holding a particular expense as capital expense. 4.2 Ld. Commissioner of Income Tax (A) further observed that in this case ownership of trademark does not vests with the assessee and is clearly evident from reading out of both the agreements. That therefore, no enduring benefit can accrue without being the owner. That the ownership of the trade marks, for which licence has been granted to assessee, continues at all times to vest with the original owner. That the assessee has been given only limited right to manufacture the liquor to be sold under these trademarks for a limited period of three years. That upon termination of the agreement licensee ceases use of the trademarks, the intellectual property, packages, labels etc. That thus, by manufacturing the liquor sold under these trademarks, no enduring benefit accrues to the assessee. Ld. Commissioner of Income Tax (A) further observed that from the assistance obtained the assessee may be able to run the business more efficiently by no means can it add to any tangible or intangible asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Technical and Marketing Assistance Agreement. (b) Non-exclusive, non assignable licence granted for use of trade marks for manufacture of products under the Trademark Licence Agreement. c) Seagram responsible for realizing / collecting trade receivables under the Technical and Marketing Assessee further submitted that the Hon ble Jurisdictional High Court vide order dated 19.8.2011 affirmed the view of the ITAT. Accordingly, Ld. Commissioner of Income Tax (A) held that assessee had not acquired any capital asset and thus deleted the addition in this regard. 5. Against the above order the Revenue is in appeal before us. 6. We have heard the rival contentions in light of the material produced and precedent relied upon. Ld. Counsel of the assessee submitted that the issue involved is squarely covered in assessee s favour by the decision of the ITAT in the case of Shaw Wallace Distilleries Ltd. vs. ACIT (Supra) which was affirmed by the Hon ble Jurisdictional High Court also. Hence, ld. Counsel of the assessee submitted that the order of the Ld. Commissioner of Income Tax (A) has to be upheld in this case. 7. Ld. Departmental Representativ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te assessee's production (business). It was to add efficiency to the business. The assessee had furnished sale figures on record to show that after the agreement assessee's sales took a quantum jump. Its profitability increased. Payment made was royalty for use of technical know-how and experience of SWC. The assessee did not acquire any benefit of enduring nature which could be termed as a capital asset. Neither the assessing officer nor the Commissioner (Appeals) in this order had brought any material on record to show that any asset of capital nature was acquired by the assessee. An adverse inference had been drawn against the assessee by the assessing officer for not disclosing the formula used in the manufacture of IMFL products. The agreement with the parties clearly showed that amount was paid as royalty for benefits which increased efficiency and saleability of products manufactured by the assessee and in increasing its turnover. On the facts of the case and in the light of case law cited, royalty paid by the assessee and claimed as a deduction was not a capital expenditure. 9. We further find that the aforesaid decision was affirmed by the Hon ble Jurisdictiona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cture the product, in respect of, which access to knowledge was obtained during the subsistence of the licence. (f) whether any secret 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 capital in nature; (vi) the fact that assessee could use the technical knowledge obtained during the tenure of the license for the. purposes of its business after the Agreement has expired, and in that sense, resulting in an enduring advantage, has been categorically rejected by the courts. The Courts have held that this by itself cannot be decisive because knowledge by itself may last for a long period even though due to rapid change of technology and huge strides made in the field of science, the knowledge may with passage of time become obsolete; 22.2 The observation made in paragraph 58 at page 414 aforementioned judgment, on which reliance has been placed by learned counsel for revenue seeks only to emphasise that assessee in that case, had only acquired access to technology which was not related to any secret process or patent rights and thus in continuum it is mentioned that no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t with the assessee. There is no enduring benefit accruing as assessee was not the owner. That the assessee has been given only limited right to manufacture the liquor to be sold under these trademarks for a limited period of three years. Furthermore, upon termination of the agreement licensee ceases use of the trademarks, the intellectual property, packages, labels etc. Thus, we find that the issue involved is covered by the decision of the ITAT as above which was subsequently affirmed by the Hon ble Jurisdictional High Court. Ld. Departmental Representative could not rebut the proposition that the issue is covered by the aforesaid decisions and no contrary decision was cited before us. In the background of the aforesaid discussions and precedents, we do not find any infirmity in the order of the Ld. Commissioner of Income Tax (A). Accordingly, we affirm the same. 11. The issues raised in the Assessee s Cross Objection read as under:- (i) That the Ld. Commissioner of Income Tax (Appeals) erred in holding that the reopening of assessment beyond four years was valid in the facts and circumstances of the present case. (ii) That the Ld. Commissioner of Income Tax (Appeals ..... X X X X Extracts X X X X X X X X Extracts X X X X
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