Contact us   Feedback   Annual Subscription   New User   Login      
Tax Management India .com
TMI - Tax Management India. Com
Extracts
Home List
← Previous Next →

2016 (1) TMI 774 - ITAT DELHI

2016 (1) TMI 774 - ITAT DELHI - TMI - Royalty payment - revenue expenditure OR capital expenditure - Held that:- A bare perusal of the terms and conditions of Royalty Agreement entered into between the assessee and NMESA WLL goes to prove that the Royalty in the case in question was exclusively for the purpose of use of trademark, trading norms and know how without any acquisition of any capital research in the year under consideration, thus not of any enduring benefit for the assessee so as to .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

NTURI RAMA RAO, AM: The Revenue has filed the present appeal against the order of Ld. CIT(A)-XV, New Delhi dated 29.11.2012 for the Assessment Year 2009-10, inter alia on the following ground: Whether Ld. CIT(A) was correct on facts and circumstance of the case and in law in treating the royalty payment of ₹ 79,61,325/- as revenue expenditure instead of capital expenditure. 2. Briefly stated the facts of the case are that during scrutiny, return filed by the assessee declaring income of &# .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s as under: This issue has already been decided by Honorable Delhi High Court in the case of our group company M/s G4S Securities System (India) Pvt. Ltd. for the assessment year 2002-03, 2003-04 and 2005-06. In this case the Delhi High Court has delivered his judgment as on 11.07.2011 as the ownership rights of trade mark and knowhow throughout vested with the "Licensor" and on the expiration or termination of the agreement the assessee has to return all right which is obtained by it .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ts granted under the agreement, the royalty payment of ₹ 1,06,15,100/- is held to be towards acquisition of commercial rights being intangible in nature and accordingly, ₹ 1,06,15,100/- is held to be capital expenditure entitled to prescribed rate of depreciation @ 25% i.e. ₹ 26,53,775/-. Consequently, disallowance of ₹ 79,61,325/- was made. 4. The assessee has challenged the assessment order before Ld. CIT(A) who has accepted the appeal vided impugned order dated 29.11.2 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

r passed by Tribunal in I.T.A. No. 2125/Del/2013 dated 12.03.2014 and I.T.A. No. 3160/Del/2013 dated 14.08.2014 in the case of ACIT Vs G4S Security Services (India) Pvt. Ltd., wherein the matter in issue in the present appeal has been squarely covered qua the previous assessment years. 7. We have heard both the parties, gone through the assessment order and the order passed by Ld. CIT(A) and documents annexed therewith. The sole question arises for determination in this appeal is as to whether L .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ows that my predecessor on the similar issue in case of the appellant for the AY 2008-09 had treated the Royalty payment as revenue expenditure. Similarly in the case of another group company, M/s G4S Security services for the Assessment Year 2008-09 vide order dated 20.04.2011 in Appeal No. 229/10-11, the Ld. CIT(AL for the detailed reasons cited therein, has treated the royalty payment as revenue expenditure and also held that since royalty has been paid for a right to use trade mark and knowh .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

t, which as per the term of the present agreement, provide that: (i) The appellant company was engaged in the service industry instead of engaged in the manufacturing activities. (ii) Since in the service industry, technology changes at rapid pace than manufacturing activity therefore it is immaterial to emphasize that appellant company would be able to use the technical knowhow even after the termination of the agreement. (iii) In the present case, appellant company was giving the royalty more .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e been rendered on distinguishable sets of fact and are not applicable to the issue in question. I agree that the appellant has not acquired any benefit of enduring nature and it will not constitute acquisition of any assets. Hence, respectfully following the ratio of various decisions cited by the appellant and particularly and following the decisions of the Hon'ble Delhi High Court in the case of MIs G4S Security Services, on identical facts, I also concur with the stand taken by my predec .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

earch in the year under consideration, thus not of any enduring benefit for the assessee so as to consider any part of royalty expenditure as capital expenditure. 10. In the assessee s own case for the Assessment Year 2005-06, decided on 11.07.2011 by Hon ble Jurisdictional High Court in the case of CIT Vs G4S Securities System (India) Pvt. Ltd (supra) in para 9 and 10 has categorically held that the payment of royalty is revenue expenditure. Operative part of the judgement (supra) reads as unde .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

sessee was not even entitled to make use of the trade mark name or G4F knowhow and was forthwith to change its' corporate a no/or trade names. All rights and knowhow, therefore, continued to vest in G4F and it was only the right to use the knowhow that was made available to the assessee and that too based on its net sales. That means all the royalty paid in the shape of 1 % of net sales for the use of trade mark and right to use knowhow could not be considered to be of enduring nature and th .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

(I) Ltd. Vs. ITO 73 ITD 1 89(Delhi) , the assessee had not acquired ownership right of technical knowhow but transfer of use of licenses. There was no advantage of enduring nature and hence it was held to be a case of revenue expenditure. In the case of Travancore Sugar and Chemicals Ltd. 62 ITR 566 (SC) it was held that whenever a payment is based on a Percentage of turnover or profits, it necessarily has no relation to the capital value of the asset, because it cannot be known at the time of t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 



|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version