TMI Blog2012 (4) TMI 643X X X X Extracts X X X X X X X X Extracts X X X X ..... ring. I .T.A. No.486/D/2012[AY 2008-09] 1. Whether ld. CIT(A) was correct on facts and circumstances of the case and in law in deleting the disallowance of ₹ 11,08,228/- made by the AO on account of royalty expense. 2. The appellant craves leave, to add, alter or amend any ground of appeal raised above at the time of the hearing. I.T.A. No.627/D/2012[AY 2007-08] 1. Whether ld. CIT(A) was correct on facts and circumstances of the case and in law in deleting the addition of ₹ 9,25,777/- made by the AO on account of royalty. 2. Whether ld. CIT(A) was correct on facts and circumstances of the case and in law in deleting the disallowance of Rs. 5,00,000/- made by the AO on account of foreign travel. 3. Whether learned CIT(A) was correct on facts and circumstances of the case and in law in deleting the disallowance of ₹ 2,00,000/- made by the AO on account of various expenditure. 4. The appellant craves leave, to add, alter or amend any ground of appeal raised above at the time of the hearing. 2. Adverting first to ground no.1 in these three appeals, facts, in brief, as per relevant orders in the case of G4S Cash Ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of group company (G4S Security Systems) also dismissed the department appeal in earlier years and allowed the royalty expenses as revenue expenses after considering the facts and legal position. The Hon ble ITAT and CIT(A) in earlier years have deleted the royalty addition after considering the following facts which is as per term of the present agreement also. i) The appellant company was engaged in the service industry instead of engaged in the manufacturing activities. ii) Since 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 know how even after the termination of the agreement. iii) In the present case, appellant company was giving the royalty more for enjoying trade name and trade mark whose value Nil after termination of the contract. iv) Appellant company has non-exclusive right to use the trademarks within the territory of India. v) The royalty is determined on the basis of percentage of turnover and it is not paid as lump sum, therefore, the same can increase or decrease on the basis of turnover. 5.1 In view of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case, order of the Assessing Officer and submission made by the learned AR. Perusal of the facts on records show that my predecessor on a similar issue in assessment year 2005-06 and 2006-07 has allowed the royalty payment as revenue expenditure and also held that since royalty has been paid for a right to use trade mark and know how for a limited period under the term of agreement, therefore, no assets of enduring nature has been acquired in consideration of royalty payment. The order of my predecessor has been upheld by the Hon ble ITAT in assessment year 2005-06 held that in the present case the incurring of the royalty expenditure did not result in acquisition of any capital assets or a benefit of enduring nature and therefore did not result in capital expenditure. Further, the Hon ble High Court also dismissed the department appeal and allowed the royalty expenses as revenue expenses after considering the facts and legal position. The Hon ble ITAT and CIT(A) in earlier years have deleted the royalty addition after considering the following facts which is as per term of the present agreement also. i) The appellant company was engaged in the service industry instea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rade mark, G4F knowhow, as existing in the agreement between G4F and Group4 Holding Private Limited are also incorporated in the sub license agreement. Cause 4.1 of the sub license agreement provides for the operationaI period of the agreement for a term of 5 year from the effective date, and continuance thereafter for further successive years period unless either party give 6 months written notice to other party prior to the end of any such 5 year period that the agreement should not be renewed. Clause 17 of the sub license agreement acknowledges that G4F has the right to enforce, or to enjoy the benefit of any term of this agreement which is expressly or impliedly in favour of G4F. In clause 4.6 of the sub license agreement, it has been provided that on termination or expiration of the sub license agreement, the assessee shall return all G4F knowhow obtained in pursuant to the Agreement. At Clause 4.7 it has been provided that on termination or expiration of the agreement, the appellant/assessee shall not thereafter make any use of the trade mark, trade name or G4F knowhow and shall forthwith change its corporate and/or trade names. 9. From the terms of the agreement it is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , this Court has also held that the payment of license fee on year to year basis for acquisition of technical knowledge would not amount to capital expenditure, but the revenue expenditure. 10. From the ratio of the above said cases, we are of the considered view that under the terms of the agreement as noted above, the ownership rights of the trademark and know-how throughout vested with G4F and on the expiration or termination of the agreement the assessee was to return all G4F knowhow obtained by it under the agreement. The payment of royalty was also to be on year to year basis on the net sales of the assessee and at no point of time the assessee was entitled to become the exclusive owner of the technical knowhow and the trade mark. Hence, the expenditure incurred by the assessee as royalty is revenue expenditure and is, therefore, relatable under Section 37(1) of the Act. We thus, answer the question in favour of the assessee and against the revenue and consequently dismiss all the three appeals. 5.1 As regards disallowance in the case of G4S Cash Services (India) Pvt. Ltd., we find that the AO himself allowed the claim of the assessee in the AYs 2002-03 to 2005-06 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the appellant. After perusing the assessment order, I do agree with the appellant that the Assessing Officer has without giving an opportunity to the appellant made an ad hoc addition. The Assessing Officer unfortunately has not gone through the audit report, in the notes to accounts it is clearly given that expenses on foreign travel is only Rs. 2,37,648/-. Therefore, it is not understandable how the Assessing Officer has disallowed Rs. 5 lacs. The addition made without any basis cannot be sustained and the same is directed to be deleted. 8. The Revenue is now in appeal before us against the aforesaid findings of learned CIT(A).The ld. DR supported the order of the AO while contending that the assessee did not furnish any details nor purpose of foreign travel and even names of places/companies visited by the concerned persons, before the AO. Therefore, the ld. CIT(A) was not justified in deleting the entire disallowance, without having these details. On the other hand, the ld. AR on behalf of the assessee contended that the assessee had submitted copy of audit report, revealing expenditure on foreign travel at ₹ 2,37,648/-. Thus, ld. CIT(A) was justified in de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... each of the places/companies or persons visited by the assessee has not been filed nor even break of expenses incurred by the assessee at each of these places so visited abroad nor the ld. AR even referred us to any evidence regarding purpose of visit at each of the places visited abroad. The ld. AR merely invited our attention to audit report and reiterated that the expenditure is for the purpose of business. In the absence of any evidence of purpose of visit at each of the places/persons visited abroad and their relation with business of the assessee, the ld. CIT(A) was not justified in deleting the disallowance. In these circumstances, we consider it fair and appropriate to set aside the order of the ld. CIT(A) and restore the matter to his file for deciding the issue raised in the ground no.2 in the appeal of the Revenue, afresh in accordance with law, in the light of our aforesaid observations, after allowing sufficient opportunity to both the parties. Needless to say that while redeciding the issue, the learned CIT(A) shall pass a speaking order, keeping in mind, inter alia, the mandate of provisions of sec. 250(6) of the Act, bringing out clearly as to the purpose of visit a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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