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M/s India Nippon Electricals Ltd. Versus The Asstt. Commissioner of Income-tax Company Circle II (3) Chennai and vice-versa

2016 (3) TMI 237 - ITAT CHENNAI

Treatment to royalty payments - AO treating the royalty payments being 3% of the sales of the year, as capital expenditure and disallowing 75% of the same after allowing depreciation @ 25% - Held that:- Judgment of the jurisdictional High Court in the case of CIT vs Hitech Arai Ltd, [2014 (8) TMI 459 - MADRAS HIGH COURT] is applicable in his case wherein held that where the royalty payment made by the assessee under renewal agreements were for grant of license to an existing company for manufact .....

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ordingly, in our opinion, the assessee’s claim has to be allowed and it is to be treated as revenue expenditure only. - Decided in favour of assessee

Disallowance u/s 14A - CIT(A) made disallowance of 2% of the exempt income earned - Held that:- The assessment year under consideration is 2007- 08 and, therefore, the provisions of rule 8D cannot be applied. Rule 8D came into operation with effect from 24.3.2008 i.e from assessment year 2008-09. Disallowance 2% of the exempt income earn .....

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A POOJARI, ACCOUNTANT MEMBER These are cross appeals filed by the assessee and the Revenue against the order of the Commissioner of Income-tax (Appeals)-II, Chennai, dated 12.2.2014 for assessment year 2007-08. 2. The assessee has raised the following effective ground: 2. The Commissioner of Income-tax(Appeals) erred in holding that the Assessing Officer s justified in treating the royalty payments of 9,39,000/- being 3% of the sales of the year, as capital expenditure and disallowing 75% of the .....

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red 25% of the said payment as a capital expenditure and disallowed the same. However, the Assessing Officer allowed depreciation @ 25% on the payment. On appeal, the CIT(A) observed that the issue is squarely covered by the decision of the Madras High Court in the case of Southern Switch Gear Ltd (supra) wherein it was held that since the benefits are enduring in nature, the same are capital expenses. In fact, the High Court has held as under: Even without acquisition of an asset, a right of a .....

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nowledge, the assessee-company got an exclusive right to manufacture and sell its articles without any objection from anyone including the foreign company and this was clearly an advantage of enduring nature. Accordingly, the Tribunal was justified. 4. Accordingly, the CIT(A) confirmed the order of the Assessing Officer against which the assessee is in appeal before us. 5. We have heard both the parties and perused the material available on record. We have carefully gone through the judgment of .....

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Considering the facts of the case, in our opinion, the judgment of the jurisdictional High Court in the case of CIT vs Hitech Arai Ltd, 368 ITR 577, is applicable. In that case, it was held that where the royalty payment made by the assessee under renewal agreements were for grant of license to an existing company for manufacture and sale of automobile parts and components for subsequent periods, after the expiry of original period of license and it was not technical know-how for setting up a n .....

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dated 12.7.2010. The Tribunal has also taken the same view in the case of M/s India Japan Lighting P. Ltd vs ACIT in I.T.A.Nos.676 to 678/Mds/2010, dated 10.6.2011. Accordingly, in our opinion, the assessee s claim has to be allowed and it is to be treated as revenue expenditure only. 6. In the result, the appeal of the assessee is allowed. 7. In its appeal, the Revenue has raised the following grounds: 2.1 The ld. CIT(A) erred in deleting the addition made by the Assessing Officer to the tune o .....

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