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2016 (7) TMI 1095 - ITAT CHENNAI

2016 (7) TMI 1095 - ITAT CHENNAI - TMI - Payment of royalty to USA company - nature of payment - Revenue expenditure or capital expenditure eligible for depreciation @25% - Held that:- CIT(Appeals) as relying on own order for earlier assessment years was well justified in treating the royalty payments made to M/s Chevron Oronite Company LLC USA as nothing but revenue expenditure, not resulting in any acquisition of intangible assets. The assessee could continue to use the technology even after t .....

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akrishnan, IRS, JCIT. For The Respondent : Shri. M. Viswanathan, C.A. ORDER PER G. PAVAN KUMAR, JUDICIAL MEMBER: The appeal filed by the Revenue is directed against order of the Commissioner of Income-tax (Appeals)-6, Chennai in ITA No.155/CIT(A)-6/2014-15, dt 27.01.2016 for the assessment year 2010-2011 passed u/s.143(3) r.w.s. 144C(3) and 250 of the Income Tax Act, 1961 (herein after referred to as the Act ). 2. The Revenue has raised the following grounds:- 2.1. The CIT(A) erred in holding th .....

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e CIT(A) ought to have appreciated the fact that in the relied upon decision of the ITAT, in the ITAT's own observation the so called running royalty was for the purpose of use of licence, trade mark on technical information. With the amendment in the Act made before a decade allowing depreciation on the intangible assets like licence, trade mark etc, the payment can only be considered as capital in nature and not revenue in character. 2.5 The CIT(A) ought to have appreciated that since roya .....

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il, additives and filed return of income on 23.09.2010 with total income of A66,31,49,630/- and was processed u/s.143(1) of the Act and the case was selected for scrutiny under CASS and notice u/s.143(2) of the Act was issued. In compliance to notice, the ld. Authorised Representative of assessee appeared and filed details. The assessee during the financial year 2009-2010 entered into International transactions with Associate Enterprise (AE) situated outside India were the value exceed A15 crore .....

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he Act dated 07.01.2014 determining the downward adjustment of cost to A3,83,93,740/- and the ld. Assessing Officer made an TPO addition to the returned income alongwith other additions. The ld. Assessing Officer found that the assessee has made payments of Royalty to M/s. Chevron Oronite Company LLC, USA (COCL, USA) A6,85,80,000/- and claimed as revenue expenditure. The ld. Authorised Representative filed copy of agreement entered with COCL, USA in the assessment proceedings and the ld. Assessi .....

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relation to the turnover and the amount is fixed as lumpsum payable for infusion of new technology and other benefits and treated the said payment as intangible asset being eligible for depreciation . The ld. Assessing Officer relied on the Apex Court decision considering the stipulations in the agreement and provisions of Sec. 32 of the Act and the explanations on treatment as intangible assets. The ld. Authorised Representative brought to the knowledge of the ld. Assessing Officer, that simil .....

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ly ld. Assessing Officer under provisions of Sec.144C(1) of the Act made above two additions in Draft assessment order dated 07.03.2014 and served on the assessee under provisions of Sec. 144C(2) of the Act. The assessee company has option to file objections before Dispute Resolution Panel (DRP) within thirty days from the date of receipt of assessment order u/s.144C(1) of the Act. The ld. Authorised Representative filed letter with ld. Assessing Officer after receipt of draft assessment order o .....

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passed u/s.143(3) r.w.s. 144C(3) of the Act dated 29.04.2014, the assessee filed an appeal before Commissioner of Income Tax (Appeals). 4. In the appellate proceedings, the ld. Authorised Representative of assessee argued the grounds and reiterated the submissions made before Assessing Officer and Transfer Pricing proceedings. The ld. Commissioner of Income Tax (Appeals) considering the submissions dismissed the ground of the assessee on the disputed issue of TPO downward adjustment A3,83,93,740 .....

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ppeals) considered the Tribunal decision in assessee s own case and held that the royalty paid to M/s. Chevron Oronite LLC is a revenue expenditure and partly allowed the appeal. Aggrieved by the Commissioner of Income Tax (Appeals) order, the Revenue has assailed an appeal before Tribunal. 5. Before us, the ld. Departmental Representative reiterated that Commissioner of Income Tax (Appeals) has erred in considering royalty payments made to M/s. Chevron Oronite Company LLC, USA in the nature of .....

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fore Jurisdictional Hon ble High Court and therefore prayed for set aside the order of Commissioner of Income Tax (Appeals) and allow the appeal. 6. Contra, the ld. Authorised Representative of assessee submitted on the transactions entered with M/s. Chevron Oronite Company LLC, USA and relied on the assessee s own case for the earlier assessment years in ITA No.2138/Mds/2008 and ITA Nos.700 to 702/Mds/2009 and the order of Commissioner of Income Tax (Appeals) and opposed to the grounds of the D .....

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oner of Income Tax (Appeals) relied on the order of the Co-ordinate Bench of this Tribunal in assessee s own case and allowed the appeal. The only contention of the Department before the Tribunal that the Revenue has not accepted the order of the Tribunal and an appeal has already been filed in Hon ble High Court of Madras and the same is pending. This Tribunal is of the considered opinion that mere pendency of appeal before Hon ble High Court cannot be a reason to take a different view. So, con .....

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2004-05 in I.T.A. No. 951/Mds/2009, it was held by co-ordinate Bench of this Tribunal as under:- 7. We have perused the orders and heard the rival contentions. We find that the same issue regarding royalty payment made to M/s COCL was considered by this Tribunal in the orders referred supra. It was held by this Tribunal at para 2.17 of its order dated 13th November, 2009, as under:- 2.17 In the facts and circumstances of the case, when the royalty payments shall be computed at a particular perc .....

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actured by the assessee, then there would be no royalty payable. Thus, the running royalty payable has no nexus or direct connection with the manufacture of the product. The liability to pay the royalty arises only when there is a sale. Therefore, we are of the view that the running royalty cannot be said to be a capital expenditure. We do not find any rationale in bifurcation of the running royalty and treating one part as capital and the other part as revenue by the learned Commissioner of Inc .....

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