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2017 (3) TMI 396 - ALLAHABAD HIGH COURT

2017 (3) TMI 396 - ALLAHABAD HIGH COURT - TMI - Allowable business expenditure - payment of royalty paid to M/s Hongo Japan - Held that:- The expenditure incurred by the assessee towards royalty and fee for technical assistance in pursuance of the licence agreement entered between the assessee and the company M/s Hongo Japan were revenue expenditure and not capital in nature in view of the fact, upon termination of the licence agreement, all rights created in favour of the assessee under the lic .....

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40, 241, 220 of 2013, INCOME TAX APPEAL No. 428, 291 of 2010 - Dated:- 3-3-2017 - Hon'ble Bharati Sapru And Hon'ble Saumitra Dayal Singh, JJ. For the Appellant : Ashok Kumar,Krishna Agarwal ORDER Heard Sri Krishna Agarwal and Sri Subham Agarwal learned standing counsel and Sri Abhinav Mehrotra learned counsel for the assessee. As the controversy involved in these appeals is identical, the same is being decided by the common judgment and order treating the Income Tax Appeal no.240 of 2013 .....

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hat the payment of royalty paid to M/s Hongo Japan is an allowable business expenditure in the hands of the assessee company and cannot be held to be capital in nature." Briefly stated facts of the case in the leading appeal are that the assessee had been a granted licence by its parent company namely Hongo Japan for manufacture of automobile components and component parts as per specifications of Honga Japan. As per Article 18 of the agreement between the assessee and the Hongo Japan in th .....

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lty and fee for technical assistance. The Assessing Officer was of the view that the said payments were in the nature of capital expenditure and he therefore disallowed the revenue expenditure claimed by the assessee. While the CIT has upheld the order of assessment, the tribunal in the appeal arising from the assessment year 2001-02 had examined the issue elaborately and considered several provisions of the agreement between the parties and thereafter reached to the conclusion that the payment .....

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essee to Hongo, Japan and in paragraph 15 thereof, it has observed as under: "15. Having noticed so, we proceed to consider the different clauses of the agreement entered into by the assessee with M/s. Hongo Japan to resolve the controversy as to whether the expenses in question claimed by the assessee as deduction are on account of revenue or capital. In the case before us, the agreement between the assessee and Hongo Japan was to provide a licence and technical collaboration in the manner .....

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t parts of the licence products. Know-how for the purpose of the agreement would mean any and all those informations, inventions, design, expertise, experience and technical know-how regarding the manufacture of the licensed products which are owned or controlled by Hongo Japan and which include the specifications, blue prints details, photo copies, drawings and other drawings of such information, inventions, design, expertise, experience and technical know-how and also include sample prototype .....

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han the assessee itself to undertake the production or manufacture of the licenced products, except with the prior written consent of Hongo Japan. However it was also provided that Hongo shall have no right to make use of and sell the licensed products, component parts and manufacturing equipment in the territory and to otherwise utilize the know-how in any manner in the Republic of India other than for the assessee, except in the cases where Hongo grants to any third party in the Republic of In .....

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he end of any subsequent renewed period by written notice to that effect given to the other party at least 3 months prior to the expiration of the initial period of 10 years or in subsequent renewed period. Nothwithstanding the period provided in the agreement, the agreement shall be terminated forthwith in the event of termination of the joint venture agreement entered into between Hongo and Pawha Builders Pvt. Ltd. Article 14 of the agreement gives either party a right to terminate the agreeme .....

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ement. It has also been provided that the assessee company shall in its own return to Hongo Japan such books, notings, drawings, and writings and other documents, samples, models and other materials relating to the know-how as provided by Honga Japan to assessee company and all improvements and inventions made by the assessee company regarding the licensed products and Hongo Japan shall not be liable to the assessee company for, and the assessee company shall not be entitled to, any damages, rei .....

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