TMI Blog2017 (7) TMI 426X X X X Extracts X X X X X X X X Extracts X X X X ..... es interest and leased vehicles and bank charges and it does not pertain to earning of the exempted income - Held that:- In our opinion, there is a merit in the argument of the ld.A.R. Accordingly, if the assessee is able to prove that this expenditure are not relating to the earning of exempted income, this cannot be included in “A” in the Formula prescribed in Rule -8D(2)(ii) of Rules. Accordingly, we remit this issue to the file of AO for fresh consideration. - ITA No.:106/Mds/2017 - - - Dated:- 3-4-2017 - SHRI N.R.S. GANESAN, JUDICIAL MEMBER, AND CHANDRA POOJARI, ACCOUNTANT MEMBER For The Assessee : Shri Saroj Kumar Parida, Advocate For The Revenue : Shri R. Duraipandian, JCIT ORDER PER CHANDRA POOJARI, ACCOU ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eciation is provided on intangible asset such as technical know-how, patents, copyrights, trademarks, licences, franchises etc. The agreement also reveals that assessee company desires to have the same on a continuous basis for upgrading the quality of products manufactured by it. The assessee therefore obviously decided to improve the quality of products which included rubber contraceptives in the face of stiff competition in the market by its competitors and in this direction the said agreement would serve the desired purpose of improving the quality of the products manufactured and thereby improving the market base and its profit. Therefore, the payment of technical know-how fees would bring in enduring benefits to the assessee company i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion before this Tribunal in assessee's own case for assessment years 2002-03 to 2007-08 in ITA Nos.1791 to 1796/Mds./2011 vide order dated 31.01.2012 wherein the Tribunal held that:- 18.1. In the subsequent agreement dated 01.04.05 as well, we have come across the same set of clauses. It is therefore, clear that assessee s obligation to pay royalty @ 2%(supra) stems from the terms incorporated in the agreements. We notice that in the said agreements, there is no covenant granting exclusive rights of technical know-how or title in favour of the assessee pertaining to technical inputs as obtained from the other entity. Further, the element of endurability is also nowhere forthcoming and even duration of the agreement is not indefin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 961. Accordingly we are of the view that the CIT(A) has not rightly deleted the disallowance of expenditure as made by the Assessing Officer to the tune of 25%. Therefore, we hold that the payment made by the assessee in the shape of technical know-how fee by way of royalty @ 2% of the gross sales is Revenue expenditure. So, the issue is decided in favour of the assessee. Being so, in our opinion, the expenditure incurred by the assessee towards royalty to be considered as a revenue expenditure to be allowed as a revenue expenditure subject to 2% of the sales value and accordingly, this ground taken by the assessee is allowed. 5. The next issue is with regard to disallowance u/s.14A r.w.Rule 8(2)(ii) of Income Tax Rules, 1962. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd reserves for ₹ 1,78,72,60,342/-as on 3 1/03/2010 and ₹ 2,04,14,10,374/- as on 31/03/2011. The total investment was only ₹ 33,10,57,470/-which the investment in mutual fund was only ₹ 3,01,73,225/- and therefore the assessee submits that no borrowings were utilised for making the investments and there for no portion of the interest payment is to be disallowed. 6.1 It is further submitted that the assessee has no borrowings other than financial leases for vehicles. The interest of ₹ 35,60,764/-considered by the AO under rule 8D(ii) is therefore not correct as interest has been paid towards lease finance charges which is for earning taxable income. Aggrieved, the assessee carried the appeal before the Ld.CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X
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