TMI Blog2017 (5) TMI 1639X X X X Extracts X X X X X X X X Extracts X X X X ..... that:- In the present case, it appears that inadvertently the assessee could not make the claim for additional depreciation before the AO but in the appellate proceedings before the ld. CIT(A) the assessee made the claim and furnished the additional evidences in support of its claim. It is well settled that the powers of the ld. CIT(A) are coterminous with the powers of the AO, therefore, considering the totality of the facts, we are of the view that the CIT(A) rightly directed the AO to examine the claim of the assessee and allow after verification. We do not see any valid ground to interfere with the findings of the ld. CIT(A). Addition on account of Arm s Length Price - Disallowance under wrong section - addition on the grounds that the payment of royalty is not wholly and exclusively for business purposes and has been made u/s 92C(4) read with section 92CA(4) - Held that:- The assessee derived benefit under the royalty agreement and it was accepted by the AO for the assessment year 2002-03. However, the only dispute raised by the AO in the said assessment year was as to whether the royalty payment was a capital expenditure or revenue expenditure. The said dispute has been se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he AO to allow the claim of the assessee on account of additional depreciation amounting to ₹ 20,61,050/- ignoring that documentary evidence in support of the asessee s claim for additional depreciation u/s 32(iia) of the I.T. Act is not available on record. Further, the assessee also failed to file the audit report even before the completion of the assessment. 4. The Ld. CIT(A) has erred on facts and in law in deleting addition of ₹ 1,57,35,495/- on account of Arm s Length Price u/s 90CA(3) ignoring the fact that each international transaction must be benchmarked separately. The approach of amalgamating transactions should be followed only where the transaction are closely interlinked. The TPO has brought out that in the assessee s arrangement with its AE, the rewards of the marketing and fruits of intangible would be enjoyed by the AE. Hence, the assessee need not make a payment for the same. Ld. CIT(A) has erred in ignoring this fact. 5. The appellant craves leave for reserving the right to amend, modify, alter, add or forego any grounds of appeal at any time. 3. Vide Ground No. 1, the grievance of the department relates to the inclusion of the DEPB re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessment year 2002-03. 7. Now the department is in appeal. The ld. DR strongly supported the order of the AO and also filed the written submission which read as under: The AO has held that since the assessee failed to furnish any evidence that the rate of Duty Drawback was higher than the rate of DEPB as per the amended provision (3rd proviso of Section 80HHC read with 28(iiid)) hence the amount of DEPB of ₹ 1,27,73,524/- shall not be included in 90% of the amount to be added to profits of business . The assessee submitted before the CIT(A) that only the profit component on the sale of DEPB License was needed to be included for the computation of deduction u/s 80HHC and not the face value and since in this case there was a loss hence the entire amount needed to be excluded. The Ld. CIT(A) has directed the AO to exclude the DEPB receipt amounting to ₹ 1,27,73,524/- for the calculation of deduction u/s 80HHC (third proviso). The Ld. CIT(A) accepted the contention of the assessee without examining the actual profit component or loss. This computation, along with evidence, has not been submitted by the assessee either before the AO or before the CIT(A). No suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon ble Apex Court in the case entitled Topman Exports v. CIT [2012] 18 taxmann.com 120 (SC) Hon ble Apex Court upheld the order passed by Special Bench of the Tribunal (Mumbai) and the crux of the findings returned is as under for ready reference: The aforesaid discussion would show that where an assessee has an export turnover exceeding ₹ 10 crores and has made profits on transfer of DEPB under. clause (iiid) of section 28, he would not get the benefit of addition to export profits under third or fourth proviso to sub-section (3) of section 80HHC but he would get the benefit of exclusion of a smaller figure from profits of the business under Explanation (baa) to section 80HHC and there is nothing in Explanation (baa) to section 80HFic to show that this benefit of exclusion of a smaller figure from profits of the business will not be available to an assessee having an export turnover exceeding ₹ 10 crores in other words, where the export turnover of an assessee exceeds ₹ 10 crores, he does not get the benefit of addition of ninety per cent of export incentive under clause (iiid) of section 28 to his export profits, but he gets a higher figure of profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 80HHC(3). It is also not disputed that the assessee has failed to furnish the requisite evidence to prove that he rate of duty drawback was higher than the rate of DEPB. 7.5 However, Ld. A.R. contended that the assessee has claimed the addition under 3rd proviso to Section 80HHC(3) at ₹ 6,61,653/- i.e. 90% of ₹ 7,35,170/-. Ld. A.R. further contended that 3rd and 4th proviso to section 80HHC(3)(c) operate only prospectively and relied upon the judgement cited as Pawan Kumar Jain v. Union of India [2014] 46 taxmann.com 341 (Delhi). 7.6 The Assessing Officer denied the benefits claimed by the assessee by invoking provisions under Section 80HHC and Section 28(iiid) w.r.e.f Assessment Year 1998-99 with retrospective effect according to which any profits on transfer of DEPB scheme deem duty addition scheme under export and import policy shall be charged under the head profits gains from the business or profession with further consideration that as per 3rd proviso to Section 80HHC, assessee having export turnover up to ₹ 10 crores will get deduction of 90% of export incentive on account of transfer of profits on account of DEPB license. However, the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opment charges. The assessee was asked to show cause as to why the same be not excluded from the computation of deduction. No reply has been filed in this regard, it may be pertinent to refer to the assessment and appellate proceedings in the case of the assessee for A.Y. 2001-02 in order to arrive at a conclusion regarding the treatment of these receipts. During the aforesaid proceedings it was stated by the assessee that the consideration on account of such sales did not have an element of profit, being in the nature of reimbursement of expenses. Also as per the provisions of explanation (baa) of section 80HHC, for computing profits of business , 90% of sums referred to in clauses (iiia) to (iiie) of section 28 or of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits have to be deducted from profits and gains of business or profession. I therefore hold the receipts of ₹ 96,13,655/- as receipts of similar nature included in such profits referred to in explanation (baa), in this regard, reliance is placed on the decision of Hon ble ITAT, Delhi in the case of Beekay Engineering Castings Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses. (emphasis supplied) Therefore it is amply clear from para 32.10 of the circular that the purpose of excluding receipts like interest, Commission, other receipt etc. from the ambit of the profits of the business is to exclude such receipts which do not have an element of turnover. Whereas in the case of appellant the development of sample designs is core business activity regularly carried on by the appellant; the proceeds from the export of sample designs satisfy the test of Export Turnover laid down in clause (b) to Explanation to Section 80HHC. Further the proceeds from export of sample designs have been upheld to be Export Turnover by the Hon ble ITAT in the case of assesses during AY 01-02 (copy of the order of ITAT is enclosed for your reference Attachment 3). It may also be noted that amounts received from overseas customers towards Sample design and Development is export turnover it is also evident from the fact that the appellant has received Duty Drawback on the same. Therefore, one cannot say that the export of sample designs by the appellant is not an integral part of the business carried on by the appellant. Hence the profits reported by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kiran Processors [2007] 158 Taxman 407/288 ITR 165 (Mad.) * ITO v. Su-raj Jewellery (India) Ltd. [2008] 21 SOT 79 (Mum.) * Asstt. CIT v. Herbal Isolates (P.) Ltd. [2002] 83 ITD 310 (Cochin) 15. The ld. CIT(A) after considering the submissions of the assessee held that the reimbursement of sample design and development charges constitute export turnover of the business and hence represent business income of the assessee, the same could not be included as other receipt under Explanation (baa) to Section 80HHC of the Act. 16. Now the department is in appeal. The ld. DR submitted that the AO had reduced 90% of ₹ 96,13,655/- which the assessee had shown receipt on account of sample design and development charges , as per the provisions of Explanation (baa) of Section 80HHC of the Act. It was further submitted that the assessee had not claimed before the AO that the aforesaid receipt was not to be excluded as other receipts under Explanation (baa) of Section 80HHC of the Act and that the ld. CIT(A) failed to confront the AO with the above submission of the assessee. 17. In her rival submissions the ld. Counsel for the assessee at the very outset stated that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 66,725/- in the total turnover of the business. As regards the alternative claim for including the receipt as part of the export turnover, which is the numerator in the formula prescribed by the section, it cannot be said that the assessee exported samples, since sending samples is a means to procure export orders. The same goes for the design and sample charges. However, since the assessee has not been able to prove that there is no profit element imbedded in the receipt and we have on the ground held that the receipt is includible as part of the total turnover, it will be inconsistent to hold that the receipt cannot be included in the export turnover. For this reason - for the sake of consistency alone - it is held that the alternative claim of the assessee can be allowed. We hold accordingly and direct the Assessing Officer to recompute the deduction. Thus ground No. 5 is rejected, but Ground No.6 is allowed. 19. So, respectfully following the aforesaid referred to order of the ITAT, we do not see any infirmity in the order of the ld. CIT(A) who rightly held that the receipts on account of sample design and development charges are export turnover and represents the busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing that appellant is not eligible for additional depreciation without going into the facts of the case. It is therefore preyed to kindly admit Form 3AA as an additional evidence for claim of additional depreciation u/s 32(l)(iia) filed with your goodself vide letter dt. 26.10.2006. 23. Reliance was placed on the following case laws: * CIT v. Magnum Exports (P.) Ltd. [2003] 262 ITR 10/130 Taxman 702 (Cal.) * CIT v. Jayant Patel [2001] 117 Taxman 707/248 ITR 199 (Mad.) * CIT v. Shahzadanand Charity Trust [1998] 96 Taxman 494/[1997] 228 ITR 292 (Punj. Har.) * CIT v. Hardeodas Agarwalla Trust [1992] 198 ITR 511 (Cal.) 24. The ld. CIT(A) after considering the submissions of the assessee asked the remand report from the AO and after considering the submissions of the assessee and the remand report of the AO, observed that the assessee had inadvertently not filed the evidence to claim additional depreciation u/s 32(iia) of the Act alongwith the return of income. He, therefore, accepted the addition evidence during the appellate proceedings and directed the AO to inquire the claim of the assessee and made necessary modification, if any. 25. Now the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e owner of brand in the name of Apprel Cornell which is patent with office of United States. Since, the assessee had undertaken international transaction, the AO referred the matter to the TPO for determination of Arm s Length Price. 30. The TPO noticed that the assessee had undertaken following international transactions with its groups companies: S. No. Description of transaction Method Value (in Rs.) 1 Garments made ups CPM 35,10,62,665 2 Receipts Charges for samples provided for various styles TNMM 95,80,428 3 Payment of royalty CUP 1,57,35,495 The assessee benchmarked its major international transaction of sale of garments using cost plus method and had earned gross profit of 19% as calculated in Annexure B of Transfer Pricing Report whereas the comparables had earned 12% to 16% as per Annexure C of Transfer Pricing Report. The assessee treated the transaction at Arm s Length ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee company was a mere contract manufacturer of its overseas related party and the risk reward matrix in respect of contract manufacturer was entirely different from an independent entrepreneur who may require technical know-how, logo, market access, designs and help of an expert whereas the contract manufacturer required none out of the above. He further observed that the contract manufacturer, did not carry the risk of marketing and therefore was not worried about the latest trends in the market, this risk was borne by the entity providing work to the contract manufacturer who necessarily carries the manufacturing risks like decline in production, maintenance of quality, timely delivery etc. and in the present case, when the assessee company was performing functions of the contract manufacturer, it was very difficult to understand why there were payments for intangibles like royalty and technical know- how in the nature of designs provided by the associated enterprises. The TPO also observed that the designs and its production technology was being provided by the AE to ensure that the quality of goods which will be supplied by the assessee company after its production sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be included in the price charged for the sale of goods when, for example, one enterprise sells unfinished products to another and, at the same time, makes available its experience for further processing of these products. Whether it could be assumed that the transfer price for the goods includes a licence charge and that, consequently, any additional payment for royalties would ordinarily have to be disallowed by the country of the buyer, would depend very much upon the circumstances of each deal and there would appear to be no general principle which can be applied except that there should be no double deduction for the provision of technology. The transfer price may be a package price, i.e., for the goods and for the intangible property, in which case, depending on the facts and circumstances, an additional payment for royalties may not need to be paid by the purchaser for being supplied with technical expertise. This type of package pricing may need to be disaggregated to calculate a separate arm s length royalty in countries that impose royalty withholding taxes. 34. The TPO pointed out that the assessee company was making its total sales to the related parties and the be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the matter to the ld. CIT(A) and submitted as under: A. Disallowance under wrong section The disallowance made by the AO has been made on the grounds that the payment of royalty is not wholly and exclusively for business purposes and has been made u/s 92C(4) read with section 92CA(4). A disallowance u/s 92C(4) read with section 92CA(4) is made only when the quantum of a international transaction is not as per the arms length price. Whether a particular international transaction (i.e. payment of royalty in this case) between associated enterprises has been laid out wholly and exclusively for business purposes, is to be judged under section 37 of the IT Act and not under section 92. Hence the AO has erred in law in disallowing the above amount u/s 92. B. Royalty is wholly and exclusively for business purposes Without prejudice to the above, it is stated that irrespective of the section under which the AO has disallowed the royalty payment, the AO has erred on facts in concluding that the royalty payment is not wholly and exclusively for business purposes. In reaching the above conclusion, the AO has disregarded the findings of his predecessor who h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be the consideration before the TPO for determining ALP of the Royalty payments as Nil. Specific methods have been prescribed in the Act and the I. T. Rules and the T.P.O. is bound to determine ALP of any international transaction within the framework of the method prescribed by statute. Section 92C which deals with the specific methods is reproduced below for your ready reference: Computation of arm s length price. 92C. (1) The arm s length price in relation to an international transaction shall be determined by any of the following methods, being the most appropriate method, having regard to the nature of transaction or class of transaction or class of associated persons or junctions performed by such persons or such other relevant factors as the Board may prescribe, namely:- (a) comparable uncontrolled price method; (b) resale price method; (c) cost plus method; (d) profit split method; transactional net margin method; (f) such other method as may be prescribed by the Board. (2) The most appropriate method referred to in sub-section (1) shall be applied, for determination of arm s length price, in the manner as may be prescribed: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m s length price paid to another associated enterprise from which tax has been deducted [or was deductible] under the provisions of Chapter XVIIB, the income of the other associated enterprise shall not be recomputed by reason of such determination of arm s length price in the case of the first mentioned enterprise. The manner in which the A.L.P is to be determined by any of the method prescribed in Sec. 92C in provided in Rule 10B of the I. T. Rules, 1962. After examining the parameters prescribed in Rule 10B, it can be seen that merely because royalty payments were made to one of the associated enterprises on sales made to the associated enterprises cannot be a factor to determine the arm s length price of Royalty. It is humbly submitted that the TPO has exceeded his limitation by following the method which is not authorised under the Act or rules and hence the ALP determined by the TPO and adopted by the AO in respect of the Royalty payable is not as per the procedure prescribed and cannot be sustained. The above conclusion is supported by the decision of the Mumbai bench of the ITAT in the case of CA Computer Associates v. DCIT. A copy of the case is attached for your ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xcise authorities as a full fledged manufacturer and is not treated as a contract manufacturer. A contract manufacturer as is evident from the definition given above, does not hold raw material inventory risk, however in this case the appellant holds the entire raw material on its own account. This is evident from the fact that the appellant is eligible for all the export benefits which are available on the purchase of raw materials like DEPB etc. 4. A contract manufacturer does not take the risk of bad debts. In fact this is one of the most important characteristics of a contract manufacturer. The appellant has taken the bad debt risks for all its sales as is evident from the FAR analysis mentioned in the TP Report. Also in the future years, the appellant has had bad debts and the same have been accounted for in its books of accounts as such and have not been passed on to the associated enterprises. This again establishes the fact that the appellant is not a contract manufacturer but is a licensed manufacturer. 5. Para 9.27 of REPORT ON THE TRANSFER PRICING ASPECTS OF BUSINESS RESTRUCTURINGS CHAPTER IX OF THE TRANSFER PRICING GUIDELINES issued on 22 July 2010 outlines th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns earned by the appellant are higher than those of the industry, a fact acknowledged by the TPO himself. 6. The contract manufacturer as a rule does not recover the amount of payments made towards the IPR from the sale of goods since the goods are being manufactured for the principal However, in this case the entire amount paid as royalty has been recovered from the price of the goods sold to the associated enterprises. This is evident from the fact that the gross margins computed by the appellant have been computed after considering the royalty as an expense and these gross margins are greater that the average industry margins. E. Royalty Computed on Sates, Including Sates to Associated Enterprise Itself, Satisfies Arm s Length Standard When Taxpayer Is Not a Contract Manufacturer Since the appellant is not a contract manufacturer, whatever royalty is paid (even if it is paid on the sales to associated enterprises) if recovered from the sales made has to be considered as being paid at ALP. The Delhi bench of the Income-tax Appellate Tribunal held that the taxpayer s payment to an associated enterprise of a royalty-the amount of which was computed based on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax payments on these Royalty payments. Since the payments have been made under legally valid and genuine agreements the payments must be considered as being at ALP. The Delhi Tribunal held that legally binding inter- company agreements for the payment of royalty and technical know-how fees, that have been duly approved by regulatory agencies, cannot be disregarded by the Transfer Pricing Officer merely because of a finding that there was no commercial need for the arrangement. Abhishek Auto Industries Limited v. Deputy Commissioner of Income Tax [201O-TII-54-ITAT-DEL-TP] (12 November 2010, Assessment Year 2004-05). The tribunal noted that commercial expediency is the domain of the taxpayer and that it had not been alleged by the tax authorities that the agreement was non-genuine or that it was a sham. The case is briefly explained in the paragraphs below: Background The taxpayer is an Indian company engaged in manufacturing of car seat belts for the Indian domestic market. For specific categories of seat belts, the taxpayer imports raw materials and avails technical know-how from its associated enterprise for assembling the seat belts, which are then supplied t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oyalty payment was included in the sale price of the garments so it was automatically benchmarked at arm s length. She further observed that the international transaction of export of garments was benchmarked at arm s length using Cost Plus Method and the royalty expenses had been reduced to arrive at gross profit for the purposes of benchmarking international transaction of export of garments, the gross profit margin earned by the assessee was 19% whereas comparables had earned gross margin between 12% - 16% which was acknowledged by the TPO vide para 2.1 of his order dated 09.03.2006. The ld. CIT(A) further observed that since the international transaction of royalty of export of garments had been clubbed to arrive at the gross profits and if the gross profit margins are at arm s length, automatically it followed that both the international transactions are at arm s length. The reliance was placed on the decision of the ITAT Delhi Bench in the case of ACIT v. Sona Okegawa Precision Forging Ltd. [2010]-TII-41-ITAT-Del-TP wherein it has been held as under: royalty paid by the taxpayer , computed on the basis of sales made to the associated enterprise, was at arm s length given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Judgment of the Hon ble Delhi High Court in the case of CIT v. Cushman and Wakefield (India) (P.) Ltd. [2014] 46 taxmann.com 317/367 ITR 730. 39. In her rival submissions the ld. Counsel for the assessee supported the impugned order passed by the ld. CIT(A) and reiterated the submissions made before the authorities below. It was further submitted that the transaction of payment of royalty was revenue neutral because assessee charged royalty by embedding it in sale price from AEs to whom goods were sold and paid to other AE i.e. PRC, USA. A reference was made to page no. 206 of the assessee s paper book. It was further stated that the ld. CIT(A) observed that the royalty was included in the sale price and was part of cost charged from AEs and that the royalty expenses had been reduced to arrive at Gross Profit for the purpose of benchmarking international transaction of export of garments, the gross profit mark-up earned by the assessee was at 19% after reducing royalty whereas industry had earned mark-up of 12-16%, therefore, royalty transaction was also at arm s length. It was pointed out that the assessee was recovering royalty from AEs by including it in the price quoted to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... USA as the assessee neither purchased anything from it nor sold anything to it. It was submitted that for the purpose of establishing the ALP of export garments (Rs.35.10 Crores), the assessee had compared itself with companies which were full fledged risk bearing manufacturers and the comparison had been accepted by the TPO. Therefore, the TPO had himself acknowledged that for the purposes of manufacture and export of garments, the assessee was full fledged manufacturer and not contract manufacturer. A reference was made to page no. 221 of the assessee s paper book. The reliance was placed on the decision of ITAT Delhi Bench in the case of Asstt. CIT v. Kehin Panalfa Ltd. 244/65 SOT 174 (URO). It was further submitted that the assessee had undertaken all business risks, inventory risk related to obsolescence, risks related to procurement of raw material and asscessories, spent on research development and hence had taken R D risk, marketing risk, production planning risks and the quality risk. It was further stated that as per the TPO s own admission, the contract manufacturer did not take market risk whereas the assessee was undertaking market risk as it traded in open marke ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount of payments made towards the IPR from the sale of goods since the goods are being manufactured for the principal. However, in this case the entire amount paid as royalty had been recovered from the price of the goods sold to the AEs, which was evident from the fact that gross margins were computed after considering the royalty as expense. It was further contended that the OECD guidelines quoted by the TPO were applicable where tested party was purchasing unfinished goods from AE as well as availing services for further processing of those unfinished goods from the AE. Thus, the guidelines seek to provide a guard lest there is duplication of payment by tested party for technology; first by way of increased price of goods purchased and again by way of royalty. However, the assessee is procuring raw material from independent parties from open market and was availing technical assistance from one AE and the finished products were sold to some other AEs. Therefore, the OECD guidelines cited by the TPO were not applicable to the facts of the assessee s case. It was submitted that the contract manufacturer is a step away from licensed manufacturer because it owns plant and machinery ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the Instruction No. 3 of 2003 dated 20.05.2003 issued by the CBDT clearly stated that in order to maintain uniformity of procedure and to ensure that work in this important area proceeds smoothly and effectively, the guidelines are issued. The reliance was also placed on the following case laws: CIT v. EKL Appliances Ltd. [2012] 345 ITR 241 (Delhi) LG Electronics India (P.) Ltd. v. Asstt. CIT [ 153 ITD 591 (Delhi - Trib.) Kodak India (P.) Ltd. v. Addl. CIT [2013] 37 taxmann.com 233 (Mum.) Sony Ericsson Mobile Communications India (P.) Ltd. v. CIT [2015] 374 ITR 118 (Delhi) Cushman Wakefield (India) (P.) Ltd. (supra) Hero Honda Motors v. Addl. CIT [IT Appeal No. 5130 (Delhi) of 2010, dated 23-11-2012] Dresser-Rand India (P.) Ltd. v. Addl. CIT [2012] 53 SOT 173 (Mum.) CA Computer Associates (P.) Ltd. v. Dy. CIT [2010] 37 SOT 306 (Mum.) LGE C-NCC (Joint Venture) v. ITO [2013] 37 taxmann.com 402 (Hyd. - Trib.) SC Enviro Agro India Ltd. v. Dy. CIT 143 ITD 195 (Mum. - Trib.) 42. We have considered the submissions of both the parties and carefully gone through the material available on the record. In the presen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... know-how and designs, in connection with the manufacture and sale of the Products; 2.2 The License herein granted shall only extend to the top quality products, designed, manufactured, promoted, advertised and sold according to the highest standards of the industry and in full compliance with the terms and conditions Hereof, so as to maintain, enhance and protect the image and prestige associated with the Name. 3.1 LICENSEE shall only use the Name, the Label and the Marks as authorized and, provided herein and in full compliance with the terms and conditions hereof and only for the duration of this Agreement. The license herein granted shall confer unto LICENSEE no proprietary rights whatsoever in the name or APRIL CORNELL , the Marks or the goodwill now attached or hereafter to become attached thereto. 4.6 (LICENSEE, its agents and its employees shall keep any and all elements of LICENSOR s know-how strictly confidential and w111 refrain from using such ( know-how for any purpose other than the purpose of this Agreement Upon termination thereof for any reason whatsoever, LICENSEE will return to LICENSOR any and all elements of LICENSORs know-how fixed in a tangible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d only enlarged range of its existing products were pure findings of fact, and those facts having attained finality, expenditure incurred by assessee was revenue in nature - Held, yes 8.5 Ld. A.R. also relied upon the judgements cited as CIT v. IAEC (Pumps) Ltd. 232 ITR 316 (S.C.), CIT v. IAEC (Pumps) Ltd. 110 ITR 353 (Mad.), CIT v. Steel Plant (P) Ltd. 17 Taxman 301 (Bom.) and CIT Vs Southern Pressings (P) Ltd. 125 Taxman 714 (Mad.). By applying the ratio of judgements cited above relied upon by the Ld. A.R., to the facts and circumstances of the present case, we are of the considered view that when the expenditure on account of payment of royalty have been paid by the assessee for having access to the technical knowhow, that too for a limited period, the payment was made as a licensee @ 5% of net sales of the product for making use of the knowhow, label and mark and technical assistance and it has not a right to retain the knowhow, mark or label as absolute owner, such an expenditure cannot be capitalized and the same are revenue expenditure. Consequently, ground No.2 is determined against the revenue. 43. In the present case, it is not brought on record that the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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