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TMI Blog2022 (11) TMI 1113X X X X Extracts X X X X X X X X Extracts X X X X ..... come on 29.11.2014, declaring loss of Rs. 32,81,43,050/- and book loss of Rs. 43,22,49,379/. The assessment have been completed u/s. 143(3) r.w.s. 92CA of the Income-tax Act, 1961 (hereinafter referred to as "the Act")for assessment year 2011-12 & 2014-15 and determined total income of Rs. 9,96,49,995 for assessment year 2011-12, and loss of Rs.26,36,09,196/- for assessment year 2014-15, by making various additions towards disallowance of royalty payment, treating it as capital in nature, excess depreciation on UPS and disallowance of expenses in relation to exempt income u/s. 14A r.w.r. 8D of the Income-tax Rules, 1962 (hereinafter referred to as "the Rules, 1962). The assessee carried the matter in appeal before the first appellate authority and the Ld. CIT(A) for reasons stated in their appellate order dated 11.12.2017 for both assessment years deleted additions made by the AO towards royalty payment, excess depreciation on UPS and disallowance of expenses u/s. 14A r.w.r. 8D of the Rules, 1962. Aggrieved by the CIT(A) order, Revenue is in appeal before us. 3. The first issue that came up for our consideration from ground no.2 of assessee's appeal for both assessment years is de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as a capital outgo, was an issue before this Tribunal in assessee's appeals for assessment years 2004-05 to 2006-07. It was held by this Tribunal at paras 3 to 6 of its order dated 10th June, 2011, as under:- "3. We have considered the rival submissions and have perused the entire relevant provisions of law and precedents applicable thereto and relied before us. It was argued on behalf of the assessee that in assessment year 2003-04, the Department has itself accepted this expenditure as revenue expenditure and has allowed the same as deduction u/s 35(2AB). This fact could not be successfully controverted from the side of the Revenue. We have found from the perusal of the agreement that KMC granted the assessee an exclusive right to manufacture and sell the products in India using the licenced technology provided. An exclusive right has been conferred on the assessee for manufacturing and selling the products in India. The payment of royalty towards technical information provided by a foreign company in respect of manufacturing methods of the products and the licence granted to the assessee-company to manufacture and sell the products was treated by the Assessing Officer as ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s capital. But we have noticed that the facts of this case are slightly different and the Hon'ble Madras High Court has held in numerous other decisions that mere grant of exclusive right to manufacture may not result in acquiring any capital asset. In this regard, decision of Hon'ble Madras High Court in the case of CIT vs Lucas TVS Ltd, 110 ITR 338 which has been confirmed by the Apex Court by dismissing the SLP of the Revenue, 196 ITR 78 (Statute); CIT vs Sundaram Clayton, 136 ITR 350 (Mds); CIT vs Brakes India Ltd, 136 ITR 322(Mad); CIT vs Lakshmi Cardt Clothing, 149 ITR 712 and CIT vs IAEC Pumps, 110 ITR 353 which has been affirmed by the Hon'ble Supreme Court in the 232 ITR 316, are relevant. The Hon'ble Jurisdictional High Court has been consistently holding that grant of right to use technical know-how coupled with exclusive right to manufacture will not result in any asset of enduring benefit. In the case of Southern Switchgear(SS), the facts are that all drawings/specifications and other data furnished to SS were to be in English with measurement shown in the system currently used by brush but shall be the property of SS on the condition that SS shall agre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y MEI [a foreign company] in consideration of a lump sum payment to MEI which was capitalized in the assessee's books of account in respective years of payment. The royalty was paid by the assessee from June 1984 onwards based on the sales effected at the rate of 2.5% on domestic sales and at 5% on exports. The court was deciding whether such royalty payment would fall within the category of revenue expenditure or capital expenditure. The High Court has taken a view in favour of the assessee. The Chennai Bench, recently in the case of Nippo Batteries Co. Ltd vs ACIT, [2011] 7 ITR (Trib) 303 (Chennai) has decided similar issue by holding that such type of royalty payment cannot be bifurcated without any provision in the agreement and the entire payment has to be treated as revenue expenditure allowable as deduction. The Bench has discussed more than a dozen of decisions of various High Courts including that of the Hon'ble Madras, Delhi and Apex Court to arrive at its above conclusion. 6. The ld.DR has relied on the decision of Hon'ble Supreme Court rendered in the case of Southern Switchgear Ltd vs CIT, 232 ITR 359. About this decision, we have already mentioned that the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n by the Revenue for both assessment years. 6. The next issue that came up for our consideration from ground no. 3 of Revenue's appeal for assessment year 2011- 12 is excess depreciation claimed on UPS @ 60%. The Ld. AO has disallowed excess depreciation claimed on UPS @ 60% on the ground that the UPS and printers are in the nature of office equipment which are eligible for depreciation @ 15% and cannot be treated as computer and computer software to claim higher depreciation of 60%. 7. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. We find that the issue of depreciation on UPS and printer as part of computer and computer software is decided by the Hon'ble Jurisdictional High Court of Madras in the case of M/s. Brakes India Limited vs DCIT in TCA No. 551/2013, where it has been held that UPS and printer are integral part of computer and computer software and are eligible for higher depreciation of 60%, but not normal depreciation of 15% as applicable to office equipment. The CIT(A) by following the decision of Hon'ble Madras High Court in the above case has rightly deleted additions made towards excess depre ..... 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