TMI Blog2023 (9) TMI 983X X X X Extracts X X X X X X X X Extracts X X X X ..... of royalty payment and allowed the depreciation at 25% treating it as capital expenditure. However, the appellate authorities, while deleting the disallowances made by the assessing officer, have rightly treated the royalty payment as revenue expenditure. Once the payment of royalty is treated as revenue expenditure, automatically, it goes without saying that the assessees would be entitled to 100% deduction. Therefore, we need not interfere with the orders passed by appellate authorities. Accordingly, the substantial questions of law relating to royalty, are answered in favour of the assessee. Disallowance u/s 14A r.w.r. 8D - HELD THAT:- As the Hon'ble Supreme Court in the decision in Maxopp Investment Ltd. [ 2018 (3) TMI 805 - SU ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as correct in holding that the payment of royalty is not towards acquisition of intangible asset and is revenue expenditure, merely following its earlier orders, which have not attained finality ? (ii) Whether the Income Tax Appellate Tribunal was correct in stating that the method of calculation of the disallowance set forth in Rule 8D would be applicable only for AY 2008-09 and subsequent assessment years ? (iii) Whether the Income Tax Appellate Tribunal was right in not holding that the method adopted by the assessing officer to compute the expenditure attributable to income not includable in total income is scientific and therefore the disallowance under 14A is to be sustained? 3. Today, when these matters were taken up f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the use of its Indian patents and /or trade marks, in pursuance of an agreement, is an admissible deduction, in favour of the assessee. Such a conclusion was arrived at, after a detailed analysis of the terms of the agreement, nature of the expenditure incurred and the other relevant factors. The following passage extracted from the said judgment is important: In the case in hand, it cannot be said that the swiss company had wholly parted with its Indian business. There was also no, attempt to part with the technical knowledge absolutely in favour of the assessee. The following facts which emerge from the agreement clearly show that the secret processes were not sold by the swiss company to the assessee:(a) the licence was f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of research and development made by the foreign company. The technical information given to the Indian company was non-exclusive and non-transferable . In other words, this is not an out and out sale of technical know-how. The assessee was merely given a non-exclusive and non-transferable right of user of the technical information. Expenditures in these facts cannot be said to be for acquisition of any asset at all. 7.10. Furthermore, in the judgment of the Supreme Court in Honda Siel Cars India Ltd v. CIT (supra), it was held that while deciding, whether royalty payment for technical know-how is capital or revenue expenditure, the enduring benefit test has to be applied; and the conditions to be satisfied for treating the expend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o of different nature. In case where there is a transfer of ownership in the intellectual property rights or in the licences, it would clearly be a capital expenditure. However, when no such rights are transferred but the arrangement facilitates grant of licence to use those rights for a limited purpose or limited period, the Courts have held that in such a situation, the royalty paid for use of such technical information or know-how would be in the nature of revenue expenditure as no enduring benefits is acquired thereby. This was so held in a classic case, entitled CIT v. Ciba India Limited (AIR 1968 SC 1131). 7.11. Thus, it is crystal clear from the aforesaid decisions of the Hon'ble supreme court that royalty payment made by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed, must be such that without which the transferee could never commence the business. As rightly contented by the learned senior counsel appearing for the assessees, the benefit granted by the licensor is not enduring in nature in the present cases. The assessing officer without appreciating the terms of the licence agreement and ascertaining the nature of the expenditure incurred by the assessee companies, disallowed the deduction of royalty payment and allowed the depreciation at 25% treating it as capital expenditure. However, the appellate authorities, while deleting the disallowances made by the assessing officer, have rightly treated the royalty payment as revenue expenditure. Once the payment of royalty is treated as revenue expendit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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