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TMI Blog2016 (10) TMI 1389X X X X Extracts X X X X X X X X Extracts X X X X ..... ntract agreement, the assessee had not only acquired exclusive license to use technical knowhow; as per clause 2.6(b) of the said agreement, the assessee was also deemed to have acquired a perpetual and royalty-free license to use the licensed technology on expiry of the tenure of the agreement; and thus, the payment was for a know-how which had enured to the assessee an enduring advantage, hence patently capital in nature. 4. The learned Commissioner of Income-tax (Appeals) grossly erred in failing to appreciate that as per the CBDT's Circular No. 21 [F.No.7A/40/68-IT(A-II)] dated 09.07.1969, in deciding the question whether expenditure on technical know-how is to be considered as capital or revenue, the rights and benefits which would permanently accrue to the Indian participant's business is an important yardstick; and that by applying the said yardstick the payment made by the assessee on account of royalty would have to be treated as capital and not revenue. 5. The learned Commissioner of Income-tax (Appeals) grossly erred in failing to appreciate that the decision in the case of Climate Systems India Ltd. Vs. Commissioner of Income-tax [319 ITR 113 (Delhi)] is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of capital expenditure and hence, is not admissible for deduction. As perusal of clause 2.6(b) of the Agreement between assessee and Carraro SpA, Italy would show that the assessee shall be deemed to have acquired a perpetual and royalty free non exclusive license to use the licensed technology on expiration of the tenure of the agreement, subject to complete payment of the royalty. Thus, the payment of royalty is capital in nature. The Commissioner of Income Tax (Appeals) has erred in accepting the contentions of the assessee. 3.1 The ld. DR further submitted that the second issue in paras 7 and 8 of the appeal relate to amortization of loose tools. It is an undisputed fact that the loose tools on which the assessee has claimed amortization are not installed in the business premises of the assessee. As per assessee's own admissions, loose tools are in possession of vendors who are supplying components to the assessee. The Commissioner of Income Tax (Appeals) has accepted the claim of the assessee by following the orders of his predecessors in preceding assessment year. The principle of res judicata does not apply in Income Tax proceedings. The issue raised in every assessment y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loose tools amortized each year is arrived at after considering the actual number of components received from the supplier after processing on the relative tools. Although the loose tools are in possession of the suppliers/manufacturers of the components they are the property of the assessee. These loose tools are used by the suppliers / manufacturers for manufacturing the components/parts to be used by the assessee. The assessee for the past several financial years has been consistently following the account practice of amortization of loose tools. The Commissioner of Income Tax (Appeals) in para 6.5 of the order has given the details of expenditure amortized every year on account of loose tools. The Assessing Officer has erred in disallowing the claim of the assessee on the ground that the tools are not laying in the business premises of assessee and hence the assessee is neither eligible to claim depreciation on the loose tools nor amortize the same. The ld. AR in support of his submissions placed reliance on the decision of Hon'ble Bombay High Court in the case of CIT Vs. Gopal Purohit reported as 336 ITR 287 to say that the principle of consistency has to be followed. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year, the Assessing Officer has held that 25% of the expenditure incurred on royalty is capital in nature. At this stage, the Ld. Authorised Representative pointed out that this issue is covered in favour of the assessee by the decision of the ITAT, Pune Bench, in assessee's own case in ITA.No.1384/PN/2010, 1385/PN/2010 and 205/PN/2011 for A.Ys. 2003-04, 2004-05 and 2005-06 respectively, wherein it has been held that expenditure on royalty is revenue in nature and allowable, by observing as under: "8. In sum and substance an overall consideration of the terms and clauses in the agreement between the assessee and the Carraro SpA, Italy, it is difficult to accept the contention of the A.O. that assessee has been granted absolute right of the use of the technology. While granting the limited right of technology with putting lot of restrictions the payment of the royalty is linked to the net sale turnover of the assessee in the specified territory. It is pertinent to note that royalty payment made by the assessee is not a lumpsum payment but it is spread over from the A.Ys. 2002-03 to 2008-09 (as per the chart filed before us) which was clearly linked to the sales of the licensed pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view. Thus, in view of the decision of Co-ordinate Bench, we do not find any merit in ground Nos. 2 to 6 raised by the Department in appeal. The findings of Commissioner of Income Tax (Appeals) on the issue are upheld and the ground Nos. 2 to 6 of the Department's appeal are dismissed being devoid of any merit. 8. The second issue raised by the Department in ground Nos. 7 and 8 of the appeal relate to amortization of loose tools. The assessee has been consistently following accounting practice of amortization of loose tools since assessment year 2002-03. The Revenue has never objected to the treatment given by the assessee in amortization of loose tools. The details of the amortization of the loose tools over the period of time starting from financial year 2001-02 up to financial year 2007-08 are as under : F.Y. Asstt. Year WDV Additions Total (3+4) Amortization Balance 1 2 3 4 5 6 7 2001-02 2002-03 5,93,05,907 1,40,19,100 7,33,25,007 23,56,034 7,09,68,973 2002-03 2003-04 7,09,68,973 13,19,928 7,22,88,901 47,18,243 6,75,70,658 2003-04 2004-05 6,75,70,658 84,85,970 7,60,56,628 1,86,61,979 5,73,94,649 2004-05 2005-06 5,73,94,649 46,25,000 6,20 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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