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TMI Blog2024 (5) TMI 1513X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of the Act." 3. Brief facts of the case are that the Assessee claimed deduction in respect of royalty expenses amounting to Rs. 26,86,175/- in the profit & loss account. The expenses were paid to M/s Choice Hotels Licensing B.V. The Assessing Officer examined the claim as to whether the expenses were in the nature of revenue or capital. Before the Assessing Officer, it was submitted that M/s Choice Hotels Licensing B.V. has granted license to Assessee to franchise, to operate the franchise and to develop and expand the system in the territory and use the brands in India like quality, comfort, sleep inn, cambria suites & ascend collection to the hotel properties. M/s Choice B.V. and the Assessee entered into an agreement to franchise and to establish and operate hotels. Royalty Expenses - Rs. 13,43,087/-: 4. Out of the above expenditure of Rs. 26,86,175/- royalty was payable as per the following: * Fixed royalty of Rs. 3,46,294/- @ US $ 500 per quarter for each franchised hotel that enters the system on or before April 1, 2015. * Variable royalty of Rs. 23,39,880/- for each franchised hotel that entered the system after April 1, 2015. 5. Befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enced in their respective fields of hotel operations, subject to their availability and at reasonable times. The expenses for such personnel shall include, without limitation, the expenses of travel and accommodation incurred in the performance of such services, and a per diem of US$300.00 paid pro rata according to the time spent by such personnel; all payments for the said services shall be made in U.S. currency within 30 days of billing. 5.4 Choice shall utilize the International Marketing Fees to provide international sales offices, representation of hotel trade shows, advertising in international consumer and trade media, and for group promotional campaigns and to provide such marketing, merchandising, advertising, research data and advice as may from time to time be developed by Choice and is considered by Choice to be helpful or necessary to the operation of the Business or as requested by the Master Franchisee. 5.5 Choice shall list the Franchised Hotels in such relevant directories of Choice hotels as it may publish from time to time, subject, however, to payment of a fee for each hotel so listed as the parties may agree from time to time. 5.6 Choice shall provide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT (A) relied on the submission of the assessee is as under: "The Appellant provides the Franchisee to individual hotel properties for use of the above said brands. It also provides a complete spectrum of Hotel operating and technical services like Hotel Development, Project Planning, Technical and Pre-opening Services, Reservations System, Sales and Marketing Support, Human Resources Support, Quality Assurance Inspections, Financial Planning. The Appellant receives fees from Hotel properties in the name of franchisee fees, marketing fees, management operation fees etc." 11. Based on the above, the ld. CIT (A) held that the Assessee is not engaged in manufacturing business, the business of the Assessee is running the hotel. Hence, the technical know-how, project planning etc. are related to the knowhow of the running the hotel business and building it. The ld. CIT (A) held that the technical know-how acquired by the Assessee cannot be limited to its use for one financial year only. The ld. CIT (A) held that the assessee has got enduring benefit to the recipient of the technical know-how. 12. The ld. CIT (A) held that where the transfer of technical know-how etc. is mixed wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held as to be revenue expenditure merely because the same was to be made at a certain percentages of the rate of the gross turnover. The Hon'ble Supreme Court held the decision of the Hon'ble High Court justified. In the case of Southern Switch Gear Ltd., the Hon'ble Supreme Court held that technical knowledge obtained from the foreign company provided enduring advantage. Benefits in that were available to the Assessee for its manufacturing and industrial processes even after the termination of the agreement. The transfer of designs, procedures, experience and technical knowhow, which can be used even after the expiry of the agreement provides benefits of enduring nature. The court held that the entire technical fees cannot be allowed as revenue expenditure. 16. The Hon'ble Delhi High Court in the case of CIT vs. Hero Honda Motors Ltd. (2015), 55 taxmann.com 230 wherein it was held that the payment of royalty for right to use or access to technical know-how and information is revenue expenditure. 17. The ld. CIT (A) has valiantly tried to bifurcate the annual royalty paid into "onetime benefit" as one part and "recurring benefit" on the other part as some manuals ..... X X X X Extracts X X X X X X X X Extracts X X X X
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