2010 (8) TMI 1046 - AT - Income Tax

ITAT Delhi: Royalty Payment Deletion Upheld as Revenue Expenditure for AY 2006-07

The ITAT Delhi dismissed the revenue's appeal challenging the deletion of disallowance on royalty payment for the assessment year 2006-07. The Tribunal ... - Issues involved:The judgment involves the treatment of royalty payment as revenue or capital expenditure for the assessment year 2006-07.Issue 1: Treatment of Royalty PaymentThe appellant, a manufacturer of medical products, entered into a technical collaboration agreement involving royalty payment. The Assessing Officer (AO) considered 25% of the royalty expenses as capital expenditure due to the enduring nature of the advantage gained. However, the CIT(A) deleted this disallowance based on a previous ITAT order for the assessment year 2005-06. The Tribunal noted that the appellant was granted a license to use the know-how but never became the owner of it, as the know-how remained the property of the licensor. Citing relevant case laws, the Tribunal concluded that the payment should be treated as revenue expenditure. The Tribunal distinguished the present case from previous judgments where technical knowledge was available even after agreement termination, leading to a partial capital expenditure treatment. Consequently, the Tribunal dismissed the appeal, following the precedent set by the earlier ITAT order.Decision:The appeal filed by the revenue challenging the deletion of disallowance on royalty payment for the assessment year 2006-07 was dismissed by the ITAT Delhi, upholding the treatment of royalty payment as revenue expenditure based on the licensing agreement terms and legal precedents.