2015 (10) TMI 1371 - AT - Income Tax

Tribunal Upholds CIT(A) on Royalty & Depreciation, Ruling in Favor of Assessee

The Tribunal upheld the Ld CIT(A)'s decisions on both issues. The royalty payment was characterized as a revenue expenditure based on turnover, and excess ... Royalty paid for using the brand name “Cryo Bank” - revenue or capital expenditure - Held that:- As per various clauses of license agreement the assessee was to pay at the time of entering of agreement certain amounts cover equipment and training and further it was required to pay regular annual royalty on all domestic sales which was to be calculated on the basis of turnover. The Ld CIT(A) therefore has rightly held the payment to be of revenue nature and has rightly allowed the relief. See case of Climate Systems India Ltd. [2009 (10) TMI 116 - DELHI HIGH COURT] - Decided in favour of assessee Depreciation on computer peripherals - @ 15% or 60% - Held that: - Computer accessories and peripherals such as, printers, scanners and server etc. form an integral part of the computer system. In fact, the computer accessories and peripherals cannot be used without the computer. Consequently, as they are the part of the computer system, they are entitled to depreciation at the higher rate of 60%. See case of BSES Rajdhani Powers Ltd. [2010 (8) TMI 58 - DELHI HIGH COURT] - Decided in favour of assessee Issues:1. Characterization of royalty payment as revenue or capital expenditure.2. Disallowance of excess depreciation on computer peripherals.Issue 1: Characterization of Royalty Payment:The appeal concerns the classification of a royalty payment made by the assessee to Cryobank International Inc. as revenue or capital expenditure. The Assessing Officer contended that the payment for using the brand name 'Cryo Bank' constituted capital expenditure, while the assessee argued it was a revenue expense based on the turnover. The License Agreement clauses were analyzed to determine the nature of the payment. The Assessing Officer concluded that the payment was for acquiring an enduring benefit, constituting capital expenditure. However, the Ld CIT(A) disagreed, citing the agreement terms and the revenue nature of the payment based on the turnover. The Ld CIT(A) referred to a previous case where a similar addition was deleted, emphasizing that the royalty expenses were revenue in nature. The Tribunal upheld the Ld CIT(A)'s decision, citing the Hon'ble Delhi High Court's judgment in a similar case, stating that royalty linked to turnover is a revenue expenditure.Issue 2: Disallowance of Excess Depreciation:The second issue pertains to the disallowance of excess depreciation claimed on computer peripherals by the assessee. The Assessing Officer noted that the assessee claimed depreciation at 60% instead of the allowable 15%. The Ld CIT(A) relied on the case law of BSES Rajdhani Ltd. and allowed the relief, leading to the deletion of the excess depreciation. The Tribunal concurred with the Ld CIT(A)'s decision, stating that it was in line with the Hon'ble Delhi High Court's judgment in a similar case involving the disallowance of excess depreciation on computer peripherals.In conclusion, the Tribunal dismissed the revenue's appeal, upholding the Ld CIT(A)'s decisions on both issues. The characterization of the royalty payment as revenue expenditure based on turnover and the allowance of excess depreciation on computer peripherals were determined to be in accordance with relevant case laws and the facts of the case. The Tribunal found no infirmity in the Ld CIT(A)'s orders and pronounced the judgment in favor of the assessee on both grounds.