2019 (1) TMI 1881 - AT - Income Tax

ITAT Delhi Upholds Royalty Payments as Revenue Expenditure

DCIT, Circle-4 (1), C.R. Building, New Delhi Versus M/s. Baxter India Pvt. Ltd.

DCIT, Circle-4 (1), C.R. Building, New Delhi Versus M/s. Baxter India Pvt. Ltd. - TMI Issues:1. Addition made on account of payment of royalty held as capital expenditure.2. Royalty payment considered as capital expenditure.3. General ground for reserving the right to amend appeal.Analysis:1. The appeal pertains to the Revenue challenging the deletion of an addition made on account of royalty payment held as capital expenditure. The Assessing Officer proposed additions including transfer pricing adjustment and interest on IT refund. The Dispute Resolution Panel (DRP) directed the deletion of the royalty payment addition. Both the assessee and the Revenue appealed to the Tribunal.2. The assessee had paid royalty under a license agreement with a US company for using patents, trademarks, know-how, and software without acquiring ownership rights. The assessee argued that similar royalty payments in earlier and subsequent years were treated as revenue expenditure by the Tribunal. The Revenue contended that the royalty payments should be considered capital expenditure, but failed to dispute the previous favorable decisions for the assessee.3. The Tribunal noted that the royalty payment was made under the same license agreement as in previous years where such payments were treated as revenue expenditure. Referring to a previous decision, the Tribunal upheld the DRP's finding that the royalty payments were revenue expenditure, as no change in the agreement was observed. Consequently, the Tribunal dismissed the Revenue's appeal, citing consistency with past decisions.4. The Tribunal did not address the general ground for reserving the right to amend the appeal, as it was deemed unnecessary. Ultimately, the appeal of the Revenue was dismissed, affirming the treatment of royalty payments as revenue expenditure, based on the consistency of previous decisions and the terms of the license agreement.Judgment Summary:The ITAT Delhi heard an appeal by the Revenue against the deletion of royalty payment addition held as capital expenditure. The assessee paid royalty under a license agreement with a US company for using intellectual property without acquiring ownership. Previous and subsequent royalty payments were treated as revenue expenditure. The Revenue argued for capital treatment but failed to challenge past decisions. The Tribunal upheld the DRP's decision based on consistency, dismissing the Revenue's appeal. The general ground for appeal amendment was not addressed.