2012 (3) TMI 723 - AT - Income Tax

Tribunal Confirms Non-Enduring Nature of Royalty Payments, Dismisses Revenue's Appeal for AY 2008-09.

The Tribunal upheld the CIT(A)'s order, dismissing the Revenue's appeal concerning the disallowance of royalty for AY 2008-09. It ruled in favor of the ... - Issues involved: Appeal against order of CIT(A) regarding disallowance of royalty u/s AY 2008-09.Summary:The Revenue appealed against the CIT(A)'s order regarding the disallowance of royalty amounting to Rs.70,09,183. The issue was settled in favor of the assessee by a previous ITAT order in the assessee's own case for AY 2004-05. The Tribunal found that the royalty was not of enduring nature and was payable based on sales volume, hence no enduring benefit accrued to the assessee. The Tribunal followed a decision of the Jurisdictional High Court and set aside the order of the authorities below, deciding the issue in favor of the assessee. Consequently, the impugned order of the CIT(A) was upheld, and the Revenue's appeal was dismissed.The Tribunal noted that the royalty was not of enduring nature as it was based on sales volume and would cease upon termination of the agreement. The Tribunal found that the training expenses for employees under the agreement could not be considered capital expenditure. Relying on the decision of the Jurisdictional High Court, the Tribunal decided the issue in favor of the assessee, setting aside the lower authorities' order.The Tribunal upheld the CIT(A)'s order and dismissed the Revenue's appeal, concluding that the disallowance of royalty was not justified based on the nature of the agreement and the previous decisions in similar cases. The decision was pronounced in open court on 21st March 2012.