TaxTMI 
TaxTMI 
2011 (10) TMI 18
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....nt between RML and the assessee had been initially for a period contained in foreign collaboration letter issued by the FIPB, Govt. of India. According to their letter bearing No.FC.II.27(94) dated 14.1.1994, the duration of the agreement approved was 10 years from the date of agreement or 7 years from the date of commencement of commercial production. Accordingly, the seven years term expired on 29.8.2002. Pursuant to press note No.2 of 2003 dated 24.6.2003 issued by Govt.of India, the assessee made a request to the Government on 21.7.2003 for seeking extension of technical collaboration agreement. The Department of Economic Affairs, Govt.of India accorded the approval by letter of even No. dated 6.8.2003. Accordingly, the supplement agreement dated 16.9.2003 was executed between RML and the assessee, which is made effective from 1.10.2003. Clause 1 of the said supplement agreement reads as under:- "The Agreement will continue from 1 October 2003 until such time as both parties mutually decide to terminate the Agreement." 6. According to clause 3 of the agreement, this supplement agreement is part of the original assessment except as modified and therefore, all....
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....nation of this agreement, the licensee shall have no right to exploit or in any way to use the know-how and shall forthwith discontinue all use of the know-how and shall not thereafter use the know-how and so on. Thus, it is clear that the know-how has not been sold to the company and the licensor has an exclusive ownership of the know-how, therefore there is no reason to disallow the expenditure incurred on royalty payment which is revenue in nature, by treating the same as capital expenditure. 7. The CIT(A) has accepted assessee's method of computing royalty on the basis of sales value of WML and addition made in this regard of Rs.21.39 million deleted. However, CIT(A) has made ad-hoc addition of 5% of royalty relying on Hon'ble Supreme Court judgment in the case of Southern Switchgear. The CIT(A) has made a chart showing comparison of the facts of the case of Southern Switchgear and the assessee's own facts and found out that only one fact i.e. the assessee has an exclusive right to manufacture is common in both. The CIT(A) has held that since one of the condition mentioned in that order namely "the right to manufacture is exclusive in India" is also applicable in case....
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....er. As against the aforesaid, the assessee has claimed deduction of Rs. 7,10,24,985/- as per computation given on page 2 of the assessment order. The AO has considered 75% of the royalty payable as revenue expenditure and 25% as capital expenditure. Therefore, the revenue expenditure is computed at Rs. 2,55,39,660/-. Thus, the claim to the extent of Rs. 4,54,85,325/- has not been allowed. 2.3 The ld. DR has drawn our attention to various pages of the paper book, the contents of which are discussed hereinafter briefly. In the agreement dated 27.07.1994, under which the royalty is paid, the term "Know-how" mean formulae, processes, receipts, product specification, technical and manufacturing data, information, equipment specification, specification of raw-material, and other technical information and data necessary to manufacture Revlon products. Various licenses have been granted to the assessee as per Article 2 under the head "Know-How License" and "Patent License". Under the Know-How License, the Licensor granted to the assessee the exclusive right to use the know-how in any plant approved by the Licensor in accordance with the processes, specification and recipes thereo....
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....n is that it was paid to acquire the know-how outright and not by way of exploiting the know-how by using the patent or otherwise. Thus, the question was decided in favour of the revenue and against the assessee. 2.5 Further, reliance has been placed on the decision of Hon'ble Allahabad High Court in the case of Ram Kumar Pharmaceutical Works vs. CIT, (1979) 119 ITR 33. The assessee paid royalty for five years after which nothing was required to be paid and still it was able to use knowhow for long time. As the agreement provided that know-how and the data stood transferred to the assessee for being used by it in future without time limit, the only restriction was that it could not transfer the same to any one else, it was held that the royalty paid constituted an item of capital expenditure. 2.6 In the case of CIT vs. Shri Ram Bearings Ltd., (2001) 119 Taxman 970 (Cal.), the assessee entered into a technical collaboration with a foreign company for supply of technical know-how for a lump-sum consideration It was claimed as revenue expenditure. The Hon'ble Court mentioned that the agreement subsisted for a period of five years. Thereafter, the assessee could con....
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.... and divert the same to joint venture partners. Therefore, following the earlier order, deduction of Rs. 30.00 lakh only was allowed, which is stated to be the fair market value of the services rendered by Shri U.K. Modi to the assessee-company on behalf of joint venture partner. The ld. CIT(Appeals) had decided the matter against the revenue in earlier years. It was also found by him that the matter had been decided against the revenue by the Tribunal in assessment years 2005-06 to 2007-08. Therefore, he deleted the addition. 3.1 The only point made by the ld. DR is that the ld. CIT(Appeals) did not ask for proof of services availed of by the assessee. The case of the ld. counsel is that the matter is covered under earlier decision of the Tribunal. 3.2 We have considered the facts of the case and submissions made before us. The disallowance has not been made on the ground that no service has been availed of by the assessee in lieu of payment of the aforesaid amount. His case is that the payment is a devise for siphoning off profits. No proof has been brought on record in respect thereof. He has merely relied on his findings of earlier years which have been reve....
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....roup concerns. The ld. CIT(Appeals) has deleted the addition by following the decision of the Tribunal in earlier years. The only point made by the ld. DR is that factual basis for making the claim has not been fully examined by the ld. CIT(Appeals). 4.1 We find that the issue stands covered by the decision of the Tribunal for assessment years 2005-06 and 2006-07. Respectfully following the decision, it is held that no interference is required in the decision of the ld. CIT(Appeals). For ready reference, paragraph no. 14 of the earlier decision of the Tribunal is reproduced below:- "14. We have considered the rival contentions and found from the record that an agreement was entered into by the assessee according to which WMPL has to bear only the cost of advertising and other expenses relating to consumer sector. As the benefit of promotion of brand "Revlon" accrued only to the assessee, the same is required to be incurred by assessee himself. We also found that in spite of the agreement with WMPL, the assessee was not precluded from incurring advertising expenses since it was purely commercial decision taken by the assessee. Since the assessee was the brand own....