2012 (2) TMI 354

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....ax (Appeals) under Section 263 of the Act, the Assessing Officer passed an order dated 30th July, 2007 holding that the royalty payment of Rs.108.64 lacs was capital expenditure, inter alia, for acquisition of a capital asset. 3. The CIT(Appeals) deleted the said addition. The said order has been affirmed by the tribunal. 4. We reproduce the reasoning given by the Assessing Officer to make the said addition: "3. The assessee vide his letter dated 23.07.2007 has submitted that royalty of Rs.108.64 cannot be considered as capital as it is not for acquisition of any capital asset (trade mark). It is only for „user‟ thereof and is payable every year, based on the sales in the year. The arguments of the assessee cannot be accepted....

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....ring to these decisions, a Division Bench of this Court in Commissioner of Income Tax versus G4S. Securities System (India) (P) Limited, (2011) 338 ITR 46, has held as under:- "9. From the terms of the agreement it is noticed that this arrangement was for a period of 5 years, which may be extended by another period of 5 years unless either party gives 6 months notice to the other party prior to the end of such 5 years period. The payment of commission @ 1% was based on the net sales and not lumpsum. On the termination of expiration of the sub license agreement, the assessee was to return all G4F knowhow obtained pursuant to the said agreement. Not only that, the assessee was not even entitled to make use of the trade mark name or G4F knowh....

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....another case reported as DCIT Vs. Swaraj Engines Ltd. (2002) 124 Taxman 188, the Tribunal held, revenue payment is allowable as revenue expenditure, since it is related to sales and that it is paid for better conduct, efficiency and improvement of the existing business or product manufactured by the assessee. In the case of CIT Vs. Lumax Industries Ltd. (2008) 173 Taxman 290 (Delhi), this Court has also held that the payment of license fee on year to year basis for acquisition of technical knowledge would not amount to capital expenditure, but the revenue expenditure. 10. From the ratio of the above said cases, we are of the considered view that under the terms of the agreement as noted above, the ownership rights of the trade mark and know....