TaxTMI 
TaxTMI 
2012 (3) TMI 58
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....assessee for the purpose of its business to earn income over a considerable period and the agreement with MEI was not in the nature of a short-term venture. 2.3. The learned CIT(A) ought to have noted that for treating an expenditure as a capital one, it is not necessary that the assessee should be the absolute owner of the property or use the asset exclusively. 3.1. The learned CIT(A) erred in restricting the disallowance of royalty payment made by the assessee company to MEI in respect of electric rice cookers to 25% of the payment. 3.2. The learned CIT(A) failed to no e that the impugned payment will result In enduring benefit to the assessee, in the light of the fact that the collaboration agreement between the assessee and MEI does not bar the assessee from parting with the technical knowhow in the form of a sub licence in favour of * any third party. 4. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the learned CIT(A) m y be set aside and that of the Assessing Officer restored. " 2. The assessee has taken the following grounds: 1. The order of the Commissioner of Income Tax (Appeals) is contrary to law, fa....
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....om the profits while computing deduction u/s 80HHC. 12. The Commissioner of Income Tax (Appeals) ought to have appreciated that the insurance claim received is towards compensation for goods damaged during transit and are in the nature of sale consideration. 13. Appellant craves leave to adduce additional grounds at the time of hearing." 3. Briefly stated, the facts of the cases are that the assesseecompany, namely M/s Panasonic Home Appliances India Company Ltd. [formerly known as Indo Matsushita Appliances Company Ltd (IMACO)] filed its return of income for assessment year 2004-05 on 1.11.2004 declaring total income of Rs. 43,64,549/-. The assesseecompany entered into two Collaboration Agreements with M/s Matsushita Electric Industrial Co. Ltd., Japan (MEI) for the manufacture of Electric Rice Cookers and Mixer Grinders. The Collaboration Agreements were drafted in accordance with the guidelines prescribed by the Government of India. The mode of payment was by way of payment of one amount in lump sum and the other was to be paid in the form of royalty of the company on recurring basis. The payment made to MEI as initial lump sum payments were properly capitalized ....
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....n treated by the ld. CIT(A) as revenue expenditure as against treated by the Assessing Officer to the extent of 25% of the royalty payment as capital expenditure. The case of the Revenue is that the assessee had acquired a valuable right for the manufacture of Mixer Grinders which was used by it for the purpose of its business to earn income over a considerable period as the agreement was not in the nature of a short term venture. It was argued by the ld.DR that for treating the expenditure as a capital one, it is not necessary that the assessee should be the absolute owner of the property/asset or it should have been used exclusively for that purpose. On the other hand, the ld.AR has supported the finding of the ld. CIT(A) in this regard. 7. After hearing both sides, we have found that the technical know-how for setting up of the factory and commencing production by the assessee-company was provided by MEI in consideration of a lump sum payment which was capitalized in assessee's books of account in the respective years of payment. The royalty was paid by the company based on the sales effected by it @ 3% in the case of Electric Rice Cookers and @ 4% in the case of Mixer Grinde....
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....nce and technical knowhow made available to IMACO hereunder shall be used only for IMACO's own manufacture of the products in its own factories in India, and IMACO undertakes that such technical assistance and technical know how shall be neither directly or indirectly transferred or be made available to any third party. The term 'third party' used herein shall mean any party who shall not sign this agreement. Clause 4.03:- Nothing herein contained shall be construed to preclude MEI from furnishing, supplying, transferring or licensing for any purpose the technical assistance or the technical knowhow (to be supplied hereunder) to any third party other than IMACO. Clause 4.04:- The technical assistance and the technical knowhow made available hereunder shall neither extend to the manufacture of any of the components for the manufacture of any of the production equipment. Clause 5.01:- IMACO shall keep the technical assistance and the technical knowhow made available hereunder strictly secret and shall cause suitable secrecy agreement or non-disclosure agreement to be signed by the staff and other employees of IMACO who may have access thereto, to the extent deemed proper by ....
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....ed as capital in nature. Hence, we cannot allow Ground Nos.2.1 to 2.3 of Revenue's appeal and dismiss the same. 12. The next issue of Revenue's appeal covered by Ground Nos.3.1 and 3.2 pertains to similar payment made in the case of Electric Rice Cookers. 13. We have found that the clauses of Collaboration Agreement in respect of Electric Rice Cookers are significantly different. As per clause 4.01 of the Collaboration Agreement, during the term of the Agreement, M/s MEI agrees to grant to IMACO a non-exclusive licence to manufacture the products at IMACO's factory. This technical knowhow has been held to be non-transferable. Clause 6.01 of the agreement states that notwithstanding anything contained in the other clauses of the agreement, IMACO shall be free to part with the technical assistance and technical knowhow in the form of a sub licence in favour of any third party. The ld. CIT(A) has construed imaging that it cannot be held that the entire royalty payment during the year was towards acquisition of the capital asset in the form of a right to part with the technical know-how by way of a sub-licence. According to him, some of the royalty payment must have been in the r....
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....ng Officer has held otherwise after accepting that the receipts are a part of business income but still it was held as not eligible for deduction u/s 80HHC of the Act. It was argued that the provisions written back would not form the part of assessed income and therefore, would be out of the purview of clause (baa) appended to section 80HHC. The provision for doubtful debts has been recorded in the books of account but was added back in the memo of income filed alongwith the return. But recovery from out of such provisions made in that year or earlier years, though shown as other income in the books, would not be in the nature of income because the deduction for the provision made in this regard had not been claimed in the return. 18. We have verified the facts and the rival contentions and are of the of the opinion that the contention of the assessee-company is found to be correct. We have found that the receipts from sale of scrap would be a part of the income from business for the purpose of computing the eligible deduction u/s 80HHC. 90% of the receipts from sale of scrap would be required to be deducted from the profits of business in terms of clause (baa) appended to secti....