TaxTMI 
TaxTMI 
2015 (6) TMI 65
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.... receipt of royalty income which is covered against the assessee by order of the Tribunal in assessee's own case for Assessment Year 2007-08 and 2008-09 in I.T.A.No. 4626 and 5921 respectively. 4. Ld. D.R. agreed that the issue involved in cross appeals were squarely covered by earlier order of ITAT in the assessee's own case. 5. We have heard rival parties and have gone through the material placed on record. We find that in revenue's appeal, ground No.1 relates to the issue of franchise fee which the A.O. had held to be capital in nature. However, Ld. CIT(A) had allowed it as revenue expenditure following its own order in Assessment Year 2008-09. We find that similar issue arose in Assessment Year 2003-04, in I.T.A. No. 310/Del/2014 wherein Hon'ble Delhi High Court vide its order dated 01.08.2014 has decided the issue in favour of assessee. The Hon'ble Delhi High Court has held as under: "2. On the first aspect, the Assessing Officer had relied upon decision of the Madras High Court in Commissioner of Income Tax, Tamil Nadu-Il versus Southern Switchgear Limited. (1984) 148 ITR 272 (Madras), which we feel is clearly distinguishable. In the said case the....
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....nt acquired by the respondent-assessee could be lost during the tenure of the agreement itself and the respondent-assessee was utilizing the goodwill and the 'trademark, which was owned by a third party. Commissioner of Income Tax (Appeals) has rightly relied upon decision of the Delhi High Court in CIT versus J.K. Synthetics. (2009) 309 ITR 371 (Delhi) wherein the following tests have been culled out after examining several decisions of the Supreme Court and High Courts:- (i) the expenditure incurred towards' initial outlay of business would be in the nature of capital expenditure, however, if the expenditure is incurred while the business is ongoing, it would have to be ascertained if the expenditure is made for acquiring or bringing into existence an asset of an advantage of an enduring benefit for the business, if that be so, it will be in the nature of capital expenditure. If the expenditure, on the other hand, is for running the business or working it, with a view to produce profits, it would be in the nature of revenue expenditure; (ii) it is the aim and object of expenditure, which would, determine its character and not the source and manner of its payment; ....
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.... may continue to manufacture the product, in respect of which access to knowledge was obtained during the subsistence of the Licence. (f) whether any secret or process of manufacture was sold by the licensor to the licensee. Expenditure on obtaining access to such secret process would ordinarily be construed as capital in nature: (vi) the fact that assessee could use the technical knowledge obtained during the tenure of the License for the purposes of its business after the Agreement has expired, and in that sense resulting in an enduring advantage has been categorically rejected by the courts. The Courts have held that this, by itself, cannot be decisive because knowledge by itself may last for a long period even though due to rapid change of technology and huge strides made in the field of science, the knowledge may with passage of time become obsolete; (vii) while determining the nature of expenditure, given the diversity of human affairs and complicated nature of business; the test enunciated by courts have to be applied from a business point of view and on a fair appreciation of the whole fact situation before concluding whether the expenditure is in the nature of cap....
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....Supreme Court in respect o the operation of the said order of the Hon'ble High Court relied by the Id CIT(A) granting relief to the assessee. In the absence of the same, we are bound by the binding precedent laid down by the Hon'ble Jurisdictional High Court. Therefore, the Id CIT(A) has rightly relied upon the order of the Hon'ble High Court in BSES Yamuna Power Ltd and we do not find any infirmity in the order of the Id CIT(A) and therefore, we dismiss the ground of the revenue." 7.1 The facts in the present appeal remains the same, therefore, respectfully following the Tribunal order, Ground NO.2 is also dismissed. 7.2 In view of the above, appeal filed by Revenue is dismissed. 8. Now, coming to assessee's appeal, the assessee has taken only one material ground of appeal which relates to addition of royalty amount received form D P Lanka Pvt. Ltd. during the relevant period. The above issue has also been decided by ITAT in the case of assessee itself in Assessment Year 2007-08, 2008-09 in I.T.A. No. 4626/Del/2012 and 5921/Del/2012. The facts relating to this issue are that during assessment proceedings the A.O. observed that an amount of Rs. 9,59,881/- w....
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....sidiary at Sri Lanka ran into financial problems therefore under the settlement arrived with the bank it was mutually agreed that repayment of loan of 3.5 million Sri Lanka Rupees out of the entire loan was to be paid through assignment of accruals of royalty due from Sri Lankan Company to the appellant company. In such circumstances the issue for consideration is whether the aforesaid assignment of accrual of royalty from the Sri Lankan subsidiary namely M/s. DPLPL results into non-taxability of the royalty income in the hands of the assessee company. 12. The Hon'ble Supreme Court in the case of Provat Kumar Mitter. Vs. CIT reported in 41 ITR 624 held that, fundamental principle is that an application of income is an allocation of one's own income after it accrues or has arises, although such application may be under a contract or obligation, whereas diversion of income is that which diverts away or deflects before it accrues to or reaches the assessee and it is received by him only for the benefit of the person who is entitled to the income under an overriding charge or little. 13. Applying the above test as enunciated by the Apex Court we are of the opinion that th....