AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2016 (1) TMI 774
X X X X Extracts X X X X
X X X X Extracts X X X X
.... instead of capital expenditure." 2. Briefly stated the facts of the case are that during scrutiny, return filed by the assessee declaring income of Rs. 15,94,02,495/- for the Assessment Year 2009-10, it was found that the payment of Rs. 1,06,15,100/- is shown to have been made by the assessee during financial year 2008-09 to its licensor namely G4S Regional Consultancy Services NAMESA WELL, Manama, Bahrain against royalty for the use of trade mark and trade name. The assessee was required to explain why royalty should not be capitalized as it gives enduring benefit to the assessee. The assessee filed reply dated 26.08.2011, which reads as under: "This issue has already been decided by Honorable Delhi High Court in the case of our group....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... order passed by the A.O., contended that when transaction in question is examined in the light of agreement, the amount of Rs. 79,61,325/- is required to be treated as capital expenditure and not revenue expenditure as held by Ld. CIT(A) vide impugned order and relied upon the order passed by Ld. CIT(A). 6. However, on the other hand, Ld. A.R. relied upon the order passed by Tribunal in I.T.A. No. 2125/Del/2013 dated 12.03.2014 and I.T.A. No. 3160/Del/2013 dated 14.08.2014 in the case of ACIT Vs G4S Security Services (India) Pvt. Ltd., wherein the matter in issue in the present appeal has been squarely covered qua the previous assessment years. 7. We have heard both the parties, gone through the assessment order and the order passed by L....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ses after considering the facts and legal position. The facts of that case are similar to the following facts of appellant, which as per the term of the present agreement, provide that: (i) The appellant company was engaged in the service industry instead of engaged in the manufacturing activities. (ii) Since in the service industry, technology changes at rapid pace than manufacturing activity therefore it is immaterial to emphasize that appellant company would be able to use the technical knowhow even after the termination of the agreement. (iii) In the present case, appellant company was giving the royalty more for enjoying trade name and trade mark whose value NIL after termination of the contract. (iv) Appellant company h....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r any part of royalty expenditure as capital expenditure. 10. In the assessee's own case for the Assessment Year 2005-06, decided on 11.07.2011 by Hon'ble Jurisdictional High Court in the case of CIT Vs G4S Securities System (India) Pvt. Ltd (supra) in para 9 and 10 has categorically held that the payment of royalty is revenue expenditure. Operative part of the judgement (supra) reads 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 lump sum. On the termination ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on a Percentage of turnover or profits, it necessarily has no relation to the capital value of the asset, because it cannot be known at the time of the agreement what the turnover or profits will be over a period of years. In 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 err 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 know edge would not amount to....