2017 (3) TMI 396

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....3 as the leading case.The Income Tax Appeal no.233 of 2013 which was directed to be listed with the leading case by the order of this court dated 22.2.2017, is de-linked and the same shall be listed in due course. The leading Income Tax Appeal no.240 of 2013 has been filed by the State for the assessment year 2009-10.On 4.9.2013 this court has admitted the appeal on the following question of law: "Whether on the facts and circumstances of the case, the ITAT was legally justified in holding that the payment of royalty paid to M/s Hongo Japan is an allowable business expenditure in the hands of the assessee company and cannot be held to be capital in nature." Briefly stated facts of the case in the leading appeal are that the a....

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....sed for reasons of being below the monetary limit. However the record of that appeal is before us. From a perusal of the order of the tribunal for assessment year 2001-02, we find that the tribunal has examined the nature of the agreement and the payments made by the assessee to Hongo, Japan and in paragraph 15 thereof, it has observed as under: "15. Having noticed so, we proceed to consider the different clauses of the agreement entered into by the assessee with M/s. Hongo Japan to resolve the controversy as to whether the expenses in question claimed by the assessee as deduction are on account of revenue or capital. In the case before us, the agreement between the assessee and Hongo Japan was to provide a licence and technical....

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....w, nor engage anyone other than the assessee itself to undertake the production or manufacture of the licenced products, except with the prior written consent of Hongo Japan. However it was also provided that Hongo shall have no right to make use of and sell the licensed products, component parts and manufacturing equipment in the territory and to otherwise utilize the know-how in any manner in the Republic of India other than for the assessee, except in the cases where Hongo grants to any third party in the Republic of India the right to manufacture and sell the manufacturing equipment pursuant to sub-section (2) of Article 4 of the agreement. As per Article 13 of the agreement, this agreement was made effective for an initial period of 10....

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....w as provided by Honga Japan to assessee company and all improvements and inventions made by the assessee company regarding the licensed products and Hongo Japan shall not be liable to the assessee company for, and the assessee company shall not be entitled to, any damages, reimbursements, or other payments for the reason of the expiration or other termination of the agreement or failure to renew or extend it, except in case where the agreement is terminated for any reason imputable to Hongo." Thereafter the tribunal applied the ratio laid down by the Hon'ble Apex Court in the case of Jonas Woodhead & Sons India Ltd. vs CIT 224 ITR 342, held that the benefit accruing to the assesee was under the licence agreement, not of enduring nat....