TaxTMI 
TaxTMI 
2017 (7) TMI 426
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....chnical know-how is treated as revenue in nature and balance 25% is treated as capital in nature and entitled for depreciation. 3. The facts of the case are that the assessee has claimed sum of Rs. 5,49,09,220/- as royalty in the nature in the P&L A/c under the head Manufacturing and other expenses. The assessee clarified before the AO that as per the copy of the agreement for foreign technology transfer entered by the assessee with M/s LRC Products Ltd., UK, who had agreed to make available new formulation on continuous basis to the assessee company for upgrading the quality of products in their plants in India and in consideration thereof, the assessee company agreed to pay M/s LRC Products Ltd. the royalty for technical know-how at the ....
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.... would not grant for make available to any other person any information relating to manufacture/ licence/rights for any of the products in question in India thereby the exclusive rights are confirmed to the assessee to manufacture and sale of the products which is also evident by clause 5.2(a) of the MOU between TTK group and the assesses. Considering the above, the AO treated royalty expenditure as capital and allow4l 25% depreciation. 3.2 Further, the ld.A.R contended before the Ld.CIT(A) that in assessees own case the Hon'ble ITAT, Chennai, ITA No.1791 to 1796/11 dt. 31.10.2012 has held that:- "75% of the expenditure incurred toward the royalty is allowable as revenue expenditure and the balance 25% as capital expenditure entitled for....
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.... the foreign company concerned had agreed not to manufacture similar products in India and not to give rights of manufacture to others. The instant case is rather covered by case law of M/s.IAEC Pumps Ltd., wherein the license to use the intellectual know-how was for ten years with clauses for rescinding the agreement before the expiry of said time period as well. Similarly in the case of M/s.G4S Securities System, there was no exclusive use of the technical know -how and royalty was payable on year to year basis and the Hon'ble Delhi High Court had held that "the ownership rights of the trade mark and know-how throughout vested with the foreign company and on the expiration or termination of the agreement the assessee was to return all ....
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....28,848/- Total disallowance Rs.31,80,355/ According to assessee, as per rule 8D(i) the AO has not expressed any satisfaction as to the correctness of the claim of expenditure of Rs. 1 1,24,427/-made by th assessee and therefore disallowance made under rule 8D(ii) is invalid. The appellant has referred the decision of Hon'ble Punjab and Haryana High Courts the case of CIT Vs hero cycles Ltd,323 ITR 518, the Delhi ITAT in the case of ACIT Vs sun investments, 8 ITR 33, and the Chennal ITAT decision in the case of Shri Ram properties private limited Vs ACIT, 36 CCH 297 where in it was held unless the AO establishes that specific expenditure has been incurred by the assessee for earning exempt income, there can be no disallowance und....
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.... expenditure is incurred in earning income which does not form part of total income, is not correct. The Ld.CIT(A) came to a conclusion that after arriving to a satisfaction only, the AO has invoked provision of section 14A r.w. Rule 8D and the claim of assessee was dismissed by Ld.CIT(A). Against this, the assessee is in appeal before us. 7. We have heard both the parties and perused the material on record. The main contention of the ld.A.R is that expenditure incurred on earning exempted income by the assessee towards financials and interest charges at Rs. 35,60,764/- includes interest and leased vehicles at Rs. 7,52,328/- and bank charges at Rs. 28,08,436/- and it does not pertain to earning of the exempted income. Beig so, this specifi....