2016 (10) TMI 1239

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....nt of disallowance. The grounds raised in assessment year 2008-09 read as under :- "1. Whether on the facts and in the circumstances of the case, the ld.CIT(A) was right in law in allowing royalty of Rs. 1,50,50,557/- paid by assessee to its associated enterprises (Mitsubishi Electric Corporation, Japan) as revenue in nature whereas the assessee company has the exclusive right to sell and manufacture product in India, which resulted in securing benefit of enduring nature.  2. Whether on the facts and in the circumstances of the case, the ld.CIT(A) was right in law in holding that the facts of the case are different from ratio of judgment of Hon'ble Supreme Court in the case of Southern Switchgear Ltd. Vs. CIT (1998) 232 ITR 359....

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...., the Revenue has accepted the royalty payment as revenue expenditure. In assessment year 2006- 07, in the original assessment, the same was accepted. However, the notice for reassessment was issued u/s 148 which was quashed by Hon'ble Jurisdictional High Court. The said decision is reported in 231 Taxman 343. In assessment year 2007-08, again, the same was accepted by the Assessing Officer as revenue expenditure. In assessment year 2008-09, 2009-10 & 2010-11, it was disallowed for which appeal is pending before the ITAT. In assessment year 2011-12, the disallowance was proposed by the Assessing Officer in the draft assessment order but which was directed to be deleted by the DRP. The order of the DRP has been accepted by the Assessing ....

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....pon the order of the Assessing Officer. 6. We have carefully considered the submissions of both the sides and have perused the material placed before us. We find that the Revenue has accepted the royalty as revenue expenditure in the preceding as well as subsequent years. Thus, there would be no justification for treating the same to be capital expenditure in some of the intervening years. Hon'ble Apex Court in the case of Radhasoami Satsang Vs. CIT - [1992] 193 ITR 321 held as under:- "Held, reversing the decision of the High Court, on the facts, (i) that property given to the Satguru was intended for the common purpose of furthering the purpose of the institution. The central council had authority to manage the properties of the instit....

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....ll the knowhow obtained by it under the agreement. The payment of royalty was also to be on year to year basis on the net sales of the assessee and at no point of time was the assessee entitled to become the exclusive owner of the know-how and the trade mark. Hence, the expenditure incurred by the assessee as royalty was revenue expenditure and was deductible under section 37(1) of the Income-tax Act, 1961." 8. The ratio of the above decision would be squarely applicable to the facts of the assessee's case because the payment of royalty in the case of the assessee is also on year to year basis on the net sales of the assessee and at no point of time, the assessee is entitled to become the exclusive owner of know-how and the trademark. We a....