TaxTMI 
TaxTMI 
2013 (2) TMI 877
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.... use the licensed technology. 2. On the facts and circumstances of the case the Ld. CIT(A) erred in allowing the claim of depreciation of ₹ 1,07,905/- of the Assessee considering the peripheral to be part and parcel and inclusive in the term computer, thereby allowing 60% depreciation as against 25% available under the Act. 3.1 The first issue is in respect of the royalty payment of ₹ 1,38,23,945/- paid by the assessee to the Carraro Spa, Italy which was treated by the A.O. as a capital expenditure and disallowed the same. The facts which reveal from the record are as under. The assessee company is in the manufacturing and trading of Tractor Transmission aggregates and Front Axles. The assessee is a joint venture company of Carraro Spa, Italy and Escorts Ltd. of India. Carraro Spa, Italy along with the Simest Spa holds 51% of the equity of the assessee and Escorts Ltd. holds the balance 49%. The A.O. has observed that the assessee had paid an amount of ₹ 1,84,31,927/- to Carraro Spa, Italy as a royalty paid for technical knowhow and which was claimed as the revenue expenditure. The A.O. sought the explanation of the assessee why the said expenditure should no....
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....ical collaboration agreement and hence, the amount of royalty is directly linked with the sales revenue and it is only on account of the revenue expenditure. The Ld. CIT(A) accepted the plea of the assessee that the royalty payment by the assessee to Carraro Spa, Italy as per the terms of the agreement was with regard to the non-transfer of the ownership of the technology being used by the assessee company and the royalty payment was based on the annual sales made by the assessee. The Ld. CIT(A) concluded that the assessee has been granted non-transferable license to knowhow and that technology to produce supplied by Carraro Spa, Italy could remain exclusive property of the licensor and the ownership right is not transferred to assessee company. The Ld. CIT(A) also observed that the expenditure is linked to a small percentage of sale of products in Indian market and therefore explanation (3) to section 32 is not applicable here. The Ld. CIT(A) also observed that the A.O. should read the whole agreement of technical knowhow and apply the terms of Agreement in the proper spirit. He also followed the decision of the ITAT Delhi in the case of ACIT Vs. Sierra Industrial Enterprises (P) ....
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....obligation to pay the royalty. The Ld. Counsel referred to clause no.13.2 of the Agreement where the consequences on the expirations of Agreement are explained. He put his emphasis on the said clause and argues that after the expiration of the period of the agreement, the assessee cannot use the licensed trade mark. He therefore, submitted that when the period is mentioned in the agreement that clearly suggest that there is no exclusive right to the assessee to use the Licensed Technology. He further argues that for understanding the contractual nature between the assessee and the Carraro Spa, Italy, the entire agreement as such is to be understood. He also made his submissions on the decisions relied on by the Ld. D.R. more particularly in the case of Liquor Firm 190 ITR 197 (Ker.) as well as the different decisions relied on by the A.O. He submits that the decision in the case of Southern Switchgear Ltd. vs. CIT 232 ITR 359 (SC) relied on by the Ld. CIT(DR) is rendered on the different contractual terms as in that case there was an exclusive right to the assessee to use the technical knowhow. He alternatively submits that assessee company is incorporated in the financial year 199....
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....ined in clause no.1.5, which reads as under: "Licensed Technology" The technical information, drawings, know how data, techniques, plans and materials specifications on manufacturing, equipment, methods, process and formulas and the improvements thereof owned by or licensed to Carraro or its subsidiaries and followed and used by same in the manufacture of the Licensed Products out excluding technology the transfer or license of which to Carraro India would be prohibited, either generally or specifically, by any statutory or regulatory requirements, competent authority or contractual obligations to which Carraro or its subsidiaries are a party. 6.2 Clause no. 2.1 is also relevant which reads as under:- "Grant and Scope of the License." Carraro hereby grants to Carraro India the exclusive right, without the right to sub-license: (a) to manufacture, solely I the Territory, the Licensed products under the Licensed Technology and by prevailing itself of the Technical Assistance, all in accordance with and within the limits set forth in this Agreement; (b) to delegate to third parties established in the Territory the manufacturing of single parts, components or indivi....
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....e of the licensed product and use of the licensed trade mark and which are relevant to the same are reproduced as under: MANUFACTURE OF THE LICENSED PRODUCTS 7.1 General, Carraro India shall throughout the term of this Agreement manufacture the Licensed Products strictly in accordance with the Licensed Technology and any statutory or regulatory requirement applicable thereto at any relevant time in the Territory. 7.2 Quality Controls; Carraro India shall maintain adequate quality standards and specifications for the Licensed Products to assure that the good name ad reputation of Carraro are not adversely affected. Carraro India's manufacturing and assembly process, facility, equipment, inventory as well as purchased components and raw material may be audited annually, at agreed times, by representatives of Carraro to assure that adequate quality standards and specifications are maintained and the good name and reputation of Carraro are being protected. Carraro, moreover, shall have the right exercisable at any time and from time to time to verify that the Licensed Products manufactured by Carraro India hereunder conform with provision of Clause 7.1 above and to reque....
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....e affixed thereto by any statutory or regulatory provision in force in the Territory. 6.6 Clause No.11 lays down the terms of the payment of the fees/royalty which are as under: 11. FEES AND REIMBURSEMENT 11.1 Fees Carraro India will pay to Carraro, until expiration of this Agreement, as consideration for the License and for the rendering of the Technical Assistance pursuant to this Agreement a royalty (hereinafter the "Royalty") to be paid every six (6) months (hereinafter the "Given Period") which will be equal for each Given Period to 2% (two percent) of the Net Sale Price at the end of the relevant Given Period. 11.2 Sales Reports Promptly following the end of each Given Period during the term of this Agreement, together with the payment of the relevant Royalty, Carraro India will send to Carraro a sales report drafted in a form reasonably acceptable to Carraro, reflecting complete details of all sales of Licensed Products occurred during such given Period. 11.3 Annual reports. Within 60 (sixty) days after the end of each Calendar Year Carraro India shall furnish Carraro with a detailed and final report, drafted in a form reasonably acceptable to Carraro ....
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.... (b) Carraro shall have the right to exercise the option right set forth under Clause 14.4. 6.8. The termination clause of agreement is as under:- TERMINATION 14.1 Either party Termination Either party shall have the right to terminate this Agreement, before the expiry, at any time upon written notice given to the other party under any of the following circumstances; (a) In the event the other Party commits a material breach of this Agreement and such breach is not cured, fully and effectively, within 30 (thirty) days after notification of such breach; (b) In the event the other Party becomes bankrupt or is the subject of proceedings for liquidation or dissolution or ceases to carry on its business; 14.2 Carraro Termination "Carraro shall have the right to terminate this Agreement at any time upon written notice given to Carraro India under any of the following circumstances: (a) If Carraro should hold (whether directly or through any Shareholders Agreement) less than fifty-one (51%) of the share capital of Carraro India; (b) In the event of Carraro should not be able to designate the majority of the board of directors of Carraro India; (c) In the ev....
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....t is also approved by the RBI. Clause 2.1 is important to understand the limits on the rights of the assessee to use the license. The use of the license or right given to the assessee is confined to himself and there is no right to sub-license the technology which has been supplied by the Carraro Spa, Italy, to the assessee. Clause no.2.4 make the further clarifications that assessee should not manufacture the Licensed products outside the territory and beyond the terms of the agreement not to export, market, distribute or sale or otherwise deliver the licensed product. Clause no.2.5 is also important as right in respect of the Licensed Technology has been retained as an exclusive property of Carraro Spa, Italy and on the expiration of the Agreement as terms of clause no.13, it is agreed that assessee company should not without the prior consent of the Carraro Spa, Italy, transferred fully or partially any of the rights to any third party. It is also pertinent to note that termination clause is also incorporated in the agreement. That clearly suggest that there is no absolute right in the nature of the property to the assessee to enjoy the same unlimited as Carraro Spa, Italy can t....
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....ith the findings of the Ld. CIT(A) on the above reasoning. 9. In the result, the ground taken by the revenue is dismissed. 10. The next issue is the percentage at which the depreciation is to be allowed in the peripheral of the computer. The A.O. has observed that the assessee has claimed depreciation @ 60% on the computer accessories and peripherals like printers, etc. He has further observed that only computer and computer software are eligible for depreciation @ 60% and the said percentage cannot be extended to computer accessories and peripherals. Without giving any details of the peripherals and computer accessories, the A.O. worked out the disallowance by adopting depreciation at 25%. The Ld. CIT(A) allowed the claim of the assessee. The revenue is in appeal before us. We find that the issue is squarely covered in favour of the assessee by the decision of the Hon'ble High court of Delhi in the case of CIT Vs. BSES Rajdhani Power Ltd. ITA No.1266/2010 order dated 31.8.2010 as well as by the decisions of the ITAT special bench Mumbai in the case of DCIT Vs. Datacraft India Ltd. 9 ITR 712 (Mum) (SB). We accordingly confirmed the order of the Ld. CIT(A) and dismiss the gr....
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....the A.O., as per the assessee's submission dated 11.12.2006, the loss claimed pertains to the unrealized portion on account of reinstatement of creditors, debtors and loans availed. In view of the A.O., the reinstatement of liability is in the nature of the provision and it provides for change to the availability which become payable had the entire payment to be made on the last day of the financial year on which the balance sheet is prepared. The A.O. made disallowances of the entire loss of ₹ 1,40,915/-. The Ld. CIT(A) allowed the claim of the assessee and deleted the addition. The Ld. Counsel submitted that the provision of ₹ 1,40,915/- is different of exchange rate prevailing on 31.3.2004. In respect of outstanding foreign currency liability and amount already booked in respect of the liability on the date of its occurrence. Even the adjustment is in the nature of the provision but it is of permissible. He also relied on the decision in the case of CIT Vs. Woodward Governor India P. Ltd. 312 ITR 254 (SC). We find that the assessee's case is clearly covered, as per the facts on record, by the decision in the case of Woodward Governor India P. Ltd. (supra). It is not ....