TaxTMI 
TaxTMI 
2020 (11) TMI 951
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....assessee. The subject matter of the appeal pertains to the Assessment year 2008-09. The appeal was admitted by a bench of this Court vide order dated 10.08.2016 on the following substantial question of law: (i) Whether the royalty payment for user of technical know-how and intellectual property rights along with the right to manufacture for a temporary period was required to be considered as revenue expenditure and to be allowed under Section 37(1) of the Act. (ii) Whether the Tribunal was right in upholding the view of the assessing officer that the expenditure towards royalty was a capital expenditure as the user of rights by way of know-how, intellectual property had resulted in enduring benefit to the Appellant when th....
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....s, there was no payment in lumpsum and royalty was payable at the rate of 1% of the net factory selling price and the royalty was required to be paid in respect of each of new Hitachi licence products sold by the assessee for a period of 7 years from the date of commencement of commercial production or ten years from the execution of the agreement, whichever is earlier. The Assessing Officer by an order dated 30.12.2011 inter alia concluded that the payment was made for acquiring a right, which provided enduring benefit and held that the same was a capital expenditure, which creates acquisition of right in the use of technical know-how and grant of rights for manufacture of licence, which include intellectual property. Accordingly, the clai....
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....unit was set up for manufacturing a new product after obtaining the licence to use the technical know how from the Hitachi. It is further pointed out that the aforesaid fact was verified by the Assessing Officer as well as Commissioner of Income Tax (Appeals) and it was not disputed by the tribunal. It is also pointed out that in terms of the technology licence agreement executed by the assessee for a limited period of using technical know-how for a period of seven years and taking into account the fact that the payment was based on percentage of net sale, the same ought to have been treated as revenue expenditure and not capital expenditure as there was no transfer of rights on the product / technical know-how and therefore, the licence to....
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....nection, our attention has been invited to Clause (b) as well as Clauses 2.1 and 2.2 of the agreement. It is also pointed out that the know how remains with the assessee even after the expiry of the royalty period and there is no obligation under the agreement to return the same. It is argued that the amount of royalty paid by the assessee is capital expenditure and know how provided under the agreement is acquisition of intangible asset having enduring benefit and the finding of the tribunal is based on appreciation of material available on record and the assessee has neither pleaded nor has proved any perversity in the finding recorded by the tribunal, which is a finding of fact. In support of aforesaid submissions, reliance has been plac....
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.... in various cases and the primary test to ascertain whether a expenditure is a capital expenditure or revenue expenditure is the same viz., enduring nature test, which means where the expenditure is incurred which gives enduring benefit, it will be treated as capital expenditure. The aforesaid view has been taken by Ciba India Ltd. supra and aforesaid principle was reiterated in Honda Siel Cars India Ltd. supra. 10. In the instant case, before proceeding further it is apposite to take note of the relevant clauses of the Technical Licence Agreement viz., Clause (b), Clause 1.13, 2.2, 2.4, 11.1, 15.2, and 24.1, which is reproduced below for the facility of reference: (b) Telcon is a Joint Venture of Hitachi and Tata Motors Limited....
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...., upon terms and conditions (including payments, if any) acceptable to the respective owners thereof. 11.1 Telcon shall start commercial product of specific Hitachi licence products within an agreed time frame and in any event, subject to receipt by Telcon of the technical know-how within the time periods specified in Article 3.1 above, no later than three years from the Effective date. 15.2 Royalty, as above, shall be applied to each new Hitachi licence products sold by Telcon, for either a period of seven (7) years from the date of commencement of commercial production of such product, or ten (10) years from the execution of this agreement, whichever is earlier (hereinafter referred to as 'the Royalty Period.") ....