TaxTMI 
TaxTMI 
TaxTMI 
2016 (7) TMI 1608
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....addition of Rs. 2,42,09,240/- on account of Royalty; (ii) Deletion of addition of Rs. 18,423/- on account of extra depreciation claimed on UPS; (iii) Deletion of addition of Rs. 34,17,901/- on account of interest income. 3. ITA No. 5323/Del/2012 has also been preferred by the Department against the order dated 28.11.2011 passed by the ld. CIT(Appeals)-V, New Delhi for AY 2008-09 and assails the action of the ld. CIT(Appeals) in deleting the addition of Rs. 1,08,60,681/- on account of Royalty. Since all the appeals had a common issue, they were heard together and they are being disposed of through this common order. 4. The facts in brief are that the assessee has paid Royalty to M/s Baxter International Inc. USA @ 5.8% on the net sales on year to year basis and the same was claimed to be revenue expenditure. The assessee i.e. Baxter India Pvt. Ltd. is stated to be a franchisee of Baxter International Inc. USA and the assessee uses the name of 'Baxter' and manufactures health care products and equipment according to formula, method, techniques provided by Baxter International Inc. and in return the assessee pays the fees in the form of Royalty @ 5.8% of the net sale. However, it's ....
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....ade mark' and 'technical know-how', which is clearly unambiguously an expenditure capital in nature. Further, it is a case, where it can be easily construed that he assessee company owned the 'trade mark' and 'technical know-how' "partly" along with its parent company for its operation for the period of ten years. 2. The appellant craves leave for reserving the right to amend, modify, alter, add or forego any grounds of appeal at any time before or during the hearing of this appeal. Grounds of CO No. 399/D/2010: 1. The ld. CIT(A) has erred on facts and in law in deleting addition of Rs. 1,33,83,745/- made on account of disallowance of royalty payment ignoring that payment of royalty was made for procuring and usage of 'trade mark' and 'technical know-how', which is clearly unambiguously an expenditure capital in nature. Further, it is a case, where it can be easily construed that he assessee company owned the 'trade mark' and 'technical know-how' "partly" along with its parent company for its operation for the period of ten years. 2. The appellant craves leave for reserving the right to amend, modify, alter, add or forego any grounds of appeal at any time before or during t....
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....enditure starting of a new business on the basis of technical know-how received from the foreign firm, exclusive right of the company to use the patent or trademark which it receives from the foreign firm, the payments made by the company to the foreign firm, whether a definite one or dependent upon certain contingencies, right to use the technical know-how of production or the activity even after the completion of the agreement, obtaining enduring benefit for a considerable part on account of the technical information received from a foreign firm, payment whether made 'once for all' or in different installments corelatable to the percentage of gross turnover of the product to ultimately find out whether the expenditure or payment thus made makes an accretion to the capital asset and after the court comes to the conclusion that it does so, then it has to be held to be a capital expenditure. No single definitive criterion by itself could be determinative and, therefore, keeping in mind the changing economic realities of business and the varieties of situational diversities the various clauses of the agreement in question are to be examined. In the case on hand, the Tribunal having....
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....settlement of such claims the company (assessee) has placed a deposit in Fifth Escrow Account of Rs. 8292600/- with the Citi Bank, escrow agent. Both the parties have filed their statement of claims account and the fixed deposit shall be en-cashed by the winning party as and when the case is decided in arbitration. This fact was declared by the appellant in the balance sheet. The interest accrued on the escrow account in the last four years and its declaration schedule per the following table - S.No. A.Y. Interest during the year Interest declared in the return TDS claimed during the year 1 2006-07 2332749 0.00 0.00 2 2007-08 3417901 0.00 766977 3 2008-09 6753475 0.00 1497245 4 2009-10 3767833 16271958 853790 The above figure of Rs. 1,62,71,958/- includes the interest of Rs. 1,25,04,125/- pertaining to FY 2006-07, 2007-08, 2008-09. Year Amount 2006-07 23,32,749.00 2007-08 34,17,901.00 2008-09 67,53,475.00 2009-10 37,67,833.00 Total 1,62,71,958.00 9. It was submitted that this declaration of interest was made by the assessee in the last year as because of dispute the assessee was not entitled to claim interest the same till the ....
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....ayment as revenue expenditure. The Assessing Officer disallowed the claim holding that by virtue of the agreement, the assessee had derived an asset of enduring nature. On appeal, the CIT (A) allowed the assessee's claim holding that the expenditure incurred by the assessee was a recurring expenditure and not a capital expenditure. The Tribunal upheld the order of the CIT (A). On Revenue's appeal to the High Court, it was held as under:- "A perusal of the Circular No.21 of 1969, dated 9-7-1969 shows that if in terms of the agreement, only a license is required for user of technical knowledge from a foreign participant for a limited period together with or without the right to use the patents and trademarks of the foreign party, the payment would not bring into existence an asset of an enduring advantage to the Indian party. Relying upon this circular, the Commissioner (Appeals) concluded that the assessee had been paying the license fee to 'S' on a year-toyear basis for acquisition of technical knowledge, and even if the assessee acquired a set-up of an enduring nature, it would not amount to a capital expenditure but to a revenue expenditure. The Commissioner (App....
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....agreement, the assessee paid certain amount to 'R' and claimed same as revenue expenditure. The lower authorities, relying on the word 'sold' in the agreement, held that it was a case of sale of technical know-how by 'R1 to the assessee and, therefore, payment in question could not be treated as revenue expenditure. However, the Tribunal held that there was no sale of technical knowhow by 'R' to the assessee and, therefore, the payment was revenue expenditure. It was held as under:- "There was, in fact, no absolute transfer of any right in the documentation given by 'R' to the assessee. The assessee was entitled to use the technical know-how for a period of five years or for a lesser period, in case the agreement was terminated before that. The assessee did not have a free hand to sub-license the technical know-how and that was possible only with the prior written permission from 'R'. For all other matters, the assessee was liable to treat as confidential all inventions, drawings, documents, specifications, etc., furnished by 'R' to it. Even though the assessee was entitled to use the name of 'R' in the marketing of its products, yet that right would cease up....
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....; to technical knowledge, as against, 'absolute' transfer of technical knowledge and information would ordinarily be treated as revenue expenditure. In order to sift, in a manner of speaking, the grain from the chaff, one would have to closely look at the attendant circumstances, such as : (a) the tenure of the licence, (b) the right, if any, in the licensee to create further rights in favour of Tribunal third parties, (c) the prohibition, if any, in parting with a confidential information received under the licence to third parties without the consent of the licensor, (d) whether the licence transfers the 'fruits of research' of the licensor, 'once for all', (e) whether on expiry of the licence the licensee is required to return back the plans and designs obtained under the licence to the licensor even though the Hence may continue to manufacture the product, in respect of which 'access' to knowledge was obtained during the subsistence of the licence. (f) whether any secret or process of manufacture was sold by the licensor to the licensee. Expenditure on obtaining access to such secret process would ordinarily be construed as capital in....
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....ation of the agreement the assessee could continue to use technical information in production of licensed products and hence the assessee obtained enduring benefit, and (b) that there was nothing to show that any technical service was to be provided on day-to-day or on regular basis at any specified interval and thus it was a case of outright transfer of technical know-how. On appeal, the Hon'ble Jurisdictional High Court held as under:- "Held, allowing the appeal, that under the agreement, payments were to be made by the assessee in two parts: a lump sum fee for transfer of technology (which the assessee had admitted as being of capital nature) and royalty payment in consideration of providing technology services. The payment of royalty depended on the quantum of domestic as well as export sales which would decrease or increase every year depending upon the decrease or increase in the sales. This payment was not because of transfer" of technology, but for providing "technical services", in such circumstance, the payment of royalty, which was a continuous process, should have been treated as revenue expenditure." 15. In the case of CIT Vs. Munjal Showa Ltd. - [2010] 329 ITR ....
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....sdictional High Court hold that the annual payments of royalty were revenue expenditure. 17. Accordingly, ITA Nos. 4785/Del/2010 for AY 2004-05 and 5323/Del/2012 for AY 2008-09 filed by the Department are dismissed and Ground No. 1 in ITA No. 2798/Del/2012 (Department's Appeal) is also dismissed. 18. As far as ground no. 2 in ITA No. 2798/Del/2012 is concerned, the Department has challenged the deletion of addition of Rs. 18,243/- on account of depreciation claimed @ 60% on UPS. The ld. CIT (A) has relied on the judgment of the Hon'ble Delhi High Court in the case of CIT vs. BSES Yamuna Power Ltd. in ITA No. 1267/2010 while deleting the disallowance. The ld. DR could not cite any other judgment where a different view has been held. Hence, we find no reason to interfere and dismiss ground no. 2 of the Department's appeal. 19. As far as ground no. 3 in ITA No. 2798/Del/2012 regarding the addition of Rs. 34,17,901/- on account of interest income is concerned, we find that the issue has been discussed at length in para 6.1 of the impugned order which reads as under: "6.1 The issue involved and the submissions made by the appellant have been considered. Facts emerging from the asses....