2022 (4) TMI 612

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.... 2. As per its grounds of appeal, the assessee has challenged the disallowance of expenditure amounting to Rs. 20,71,510/- as capital expenditure being 25% of royalty amount paid of Rs. 82,86,039/- by the assessee on account of use of technical know-how and technical process of licensor. 3. Briefly stated assessee is a subsidiary of Nefab AB, Sweden and is engaged in the business of manufacture and sale of customized packaging solutions to various customers in India. For the assessment year under consideration, the assessee filed its return of income declaring loss of Rs. 4,80,43,901/-. The case of the assessee was selected for scrutiny. In the course of assessment, the Assessing Officer inter alia observed that the assessee has incurred ....

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.... payable was calculated at 2% of the total amount of sale of subject products using such technical process know-how etc. and thus the quantum of fee paid is variable and not fixed. It was further pointed out that as per clause 4.2 of the agreement, the assessee herein shall receive such technical information and maintain same in strictest confidence and shall not reveal or disclose the same to any third party. It was submitted that term/period of this agreement was three years subject to automatic renewal for additional period unless terminated by either party to the agreement. As per clause No. 7.5 of the license agreement, upon termination, the assessee was required to immediately cease the use of any and all technical process know-how to....

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....t the changes in the existing products of the assessee; (iv) the judicial pronouncements relied upon by the Revenue Authorities are rendered in squarely different factual backdrop and thus cannot be applied. (v) Judicial precedents and principles laid down in CBDT Circular No. 21 : dated 09.07.1969 supports the case of assessee. 7. Ld. DR for the Revenue, on the other hand, placed reliance upon the orders of the lower authorities and submitted in furtherance that text and tenor of license agreement would suggest that the assessee has acquired the right to use the technical process know-how for perpetual use and the benefit accruing to the assessee is of long term in nature giving rise to the creation of capital asset of considerable va....

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....that the assessee cannot sub-license the same to any third party and the licensor continues to exercise all pervasive domain over the ownership over the technical knowhow in exclusion to the licensee assessee. The assessee has been merely given a license to use the licensed information/technical know-how during the currency of license agreement. Further, there is a confidentiality clause which prevents the assessee from disclosing the licensed information to a third party. To reiterate, the assessee is not entitled to the use of licensed technical know-how on termination of agreement and is obliged under the contract, to relinquish the advantage accruing by virtue of license agreement. All the above features of the agreement make it unequiv....