TaxTMI 
TaxTMI 
2023 (9) TMI 983
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....ent Year 2008-2009 and by the Income Tax Appellate Tribunal 'C' Bench, Chennai, in I.T.A.No.1842/Mds/2010 dated 08.05.2012 relating to the Assessment Year 2007-2008, respectively. 2.By separate orders dated 25.04.2013, the aforesaid appeals were admitted on the following substantial question(s) of law: T.C.A.No.255 of 2012 : "(i) Whether under the facts and circumstances of the case, the Income Tax Appellate Tribunal was correct in holding that the payment of royalty is not towards acquisition of intangible asset and is revenue expenditure, merely following its earlier order in ITA.No.1512/Mds/2010, which has not attained finality ? T.C.A.No.43 of 2013 : "(i) Whether under the facts and circumstances of th....
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....royalty based on turnover and the same is renewable. As already stated, it is the claim of the assessee companies that the license agreement confers the right to use the logo with restrictions viz., non-transferable and non-exclusive; there is no acquisition and there is only the right to use and not ownership; and therefore, the royalty payment which is revenue in nature, falls within the general provisions of section 37(1) and not under section 32(1)(ii). 7.8. This court is bound by the legal proposition laid down In the decision in CIT v. Ciba of India Ltd, (supra) referred to on the side of the assessee companies. In that case, the Hon'ble supreme court answered the question, whether the payment made by the assessee to the ....
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....he assessee; and (f) the stipulated payment was recurrent dependent upon the sales, and only for the period of the agreement. We agree with the High Court that the first question was rightly answered in favour of the assessee." However, it is imperative for this court to apply the law laid down by the Apex Court to the facts of the present case, to determine the nature of the royalty payment made by the assessee companies i.e., whether it is revenue or capital expenditure. 7.9. At this juncture, it is apposite to refer to the decision of the Hon'ble supreme court in CIT v. Wavin (I) Ltd. (supra) which was referred to by the Tribunal, while passing the orders impugned herein and it was held by the Hon'ble Supreme co....
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.... same, namely, the enduring nature test. It means where the expenditure is incurred which gives enduring benefit, it will be treated as capital expenditure. In contradistinction to the cases where expenditure of concurrent and reoccurring nature is incurred and the later would belong to revenue field. Technical information and know-how are intangible. They have a different and distinct character from tangible assets. When the expenditure is incurred to acquire a tangible asset, determination as to whether the said acquisition of tangible asset is of capital nature or the expenditure is of revenue nature, may not pose a problem. However, in case of technical information and know-how, having regard to their unique characteristic, the question....
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.... company for limited purpose, cannot be treated as transfer of ownership or title. Though the licence is renewed periodically, it by itself does not guarantee the renewal. Similarly, the parent company is always at liberty to not only cancel the license, but also grants such rights to any other organization. Further, the findings of the Apex Court in the above judgment that when the intellectual property right is not transferred, but permitted to be utilized for a particular period, would have to be treated as revenue expenditure, on application to the facts of this case, tilts the balance in favour of the assessees. Every expenditure incurred to acquire some right over intangible asset, cannot be ipso facto termed as capital expenditure. T....
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....hat Rule 8D is prospective in nature and could not have been made applicable in respect of assessment years prior to 2007, when this rule was inserted. For better appreciation, the relevant portion of the said decision, is extracted hereunder: "43. Few appeals are filed by the Revenue against the assessees which pertained to the period prior to the introduction of Rule 8D of the Rules. Here, the case is decided in favour of the assessees also on the ground that Rule 8D of the Rules is prospective in nature and could not have been made applicable in respect of the Assessment Years prior to 2007 when this Rule was inserted. This view has already been upheld by this Court in Civil Appeal No. 2165 of 2012 Essar Teleholdings Ltd. (supra....