DCIT, Yamunanagar V. M/s Saraswati Industrial Syndicate Ltd., Yamunanagar

ITA 150/CHANDI/2014

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 3796 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 year(s) 10 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-12-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 27-07-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 05-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: ROHIT JAIN
• Keywords: Capital asset; Rule of consistency; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA NO.150/CHD/2014 (ASSESSMENT YEAR : 2010-11) ITA NO.906/CHD/2014 (ASSESSMENT YEAR : 2011-12) & ITA NO.929/CHD/2015 (ASSESSMENT YEAR : 2012-13) THE D.C.I.T., VS. M/S SARASWATI INDUSTRIAL YAMUNA NAGAR CIRCLE, SYNDICATE LTD., YAMUNA NAGAR. NOW ISGEC HEAVY ENGINEERING LTD., RADAUR ROAD, YAMUNA NAGAR. PAN: AAACT5540K (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SUSHIL KUMAR, CIT DR RESPONDENT BY : SHRI ROHIT JAIN DATE OF HEARING :04.10.2016 DATE OF PRONOUNCEMENT :30.12.2016 O R D E R PER ANNAPURNA GUPTA, A.M . : ALL THE ABOVE THREE APPEALS FILED BY THE SAME ASSESSEE ARE DIRECTED AGAINST THE SEPARATE ORDERS P ASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) , PANCHKULA DATED 2.12.2013,, 27.8.2014 AND 4.11.2015 RELATING TO ASSESSMENT YEARS 2010-11, 2011-12 AND 2 012- 13 RESPECTIVELY. 2 2. SINCE THE ISSUE INVOLVED IN ALL THE ABOVE THREE APPEALS IS COMMON, THEY WERE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY THIS COMMON ORDER. FOR THE S AKE OF CONVENIENCE WE SHALL BE DEALING WITH THE CASE OF TH E ASSESSEE IN ITA NO.150/2014 AND THE DECISION IN THI S CASE SHALL APPLY MUTATIS MUTANDIS TO OTHER APPEALS ALSO EXCEPT GROUND NO.2 RAISED BY THE REVENUE IN ITA NO.929/CHD/2015, WHICH WILL BE ADJUDICATED SEPARATE LY. ITA NO.150/CHD/2014: 3. BRIEFLY STATED, THE ASSESSEE COMPANY IS IN THE BUSINESS OF MANUFACTURING OF HEAVY ENGINEERING GOOD S INCLUDING BOILERS AND ALSO UNDERTAKES ERECTION, PROCUREMENT AND CONSTRUCTION CONTRACTS. DURING THE YEAR, IT PAID ROYALTY ON SALE OF PACKAGED BOILERS AND CFB C BOILERS TO M/S FOSTER WHEELER NORTH AMERICA CORPORA TION IN PURSUANCE OF A TECHNICAL COLLABORATION AGREEMENT ENTERED INTO WITH IT, AMOUNTING IN ALL TO RS.3,47,8 0,175/-. THE ASSESSING OFFICER DISCUSSED THE ROYALTY PAYMENT AT LENGTH AND BASED ON VARIOUS CLAUSES OF THE AGREEMEN T HELD THAT EXPENSES TO THE EXTENT OF 25% WERE CAPITAL IN NATURE, SINCE THE ASSESSEE HAD ACQUIRED BENEFIT OF ENDURING NATURE BY INCURRING THE SAME. THE ASSESSING OFFICE R HELD SO SINCE HE FOUND THAT BY VIRTUE OF THE AGREEMENT, THE ASSESSEE HAD ACQUIRED AN EXCLUSIVE RIGHT TO MANUFAC TURE AND SELL LICENSED EQUIPMENT IN INDIA, COULD SUB-LIC ENSE THE LICENSED TECHNOLOGY TO ANOTHER INDIAN PARTY, HA D RECEIVED THE ENTIRE RIGHTS FOR THE MANUFACTURE OF CFBC 3 BOILERS FROM THE LICENSOR, HAD ACQUIRED RIGHTS OVE R ALL FUTURE TECHNOLOGICAL IMPROVEMENTS ON INVENTION, IMPROVEMENTS DONE BY THE LICENSOR AND COULD CONTINU E USING KNOW-HOW EVEN AFTER EXPIRY OF THE LICENSED AGREEMENT. FURTHER THE ASSESSING OFFICER HELD THAT THE FACTS OF THE CASE WERE SIMILAR TO THAT IN THE CASE OF CIT VS. SOUTHERN SWITCH GEAR LTD., 148 ITR 272, WHEREIN THE HON'BLE APEX COURT HAD HELD THAT 25% OF THE LUMP SU M ROYALTY PAYMENT CONSTITUTED CAPITAL EXPENDITURE. H E, THEREFORE APPLIED THE DECISION TO THE PRESENT CASE AND DISALLOWED 25% OF THE ROYALTY PAID TO M/S FOSTER WH EELER NORTH AMERICA CORPORATION AMOUNTING TO RS.80,31,267 /- HOLDING THE SAME TO BE CAPITAL IN NATURE. 4. THE MATTER WAS CARRIED IN APPEAL TO THE LD. CIT (APPEALS) WHERE THE ASSESSEE MADE DETAILED SUBMISSI ONS, REPRODUCED AT PARA 5 OF THE ORDER. BRIEFLY STATED, THE ASSESSEE AFTER REFERRING TO VARIOUS CLAUSES OF THE LICENSED AGREEMENT, STATED THAT IT HAD ACQUIRED ONLY USER RI GHTS TO THE KNOW-HOW WHICH ENABLED ITS EXISTING BUSINESS TO BE CARRIED ON MORE PROFITABLY AND EFFICIENTLY. THE AS SESSEE STATED THAT IT HAD NOT ACQUIRED ANY OWNERSHIP RIGHT IN THE TECHNICAL KNOW-HOW AND THAT THE ASSESSING OFFICER H AD MISREAD THE CLAUSES OF THE LICENSED AGREEMENT TO HO LD SO. THE ASSESSEE FURTHER DISTINGUISHED THE CASE OF SOUT HERN SWITCH GEAR LTD. (SUPRA) APPLIED BY THE ASSESSING O FFICER AS ALSO OTHER DECISIONS RELIED UPON BY HIM. THE LD . CIT (APPEALS) AFTER GOING THROUGH THE SUBMISSIONS OF TH E ASSESSEE HELD THAT THE EXPENSES INCURRED BY THE ASS ESSEE 4 WERE REVENUE IN NATURE SINCE NO NEW ASSET HAD BEEN CREATED, NOR HAD THE ASSESSEE BECOME THE OWNER OF A NY LICENSED TECHNOLOGY BY VIRTUE OF THE EXPENDITURE IN CURRED. THE LD. CIT (APPEALS) FURTHER HELD THAT THE DECISIO N IN THE CASE OF THE SOUTHERN SWITCH GEAR LTD. (SUPRA) WAS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. THUS, THE LD. CIT (APPEALS) ALLOWED THE ASSESSEES APPEAL DELETIN G THE DISALLOWANCE MADE OF 25% OF THE ROYALTY EXPENDITURE AMOUNTING TO RS.80,31,267/-. THE RELEVANT FINDING S OF THE LD. CIT (APPEALS) AT PARAS 6 TO 6.2 OF HIS ORDE R ARE AS FOLLOWS : 6. I HAVE GONE THROUGH THE FACTS OF THE CASE AND TH E WRITTEN SUBMISSIONS FILED BY THE APPELLANT. THE AO HAS DISA LLOWED 25% OF ROYALTY PAYMENT TREATING IT AS CAPITAL EXPENDITURE ON THE GROUNDS THAT THE APPELLANT HAS RECEIVED EXCLUSIVE RIGHT TO MANUFACTU RE AND SELL THE LICENSED EQUIPMENT IN INDIA. FURTHER, THE APPELLANT HAS BEEN GIVEN RIGHT TO VIRTUALLY SUB LICENSE THE TECHNOLOGY TO AN INDIAN PARTY. THE APPELLANT HAS RECEIVED THE NUMBERS OF BENEFITS LIKE RIGHT TO ACCESS OF NEW ENGINEERING AND DESIGN STANDARD MANUAL, PERIODIC TRAINING BY THE LI CENSOR ETC. FURTHER, THE APPELLANT HAS ACQUIRED RIGHT OVER ALL FUTURE TE CHNICAL IMPROVEMENTS ON INVENTION, IMPROVEMENTS DONE BY LICENSOR. THE AO HA S FURTHER FOUND THAT ASSESSEE HAS ACQUIRED KNOWLEDGE OR BENEFIT OF AN EN DURING NATURE. THE AO HAS ALSO RELIED ON THE CASE OF SOUTHERN SWITCH GEAR LTD. (SUPRA) AND APPLIED THE JUDGMENT GIVEN IN THAT CASE IN THE CASE OF THE APPELLANT. WHEREAS, THE APPELLANT HAS SUBMITTED THAT IT HAS NO T ACQUIRED ANY OWNERSHIP OF KNOW-HOW, IT HAS MERELY OBTAINED THE R IGHT TO USE OF SUCH KNOW-HOW DURING THE CURRENCY OF THE AGREEMENT. THE EXCLUSIVE LICENSE ONLY PROTECTS THE PROFIT OF AN ASSESSEE AND DOES NOT BY ITSELF RESULT INTO CREATION OF NEW PROFIT EARNING APPARATUS. THE APPELLANT -HAS FURTHER SUBMITTED THAT THE LICENSOR HAS NOT PART WITH ANY ASSET OF HIS BUS INESS OR PROVIDED ADVANTAGE OF AN ENDURING NATURE. THE APPELLANT HAS NOT RECEIVED ANY EXCLUSIVE RIGHT TO MANUFACTURE AND SELL THE LICENSE D EQUIPMENT IN INDIA AS 5 IT IS CLEAR FROM CLAUSE 2.1.3 OF THE AGREEMENT WHER E THE LICENSOR RETAINS FOR ITSELF OR ITS AFFILIATED COMPANIES THE RIGHT TO DES IGN, MANUFACTURE, SELL ERECT AND OR USE EQUIPMENT IN INDIA. REGARDING THE SUB CONTRACTING, THE AGREEMENT STIPULATES THAT THE APPELLANT MAY SUB CONTRACT THE MANUFACTURE OF COMPONENTS OF THE EQUIPMENT TO THE T HIRD PARTY WITH THE OBLIGATION THAT THE LICENSE TECHNOLOGY IS NOT USED FOR ANY OTHER PURPOSES THAN THE PERFORMANCE OF SUCH SUB CONTRACT WHICH MEA NS THAT THE APPELLANT HAD ONLY RIGHT TO SHARE THE KNOWLEDGE WITH THE SUB CONTRACTOR FOR THE MANUFACTURE OF SUCH COMPONENTS OF EQUIPMENT FOR THE APPELLANT. 6.1 THE APPELLANT HAS FURTHER SUBMITTED THAT AT FIR ST AGREEMENT IN 1988, THE DISCLOSURE FEE WAS CLAIMED AS DEFERRED RE VENUE EXPENDITURE AS PER THE LAW EXISTING DURING THAT PERIOD. AT THE TIM E OF RENEWAL OF THE CONTRACT FROM TIME TO RIME THE DISCLOSURE FEE PAID ON ACCOUNT OF AMENDMENTS IN CONTRACT FOR LICENSE OF ENHANCED CAPA CITY WERE CAPITALIZED. AS AO HAS INDICATED ON THE HOST OF BENEFIT, SUCH BE NEFIT WERE THE PART OF THE AGREEMENT AS PER RENEWALS AND THE DISCLOSURE FE E PAID AT THE TIME OF RENEWAL WHICH HAVE ALREADY BEEN CAPITALIZED. ON THE TERMINATION CLAUSE, THE AGREEMENT SPECIFIES IN SECTION 11.3.1 T HAT APPELLANT MAY CONTINUE TO USE THE KNOW-HOW INCLUDED IN THE LICENS E TECHNOLOGY AS WELL AS THE PATENTS WITHOUT MAKING ADDITIONAL PAYMENT TO LI CENSOR ON A NON EXCLUSIVE AND ON TRANSFERABLE BASIS. THE APPELLANT DOES NOT VEST WITH THE LICENSE TECHNOLOGY NOR IT IS ALLOWED TO USE THE TRA DE MARK AFTER TERMINATION. IT WAS ALSO SUBMITTED THAT THE LICENSE AGREEMENT MERELY ENABLES THE EXISTING BUSINESS OF MANUFACTURE TO BE CARRIED ON MORE EFFICIENTLY AND PROFITABLY WITHOUT ADDITION TO THE PROFIT EARNING APPARATUS. THE APPELLANT HAS TO PAY ROYALTY ON YEAR TO YEAR BA SIS FOR THE USE OF KNOW- HOW UTILIZED FOR MANUFACTURE AND SALE OF EACH BOILE R. AS THE EACH BOILER WAS CUSTOMIZED DEPENDING UPON THE REQUIREMENT AND KNOW- HOW, DRAWING ETC. WERE OBTAINED BY THE APPELLANT SPECIFIC TO EACH BOI LER MANUFACTURED BY THE APPELLANT FOR ITS CUSTOMER. SUCH KNOW-HOW SPECIFIC TO THE REQUIREMENT OF EACH BOILER CANNOT BE USED FOR DIFFERENT ORDER HAVI NG DIFFERENT REQUIREMENT OR SPECIFICATIONS. THE OBJECT IN THE LICENSE AGREEM ENT ALLOWING THE APPELLANT TO RETAIN SUCH KNOW-HOW IS TO ENABLE THE APPELLANT TO SERVICE THE CUSTOMER AND REFER BACK TO SUCH DESIGN AND KNOW -HOW IN THE CASE OF ANY MALFUNCTIONING OR COMPLAINED RAISED BY THE CUST OMER. 6 THE APPELLANT HAS DISTINGUISHED THE DECISION OF SOU THERN SWITCH GEAR LTD. (SUPRA) APPLIED BY THE AO ON THE GROUND THAT T HE APPELLANT HAS NOT RECEIVED ANY ASSISTANCE TO SET-UP A FACTORY ALONGWI TH TECHNICAL KNOW-HOW UNDER ANY TECHNICAL COLLABORATION FROM FOSTER WHEEL ER FOR WHICH TECHNICAL COLLABORATION FEE AND ROYALTY HAS BEEN PA ID TOGETHER. IN THE CASE OF SOUTHERN SWITCH GEAR LTD. (SUPRA), THE ASSE SSEE MADE PAYMENT BY WAY OF TECHNICAL COLLABORATION FEE TO THE FOREIGN C OMPANY IN CONSIDERATION OF KNOW-HOW RECEIVED UNDER COLLABORATION AGREEMENT AND ROYALTY ON SALES OF PRODUCT. THE ASSESSEE IN THAT CASE CLAIMED BOTH LUMP SUM FEE AND ROYALTY AS REVENUE EXPENDITURE. IN THE APPELLANT CA SE, THE APPELLANT HAS PAID LUMP SUM AT THE TIME OF ORIGINAL AGREEMENT IN 1988 AND FURTHER LUMP SUM PAYMENT AT THE TIME OF RENEWAL WHICH THE APPELLANT HAS CAPITALIZED IN ITS BOOKS OF ACCOUNT. IN THE CASE OF SOUTHERN SWITCH GE AR LTD. (SUPRA), THE FOREIGN COMPANY BY WAY OF TECHNICAL COLLABORATION A SSISTED RIGHT FROM SETTING-UP THE FACTORY TILL THE PRODUCTION OF PRODU CT BY IMPARTING KNOWHOW RELATED TO MANUFACTURE AND MAINTENANCE ETC. THE TEC HNOLOGY WAS ALSO ACQUIRED AND OWNED BY SOUTHERN SWITCH GEAR LTD. AND THE RIGHT WAS EXCLUSIVE BECAUSE THE FOREIGN COMPANY AGREED NOT TO MANUFACTURE OR SELL THE SAME PRODUCT IN INDIA. WHEREAS IN THE APPELLANT CASE THE OWNERSHIP OF LICENSE TECHNOLOGY HAD NOT BEEN TRANSFERRED, THE RIGHT IS NON EXCLUSIVE AS THE FOSTER WHEELER HAS KEPT RIGHT TO MANUFACTURE WI TH IT AND ITS AFFILIATED COMPANIES. THERE IS NO USE OF KNOW-HOW ON THE EXPIR Y OF THE AGREEMENT AS THE KNOW-HOW IS RELATED TO CUSTOMER SPECIFIC BOILER AND HAVE NO VALUE OF ENDURING BENEFIT FOR THE APPELLANT. IN VIEW OF DIST INGUISHING FACTS, THE DECISION OF SOUTHERN SWITCH GEAR LTD. IS NOT APPLIC ABLE IN THE CASE OF APPELLANT. 6.3 THE APPELLANT HAS FURTHER SUBMITTED THAT IN THE CASE OF SOUTHERN SWITCH GEAR LTD. (SUPRA), THE HON'BLE MADRAS HIGH COURT HE LD THAT THE CASE OF CIBA OF INDIA LTD. .IS NOT APPLICABLE. THE FACTS IN THE CASE OF CIBA OF INDIA LTD. ARE RELATED TO THE FACTS IN THE APPELLANT'S CA SE. THEREFORE, THE CASE OF CIBA OF INDIA LTD. ARE FULLY APPLICABLE WHEREAS THE CASE OF SOUTHERN SWITCH GEAR LTD. (SUPRA) IS NOT APPLICABLE. THE APPELLANT HAS ALSO RELIED ON THE RULE OF CONSISTENCY WHERE IN THE PRECEDING YEARS TH E CLAIM OF ROYALTY BY THE APPELLANT ON THE SAME FACTS HAS BEEN ACCEPTED AS RE VENUE EXPENDITURE. 7 6.4 IN ADDITION TO THE CASE OF SOUTHERN SWITCH GEAR LTD. (SUPRA), THE AO HAS RELIED ON THREE MORE CASES AS LISTED ON PAGE 5 OF THE ASSESSMENT ORDER. THESE CASES ARE DISTINGUISHABLE ON FACTS FR OM THE FACTS IN THE CASE OF APPELLANT. IN THE CASE OF RAM KUMAR PHARMACEUTIC AL WORKS VS. CIT 119 ITR 33, THE ASSESSEE UNDER AGREEMENT WITH THE F OREIGN COMPANY OBTAINED RIGHT TO USE KNOW-HOW AND DATA FOREVER IN FUTURE. THE ASSESSEE PAID CERTAIN AMOUNT TO FOREIGN COMPANY IMM EDIATELY AND IN ADDITION CERTAIN ROYALTY WAS TO BE PAID FOR NEXT FI VE YEARS. IN THIS CASE, THE HON'BLE ALLAHABAD HIGH COURT HELD THAT IT WAS E VIDENT THAT THE ASSESSEE ACQUIRED OWNERSHIP OF THE KNOW-HOW AND THE DATA, IT WAS NOT MERELY ENTITLED TO USE IT ONLY SO LONG AS IT CONTIN UED TO PAY THE ROYALTY. THIS WAS A CASE OF ACQUISITION AND NOT MERELY USER FOR A LIMITED TIME. THE PAYMENT FOR ITS ACQUISITION WAS IN THE NATURE OF CA PITAL EXPENDITURE. IN THE CASE OF SCIENTIFIC ENGINEERING HOUSE LTD. VS CI T 157 ITR 86, THE HON'BLE SUPREME COURT HELD THAT THE TENOR OF THE AG REEMENT SHOWED THAT THE VARIOUS DOCUMENTS SUCH AS DRAWINGS, DESIGN, CHA RTS PLANS, PROCESSING DATA AND OTHER LITERATURE INCLUDED IN 'DOCUMENTATIO N SERVICE' MORE OR LESS FORMED THE TOOLS BY USING WHICH THE BUSINESS O F MANUFACTURING THE INSTRUMENTS WAS TO BE DONE BY THE ASSESSEE AND FOR ACQUIRING SUCH TECHNICAL KNOW-HOW THROUGH THESE DOCUMENTS LUMP SUM PAYMENT WAS MADE. THE EXPENDITURE WAS OF A CAPITAL IN NATURE AS A RESULT WHEREOF A CAPITAL ASSET OF TECHNICAL KNOW-HOW WAS ACQUIRED BY THE ASSESSEE. IN THE THIRD CASE RELIED BY THE A,O - CIT VS. POLY FORMALI N PVT. LTD. 161 ITR 36, THE HON'BLE KERALA HIGH COURT UPHELD THE FINDIN G OF TRIBUNAL WHERE THE TRIBUNAL HELD THAT ROYALTY PAID IN FIRST YEAR B EING ATTRIBUTABLE TO INITIAL MANUFACTURE WAS CAPITAL IN NATURE AND WAS T O BE ADDED TO THE COST OF MACHINERY AND PLANT. IN ALL THREE CASES, THE HON'BL E COURTS HAVE UPHELD THE EXPENDITURE AS CAPITAL EXPENDITURE BECAUSE THER E WERE ACQUISITIONS OF KNOW-HOW OR ASSET. WHEREAS, APPELLANT HAS RELIED ON THE CASE OF MYSORE KIRLOSKAR LTD. VS. CIT 114 ITR 443 WHERE THE HON'B LE KARNATAKA HIGH COURT HELD THAT UNDER AGREEMENT THE ASSESSEE MERE LY ACQUIRED RIGHT TO DRAW UPON TECHNICAL KNOWLEDGE OF FOREIGN COMPANY F OR LIMITED PERIOD AND FOREIGN COMPANY DID NOT PART WITH THEIR ASSETS ABSOLUTELY FOREVER. THE APPELLANT HAS ALSO RELIED IN CASE OF PRAGA TOOL S LTD. VS. CIT 5 TAXMAN 284 WHERE THE HON'BLE ANDHRA PRADESH HIGH CO URT HELD THAT UNDER 8 AGREEMENTS ASSESSEE TO USE TECHNICAL KNOW-HOW EVEN AFTER EXPIRY THEREOF AND TO PAY SPECIFIC PERCENTAGE OF ROYALTIES LINKED TO PRODUCTION AND/OR SALE OF MANUFACTURED PRODUCTS SUCH ROYALTY P AYMENT WAS DEDUCTIBLE AS REVENUE EXPENDITURE. 6.5 AFTER CONSIDERATION OF THE ABOVE FACTS AND JUDI CIAL PRONOUNCEMENTS, IT IS FURTHER NOTED THAT THE AO HAS TREATED 25% OF ROYALTY EXPENDITURE BY APPLYING THE DECISION OF HON'BLE SUPREME COURT IN T HE CASE OF SOUTHERN SWITCH GEAR LTD. (SUPRA) WHEREAS THE APPELLANT IN I TS SUBMISSIONS HAS DISTINGUISHED ON FACTS THAT THE CASE OF SOUTHERN SW ITCH GEAR LTD. (SUPRA) IS NOT APPLICABLE IN THE CASE OF THE APPELLANT. THE HO N'BLE SUPREME COURT IN THE CASE OF KTMTM ABDUL KAYYUM VS. CIT 44 ITR 689 H ELD THAT TO DECIDED WHETHER AN EXPENDITURE IS CAPITAL OR REVENUE IN NAT URE, WHAT IS DECISIVE IS THE NATURE OF BUSINESS, THE NATURE OF EXPENDITURE, THE NATURE OF RIGHT ACQUIRED AND THEIR RELATION INTER SE. FURTHER, IN T HE CASE OF DALMIA JAIN & CO. LTD. VS. CIT 81 ITR 754, THE HON'BLE SUPREME CO URT HELD THAT IN DECIDING WHETHER A PARTICULAR EXPENDITURE IS CAPITA L OR REVENUE IN NATURE, WHAT THE COURTS HAVE TO SEE IS WHETHER THE EXPENDIT URE IN QUESTION WAS INCURRED TO CREATE ANY NEW ASSET OR WAS INCURRED FO R MAINTAINING THE BUSINESS OF THE COMPANY. IF IT IS THE FORMER, IT IS THE CAPITAL EXPENDITURE. FURTHER, IN THE CASE OF EMPIRE JUTE CO. LTD. VS. CI T 124 ITR 1, THE HON'BLE SUPREME COURT HELD THAT IF THE ADVANTAGE CO NSISTS MERELY IN FACILITATING THE ASSESSEE'S TRADING OPERATIONS OR E NABLING THE MANAGEMENT AND CONDUCT OF THE BUSINESS TO BE CARRIED ON MORE E FFICIENTLY OR MORE PROFITABLY, WHILE LEAVING THE FIXED CAPITAL UN-TOUC H, THE EXPENDITURE WOULD BE ON REVENUE ACCOUNT, EVEN THOUGH THE ADVANT AGE MAY ENDURE FOR INDEFINITE FUTURE. THE TEST OF ENDURING BENEFIT IS THEREFORE NOT CERTAIN OR CONCLUSIVE TEST AND IT CANNOT BE APPLIED BLINDLY AN D MECHANICALLY WITHOUT REGARD TO THE PARTICULARS FACTS AND CIRCUMSTANCES O F A GIVEN CASE. 6.6 IN THE BACKDROP OF ABOVE LANDMARK DECISIONS BY HON'BLE APEX COURT, THE FACTS OF THE PRESENT CASE ARE ANALYZED TO SEE W HETHER THE ROYALTY PAYMENT HAS LED TO CREATION OF A NEW ASSET AND WHETHER THE ENDURING NATURE OF BENEFIT IS DERIVED BY THE APPELLANT. IN THE APPELLANT'S CAS E, THE LUMP SUM PAYMENTS WERE MADE FOR THE TECHNICAL COLLABORATION WITH THE FOREIGN COMPANY AT THE TIME OF ORIGINAL AGREEMENT AND FURTH ER AT THE TIME OF 9 RENEWAL. THE EXPENSES AT THE TIME OF ORIGINAL AGREE MENT WERE TREATED AS DEFERRED REVENUE EXPENSE AS PER APPLICABLE LAW AT T HAT TIME AND ON RENEWAL THE LUMP SUM PAYMENT WAS CAPITALIZED IN THE BOOK. THE ROYALTY PAYMENT WAS MADE SPECIFIC TO USE OF KNOW-HOW, DESIG N, DRAWINGS APPLICABLE FOR EACH BOILER MANUFACTURED DURING THE YEAR. THE L ICENSE IS NON EXCLUSIVE, NON TRANSFERABLE AS THE RIGHT OF OWNERSHIP OF LICEN SE TECHNOLOGY HAS BEEN KEPT BY THE FOREIGN COLLABORATOR AND ITS AFFILIATED COMPANIES. SO THE APPELLANT HAS NOT CREATED ANY NEW ASSET NEITHER IT HAS OWNED ANY LICENSED TECHNOLOGY. EVEN ON THE EXPIRY OF AGREEMENT, THE AP PELLANT CANNOT USE KNOW-HOW, DRAWING, TRADEMARK OR FOREIGN COLLABORATO R AS THE USE OF KNOW- HOW, DRAWING ETC. WHICH IS SPECIFIC TO EACH BOILER REMAINS WITH THE PRODUCT AND NOT WITH THE APPELLANT. FURTHER, THE RELIANCE P LACED BY AO ON THE CASE OF SOUTHERN SWITCH GEAR LTD. (SUPRA) IS NOT APPLICA BLE AS THE FACTS ARE DISTINGUISHABLE. THE ESTIMATION OF 25% OF THE R OYALTY PAYMENT TO FOREIGN COLLABORATOR IS ALSO NOT ON ANY BASIS AS TH E AGREEMENT IS NOT LIMITED TO 5 YEARS WHEREBY SETTING OFF SUCH EXPENSE S AS CAPITAL EXPENSE SPREAD OVER TO THE PERIOD OF AGREEMENT. IN VIEW OF THESE FINDINGS, I AM OF THE VIEW THAT THE SPECIFIC FACTS OF THE PRESENT CAS E LEADS TO THE CONCLUSION THAT THE ROYALTY PAYMENT MADE BY THE APPELLANT YEAR AFTER YEAR APART FROM THE LUMP SUM PAYMENT MADE AT THE TIME OF ORIGINAL A GREEMENT AND RENEWALS IS IN THE NATURE OF REVENUE EXPENDITURE. H ENCE THE ADDITION OF RS.80,31,2677- ON ACCOUNT OF CAPITAL EXPENDITURE IS DELETED. THIS GROUND OF APPEAL IS ALLOWED. 5. AGGRIEVED BY THE SAME, THE REVENUE FILED THE PRESENT APPEAL BEFORE US RAISING THE FOLLOWING GROU NDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE LD. CIT(A) HAS ERRED IN CONCLUDING THAT THE ROYALTY PAYMENT MADE BY THE ASSESSES YEAR AFTER YEAR APART FROM THE LUMP OF PAYMENT MADE AT THE TIME OF ORIGINA L AGREEMENTS AND RENEWALS IS IN THE NATURE OF REVENUE EXPENDITURE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN NOT TREATING THE ROYALT Y PAYMENT FOR ACQUIRING TECHNICAL KNOWHOW OR BENEFIT 10 OF AN ENDURING NATURE, WHICH CONSTITUTE CAPITAL EXPENDITURE. 3. IT IS PRAYED THAT THE ORDER OF THE LD. CIT (APPEA L) BE SET- ASIDE AND THAT OF THE A.O. BE RESTORED, 4. THE APPELLANT CRAVES LEAVE TO ADD OR AMEND THE GROUNDS OF APPEAL BEFORE THE APPEAL IS HEARD AND DISPOSED OFF. 6. DURING THE COURSE OF HEARING BEFORE US, THE LD. DR FILED WRITTEN SUBMISSIONS OF HIS ARGUMENTS DATED 4.10.2016 WHICH IS REPRODUCED HEREUNDER : 2. THE GROUND OF APPEAL RAISED BY THE REVENUE MAINL Y PERTAINS TO ONLY ONE ISSUE THAT THE LD CIT(A) HAS ERRED IN DELETING THE ADDITIONS MADE BY AO TREATING CERTAIN PERCENTAGE OF PAYMENTS OUT OF THE ROYALTY PAYMENT AS BEING IN THE CAPITAL EXPENDITURES AND NOT REVENUE EXPENDITURES AS CLAIMED BY THE ASSESSEE. FOR OTHER GOA RELIANCE IS PLACED ON THE ORDER OF THE LD AO. 2.1 THE LD. AO HAS DISCUSSED IN DETAILS THE VARIOU S CLAUSES OF THE RELEVANT AGREEMENTS (PARA 2.1 TO 2.7 OF THE ASSESSMENT ORDER) AND CONCL UDED THAT THE 25% OUT OF THE ROYALTY PAYMENTS MADE BY THE ASSESSEE TO THE FOREIGN COLLAB ORATOR IS IN THE NATURE OF CAPITAL EXPENDITURE SINCE THE SAME IS IN LIEU OF ENDURING B ENEFITS PASSED ON BY THE FOREIGN COLLABORATOR TO THE ASSESSEE. THE LD. AO HAS FURTHER RELIED ON THE DECISION OF HON'BLE CHENNAI HIGH COURT IN THE CASE OF SOUTHERN SWITCHGEAR LTD 148 ITR 272 FACTS O F WHICH ARE SIMILAR TO THE FACTS IN THE CASE OF THE ASSESSEE. THIS DECISION HAS BEEN AFFIRMED BY TH E HON'BLE SUPREME COURT 231 ITR 359 (SC) (COPIES OF ORDERS ATTACHED FOR REFERENCE). 3. THE LD. CIT (A) HAS, HOWEVER, HELD THAT THE ROYALTY PAYMENTS ARE REVENUE IN NATURE. THE REASONS FOR TREATING THE EXPENDITURES AS REVENUE HA S BEEN DISCUSSED AT PARA 6.6 OF THE ORDER. IT HAS BEEN CONCLUDED BY THE LD CIT(A) THAT THE ASSESS EE HAS NOT CREATED ANY NEW ASSET NEITHER IT HAS OWNED ANY LICENSED TECHNOLOGY. FURTHER, THE FACTS IN THE CASE OF SOUTHERN SWITCH GEAR (SUPRA) RELIED BY THE LD AO IS DISTINGUISHABLE FROM THE FACTS OF THE ASSESSEE AND HENCE THE RELIANCE PLACED BY THE LD AO IS MISPLACED. 4. THE ABOVE OBSERVATIONS OF LD.CIT (A) ARE NOT ACCEPT ABLE FOR THE FOLLOWING REASONS: A. THE LD CIT(A) HAS NOT REBUTTED DETAILED FACTUAL FINDINGS OF THE LD AO WHICH IS BASED ON THE APPRECIATION OF VARIOUS CLAUSES OF THE AGREEMEN T ENTERED BETWEEN THE ASSESSEE AND THE FOREIGN COLLABORATOR. THE LD CIT(A) HAS NOT AT ALL COMMENTED ON THESE FINDING OF THE LD AO WHICH ARE SO CRUCIAL TO DECIDING THE ISSUE BE FORE THE HON R BLE BENCH. B. THE LD CIT(A) HAS MADE CERTAIN OBSERVATIONS REGA RDING THE NATURE OF THE AGREEMENT ENTERED BETWEEN THE ASSESSEE AND THE FOREIGN COLLAB ORATOR BUT HAS NOT MENTIONED THE 11 VARIOUS CLAUSES OF THE AGREEMENT RELATING TO SUCH O BSERVATIONS. IT WAS THE DUTY OF THE LD CIT(A) TO DEMONSTRATE THAT THE OBSERVATIONS REGA RDING THE NATURE OF THE AGREEMENT IS BASED ON RELEVANT CLAUSES OF THE AGREEMENT. IN ABSENCE O F THE SAME IT IS NOT POSSIBLE TO FIND OUT WHICH CLAUSES PF THE AGREEMENT THE LD CIT(A) IS REF ERRING TO AND TO THAT EXTENT SUCH OBSERVATIONS REMAIN IN THE NATURE OF GENERAL OBSERV ATION. C. THE LD CIT(A) HAS SIMPLY STATED THAT THE FACTS I N THE CASE OF THE SOUTHERN SWITCH GEAR (SUPRA) IS NOT THE SAME AS IN THE CASE OF THE ASSES SEE. HOWEVER, THE LD CIT(A) HAS NOT DISCUSSED AT ALL HOW THE FACTS IN BOTH THE CASE S ARE DIFFERENT. D. APART OF THE VARIOUS CLAUSES OF THE AGREEMENT RE LIED AND DISCUSSED BY THE LD AO, RELIANCE IS FURTHER PLACED ON THE FOLLOW ING CLAUSES OF THE AGREEMENTS TO DRIVE HOME THE POINT THAT BY ENTERING INTO THIS AGREEMENT THE ASSESSEE HAS ACQUIRED KNOWLEDGE OR ADVANTAGE OF AN ENDURING NAT URE > CLAUSES 1.2, 2.1, 2.2, 2.6, 3.1, 3.8, 3.9, 5.1.2, 8 .4 11.6 (PAGES 1-26 OF THE PB SUBMITTED BY THE ASSESSEE) > CLAUSES 10.3, 11.3.1 (PAGES 27-55 OF THE PB SUBMITT ED BY THE ASSESSEE) > CLAUSES 1.4, 1.5, 2.1, 2.4, 2.6, 3.2.1 TO 3.2.4, 5. 4, 5.5, 11.3.1 (PAGES 56-90 OF THE PB SUBMITTED BY THE ASSESSEE) > CLAUSES 11.3.1, 12 (PAGES 99-106 OF THE PB SUBMITTE D BY THE ASSESSEE) ON PERUSAL OF THE ABOVE CLAUSES WHICH ARE PART OF T HE VARIOUS AGREEMENTS ENTERED BETWEEN THE ASSESSEE WITH THE TWO FOREIGN E NTITIES, IT BECOMES AMPLY CLEAR THAT THE ASSESSEE CONTINUES TO USE THE KNOW-HOW INC LUDED IN THE LINCENSED PROPERTY AS WELL AS THE PATENTS WITHOUT MAKING; ANY ADDITION AL PAYMENT TO THE LICENSOR (THE FOREIGN COLLABORATORS). THIS AMOUNTS TO ACQUISITION BY THE ASSESSEE KNOWLEDGE OR ADVANTAGE OF AN ENDURING BENEFIT FLOWING OUT FROM SUCH AGREEMENTS. E. ON PERUSAL OF THE ABOVE CLAUSES OF THE AGREEMEN TS ENTERED BY THE ASSESSEE AND WHEN COMPARED WITH THE VARIOUS CLAUSES AS MENTI ONED IN THE AGREEMENT BEFORE THE HON'BLE MADRAS HIGH COURT IN THE CASE OF SOUTHERN SWITCH GEAR (SUPRA), IT CAN BE OBSERVED THAT THESES CLAUSES IN DICATE THAT IN BOTH THE CASES THE ASSESSEE DID ACQUIRE KNOWLEDGE OR ADVANTAGE OF AN E NDURING BENEFIT. TO THAT EXTENT THE FACTS IN THE CASE OF THE ASSESSEE IS SIMILAR TO THE FACTS IN THE CASE OF SOUTHERN SWITCH GEAR (SUPRA). 5. IN VIEW OF THE ABOVE IT IS SUBMITTED THAT THE LD CI T(A) HAS ERRED IN DELETING THE IMPUGNED ADDITIONS HOLDING THAT THE SAME ARE IN TH E NATURE OF REVENUE EXPENDITURE AND NOR CAPITAL EXPENDITURES AS HELD BY THE LD AO. 12 6. THE ABOVE SUBMISSIONS MAY BE TAKEN ON RECO RD. 7. THE LD. DR FURTHER RELYING UPON VARIOUS CLAUSE S OF THE LICENSED AGREEMENT REFERRED TO BY THE ASSESS ING OFFICER AND IN HIS SUBMISSIONS ABOVE, STATED THAT I T WAS CLEAR THAT THE ASSESSEE HAD ACQUIRED KNOWLEDGE/ADVA NTAGE OF ENDURING BENEFIT AND THAT THE FACTS WERE IDENTIC AL TO THAT OF SOUTHERN SWITCH GEAR LTD. (SUPRA) WHICH DEC ISION HAD BEEN RIGHTLY APPLIED BY THE ASSESSING OFFICER H OLDING 25% OF THE EXPENSES INCURRED ON ACCOUNT OF ROYALTY AS CAPITAL IN NATURE. 8. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, EMPHASIZED THAT VARIOUS CLAUSES OF THE LICENS ED AGREEMENT ONLY SHOWED THAT THE ASSESSEE HAD ACQUIRE D USER RIGHTS TO THE TECHNICAL KNOW-HOW AND NOT OWNER SHIP RIGHTS TO THE SAME. THE LD. COUNSEL FOR THE ASSESS EE DREW OUR ATTENTION TO VARIOUS CLAUSES IN THE LICENSED AG REEMENT IN SUPPORT OF HIS CONTENTION. THE LD. COUNSEL FOR THE ASSESSEE FURTHER RELIED UPON VARIOUS CASE LAWS STAT ING THAT THE ASSESSEES CASE WAS IDENTICAL TO THOSE DEC IDED IN THE CASE LAWS REFERRED TO WHEREIN IT WAS HELD THAT THE EXPENSES WERE REVENUE IN NATURE. THE CASE LAWS REF ERRED TO BY THE LD. COUNSEL FOR THE ASSESSEE ARE AS FOLLO WS : 1) CIT VS. CIBA INDIA LTD., 69 ITR 692 (SC) 2) CIT VS.HERO HONDA MOTORS LTD., 372 ITR 481 (DEL) 3) SHRIRAM REFRIGERATION INDUSTRIES LTD. VS. CIT 127 ITR 746 (DEL) 4) SHRIRAM PISTONS AND RINGS LTD. VS. CIT 13 171 TAXMAN 81 (DEL) 9. THE LD. COUNSEL FOR THE ASSESSEE FURTHER STATED THAT THE REVENUE HAD CONSIDERED THE CLAUSES OF THE OLD AGREEMENT WHILE ARRIVING AT THE CONCLUSION THAT THE EXPENDITURE INCURRED WAS CAPITAL IN NATURE TO THE E XTENT OF 25%. THE LD. COUNSEL FOR THE ASSESSEE DISTINGUI SHED THE CASE OF SOUTHERN SWITCH GEAR LTD. (SUPRA). FUR THER THE LD. COUNSEL FOR THE ASSESSEE POINTED OUT THAT T HE ASSESSEE HAD BEEN INCURRING EXPENDITURE ON ACCOUNT OF ROYALTY SINCE 1998 WHEN IT ENTERED INTO A TECHNICAL COLLABORATION AGREEMENT FOR THE FIRST TIME AND POIN TED OUT THAT NO SUCH DISALLOWANCE HAD BEEN EVER MADE IN THE PRECEDING YEARS. REFERRING TO THE PRINCIPLE OF CON SISTENCY IT WAS, THEREFORE, STATED THAT THE DISALLOWANCE MAD E IN THE PRESENT CASE WAS AGAINST THE SAME AND NEEDED TO BE DELETED. 10. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOTH THE PARTIES, PERUSED THE FINDINGS OF THE AUTHO RITIES BELOW AND CONSIDERED THE MATERIAL AVAILABLE ON RECO RD. 11. THE ISSUE BEFORE US IS REGARDING THE DETERMINATION OF THE NATURE OF ROYALTY PAYMENT MADE BY THE ASSESSEE WHICH THE REVENUE HOLDS THAT TO THE EX TENT OF 25% IS CAPITAL IN NATURE, WHILE THE CASE OF THE LD. COUNSEL FOR THE ASSESSEE IS THAT IT IS ENTIRELY REVENUE IN NATURE. 12. THE FACT NECESSARY FOR ADJUDICATION OF THE APP EAL IS THAT THE ASSESSEE COMPANYS BUSINESS COMPRISES O F 14 MANUFACTURING OF HEAVY ENGINEERING GOODS INCLUDING BOILERS. THE ASSESSEE COMPANY ENTERED INTO A TECHN ICAL COLLABORATION AGREEMENT WITH M/S AHLSTROM COOPERATI ON ON 5.7.1988 FOR THE PURPOSE OF ACQUIRING OF KNOW-HO W RELATING TO DESIGN AND BUILDING OF CIRCULATING FLUI DIZED COMBUSTION (CFBC) BOILERS. THIS AGREEMENT HAD A TE RM OF TEN YEARS AND IT WAS RENEWED ON 16.4.1998 WITH M/S FOSTER WHEELER ENERGY INTERNATIONAL INC., WHICH HAD ACQUIRED AHLSTROM COOPERATION. THEREAFTER A NEW LI CENSED AGREEMENT WAS ENTERED INTO WITH FOSTER WHEELER ENER GY INTERNATIONAL INC. ON 23.4.2002 FOR A PERIOD OF TEN YEARS WHICH WAS AMENDED TWICE, ONCE VIDE AGREEMENT DATED 18.6.2008 AND THE SECOND TIME VIDE AGREEMENT DATED 16.3.2009. THE PRESENT CASE OF THE ASSESSEE, PERTA INING TO ASSESSMENT YEAR 2010-11 RELEVANT TO FINANCIAL YE AR 2009-10, THE RELEVANT LICENSE AGREEMENT FOR ADJUDIC ATING THE PRESENT APPEAL IS THE AGREEMENT DATED 23.4.200 2 READ WITH THE AMENDMENTS MADE VIDE AGREEMENT DATED 18.6.2008 AND 16.3.2009. 13. AT THIS POINT IT WOULD BE PERTINENT TO ELUCIDA TE THE PREVAILING POSITION OF LAW RELATING TO CLASSIFI CATION OF TECHNICAL KNOW-HOW EXPENSES AS CAPITAL ON REVENUE. 14. IT IS SETTLED LAW THAT THE PRIMARY TEST FOR DETERMINING THE TRUE CHARACTER OF AN EXPENSE WHETHE R CAPITAL OR REVENUE IS, WHETHER IT GIVES ENDURING BE NEFIT IN THE CAPITAL FIELD OR MERELY ENABLES AND FACILITATES THE ASSESSEES BUSINESS OPERATIONS TO BE CONDUCTED MORE 15 PROFITABLY AND EFFICIENTLY, LEAVING THE FIXED CAPIT AL UNTOUCHED. IN THE FORMER CASE THE EXPENSE WOULD BE CAPITAL IN NATURE AND IN THE LATTER IT WOULD QUALIF Y AS REVENUE EXPENDITURE. 15. COMING TO CHARACTERIZATION OF EXPENSES INCURRE D ON TECHNICAL KNOW-HOW, WHICH BEING UNIQUE IN CHARAC TER AS BEING INTANGIBLE IN NATURE, THE SAME WE FIND HAS BEEN DEALT WITH IN A NUMBER OF DECISIONS WHICH HAVE LAID DOWN THE BASIS FOR DETERMINING THE CHARACTER. THE HONBL E SUPREME COURT IN THE CASE OF CIT VS CIBA INDIA LTD 69 ITR 692 (SC), WHILE DEALING WITH THE ISSUE, FOUND THAT THOUGH IN THAT CASE THE ASSESSEE HAD FULL AND SOLE RIGHTS AND LICENSE TO THE PATENT, INVENTIONS AND TRADEMARK REL ATING TO INTELLECTUAL PROPERTY, IN THE TERRITORY OF INDIA, Y ET THE RIGHTS WERE NOT EXCLUSIVE SINCE THEY COULD NOT BE D IVULGED TO THIRD PARTIES WITHOUT CONSENT OF THE LICENSOR. T HE APEX COURT FOUND THAT THE LICENSOR HAD NOT PARTED WITH A NY ASSET NOR HAD THE ASSESSEE, I.E., LICENSEE ACQUIRED ANY ASSET BUT HAD IN FACT ACQUIRED ONLY USER RIGHTS TO THE KNOW-HOW. THE TECHNICAL KNOWLEDGE WAS NOT FOUND TO HAVE BEEN ABSOLUTELY TRANSFERRED IN FAVOUR OF THE ASSESS EE. THUS THE EXPENSES WERE HELD TO BE REVENUE IN NATUR E BY THE APEX COURT. 16. THE DELHI HIGH COURT IN THE CASE OF CIT VS HER O HONDA MOTORS LTD (DELHI) 372 ITR 481 DEALT WITH AN IDENTICAL ISSUE. THE HONBLE HIGH COURT WENT THROUG H THE 16 VARIOUS CLAUSES OF THE AGREEMENT IN THAT CASE AND F OUND THAT: 1) RIGHTS AND LICENSES GRANTED BY THE LICENSOR TO T HE ASSESSEE WERE EXCLUSIVE, INDIVISIBLE AND NON- TRANSFERABLE, WITHOUT THE RIGHT TO GRANT SUBLICENSE S TO MANUFACTURE, ASSEMBLE, SELL AND DISTRIBUTE THE PRODUCT OR PARTS THEREOF. THE RIGHTS AND DUTIES UND ER THE AGREEMENT WERE NOT ASSIGNABLE OR DELEGATABLE, DIRECTLY OR INDIRECTLY. 2) THE LICENSE WAS FOR THE TERM OF THE AGREEMENT, THAT IS 10 YEARS FROM THE EFFECTIVE DATE. 3) THE AGREEMENT COULD BE TERMINATED BY 60 DAYS NOTICE TO THE DEFAULTING PARTY, IT FAILED TO CURE T HE SAME WITHIN THE NOTICE PERIOD. THE AGREEMENT COULD ALSO BE TERMINATED FORTHWITH BY A PARTY, IF THE OTH ER PARTY HAD TRANSFERRED THE WHOLE OR AN IMPORTANT PAR T OF THE BUSINESS, WENT INTO LIQUIDATION, BANKRUPTCY OR INSOLVENCY; MERGED WITH, OR WAS DIRECTLY OR INDIREC TLY TRANSFERRED TO THIRD PARTY; OR A SIGNIFICANT CHANGE IN SHAREHOLDING OWNERSHIP. 4) UPON EXPIRATION OF THE TERM OF THE AGREEMENT, I. E AFTER 10 YEARS OR TERMINATION DUE TO DEFAULT OF PERFORMANCE OF OBLIGATIONS, THE ASSESSEE COULD CONTINUE TO MANUFACTURE, ASSEMBLE, SELL OR DELIVER SERVICES BUT SUBJECT TO DUE PERFORMANCE OF THEIR OBLIGATIONS, INCLUDING PAYMENT OF ROYALTY. 17 5) IN THE EVENT OF PREMATURE TERMINATION, I.E WITH IN 10 YEARS, EXCEPT DUE TO DEFAULT OF PERFORMANCE OF OBLIGATIONS, THE ASSESSEE WAS TO PROMPTLY DISCONTINUE MANUFACTURING ACTIVITIES, SALES AND OTH ER DISPOSITIONS OF THE PRODUCTS AND THE PARTS, AS WELL AS THE USE OF INTELLECTUAL PROPERTY RIGHT AND TECHNICA L INFORMATION. 6) FURTHER IN THE EVENT OF EXPIRY/ TERMINATION, THE ASSESSEE WAS TO PROMPTLY RETURN ALL DOCUMENTS AND TANGIBLE PROPERTIES IN CONNECTION WITH THE AGREEME NT INCLUDING COPIES AND TRANSLATIONS AND ALL INFORMATI ON RECEIVED UNDER THE SECRET AND CONFIDENTIALITY CLAUS ES. 7) LICENSOR HAD THE RIGHT TO ACCESS THE LICENSEES FACTORIES AND OTHER FACILITIES FOR INSPECTIONS TO C HECK AND CONFIRM THAT THE CONDITIONS/OBLIGATIONS IMPOSED WERE BEING COMPLIED WITH. 8) KNOW-HOW TECHNICAL INFORMATION AND OTHER NONPUBLIC TECHNICAL OR BUSINESS INFORMATION WAS TO REMAIN SOLELY AND EXCLUSIVELY THE PROPERTY OF LICEN SOR AND WAS TO BE HELD IN TRUST AND CONFIDENCE FOR LICENSOR BY THE LICENSEE. THIS INFORMATION WAS NOT TO BE DIVULGED, COMMUNICATED OR MADE KNOWN TO THIRD PERSONS IN ANY MANNER WHATSOEVER EXCEPT AS EXPRESSLY PROVIDED. THE LICENSEE WAS TO TAKE ALL NECESSARY PRECAUTIONS TO KEEP THE SAID INFORMATION SECRET AND CONFIDENTIAL AND RESTRICT ITS USE STRICT LY AS PER THE AGREEMENT. THE LICENSEE WAS TO ESTABLISH A ND 18 MAINTAIN INTERNAL REGULATIONS AND PROCEDURES FOR PROTECTION OF SECRECY. THE INFORMATION COULD BE DISCLOSED TO EMPLOYEES, DIRECTORS OR APPROVED SUBCONTRACTORS WHEN IT WAS REASONABLY NECESSARY FOR THE PURPOSE OF MANUFACTURE, ASSEMBLY, REPAIR AND SERVICING SUBJECT TO OBTAINING A WRITTEN PROMISE FR OM THE APPROVED SUBCONTRACTORS TO TREAT ALL INFORMATIO N AS SECRET AND CONFIDENTIAL. 9) THE AFORESAID RIGHTS AND OBLIGATIONS WERE TO PER SIST EVEN ON THE EXPIRATION OR TERMINATION OF THE AGREEMENT. 10) THE LICENSEE WAS NOT TO USE OR CAUSE OR PERMIT USE BY ANY THIRD PARTY, INTELLECTUAL PROPERTY RIGHT S OF TECHNICAL INFORMATION PROVIDED UNDER THE AGREEMENT. 11) THE LICENSEE WAS NOT TO CLAIM ANY TITLE OR PROP ERTY RIGHT WHATSOEVER DURING THE EXISTENCE OF THE AGREEMENT. UPON TERMINATION AS A RESULT OF DEFAULT OF THE LICENSEE, NO SUCH RIGHT, TITLE, PROPERTY OR INT EREST WHATSOEVER COULD BE CLAIMED. 12) THERE WERE STIPULATIONS IN CASE THE LICENSEE BECAME AWARE OR HAD KNOWLEDGE OF ANY INFRINGEMENT OR ILLEGAL USE OF INTELLECTUAL PROPERTY RIGHT OF LI CENSOR IN INDIA BY A THIRD PARTY. 13) THE LICENSEE WAS TO SUBMIT MONTHLY WRITTEN REPO RT IN THE DESIGNATED FORM TO THE LICENSOR REGARDING MANUFACTURE, SALE AND INVENTORY AND/OR SALE OF PART S 19 OF PRODUCTS. LICENSOR WAS ENTITLED TO HAVE ACCESS T O BOOKS OF ACCOUNTS, FINANCIAL STATEMENTS AND RECORDS , THE EXTENT THEY RELATE RELATED TO TRANSACTIONS AS CONTEMPLATED UNDER THE AGREEMENT. 14) THE LICENSEE COULD NOT WITHOUT LICENSORS PRIOR WRITTEN CONSENT DIRECTLY OR INDIRECTLY THROUGH ITS SUBSIDIARY, AFFILIATE, DISTRIBUTOR OR AGENT OR ANY OTHER PARTY, CARRY ON OR PARTICIPATE IN THE BUSINESS OF MANUFACTURING, ASSEMBLING, DISTRIBUTING OR OTHERWIS E DEALING IN THE LICENSED PRODUCT OF OTHER PARTIES 15) ON THE QUESTION OF CONSIDERATION PAYABLE THE AGREEMENT PROVIDED FOR FEES UNDER TWO HEADS, MAINLY 1) MODEL FEES AND 2) RUNNING ROYALTY. THE MODEL FEE WAS PAYABLE ON MODEL CHANGE, WAS NON-REFUNDABLE AND NON-CREDITABLE AGAINST OTHER PAYMENTS AND WAS PAYABLE IN THREE EQUAL INSTALMENTS, WHILE THE ROYAL TY WAS RUNNING AND PERIODICAL PAYMENT CALCULATED BY MULTIPLYING THE RATES SPECIFIED IN THE AGREEMENT WI TH REFERENCE TO THE EX-FACTORY/EX-WAREHOUSE SALES PRIC E. 17. READING THE ABOVE TERMS AND CONDITIONS AND APPLYING THE TESTS EXPOUNDED BY THE APEX COURT AND HIGH COURTS IN VARIOUS CASES, IT WAS HELD BY THE HONBLE COURT THAT THE PAYMENTS WERE FOR THE RIGHT TO USE TECHNIC AL KNOW-HOW/KNOWLEDGE AND THAT OWNERSHIP IN THE SAME W ERE NEVER TRANSFERRED TO THE ASSESSEE. THE HONBLE COUR T DERIVED THE ABOVE CONCLUSION AS FOLLOWS: 20 READING THE AFORESAID TERMS AND CONDITIONS AND APP LYING THE TESTS EXPOUNDED, IT HAS TO BE HELD THAT THE PAYMENTS IN Q UESTION WERE FOR RIGHT TO USE OR RATHER FOR ACCESS TO TECHNICAL KNOW HOW AND INFORMATION. THE OWNERSHIP AND THE INTELLECTUAL PROPERTY RIGHTS IN THE KNOWHOW OR TECHNICAL INFORMATION WERE NEVER TRANSFERRED OR BEC AME AN ASSET OF THE RESPONDENT ASSESSEE. THE OWNERSHIP RIGHTS WERE ARDE NTLY AND VIGOROUSLY PROTECTED BY HONDA. THE PROPRIETORSHIP I N THE INTELLECTUAL PROPERTY WAS NOT CONVEYED TO THE RESPONDENT ASSESSE E BUT ONLY A LIMITED AND RESTRICTED RIGHT TO USE ON STRICT AND S TRINGENT TERMS WERE GRANTED. THE OWNERSHIP IN THE INTANGIBLE CONTINUED TO REMAIN THE EXCLUSIVE AND SOLE PROPERTY OF HONDA. THE INFORMATI ON, ETC. WERE MADE AVAILABLE TO THE RESPONDENT ASSESSEE FOR DAY TO DAY RUNNING AND OPERATION, I.E. TO CARRY ON BUSINESS. IN FACT, THE BUSINESS WAS NOT EXACTLY NEW. MANUFACTURE AND SALES HAD ALREADY COMME NCED UNDER THE AGREEMENT DATED 24TH JANUARY, 1984. AFTER EXPIRY OF THE FIRST AGREEMENT, THE SECOND AGREEMENT DATED 2ND JUNE, 199 5, ENSURED CONTINUITY IN MANUFACTURE, DEVELOPMENT, PRODUCTION AND SALE. THE PERIOD OF AGREEMENT, 10 YEARS IN THE PRESENT CASE, WOULD BE INCONSEQUENTIAL FOR THE AGREEMENT MERELY PERMITTED AND ALLOWED USE OF TECHNOLOGY SUBJECT TO PAYMENT OF ROYALTY AND COM PLIANCES AND THE PROPRIETORSHIP AND OWNERSHIP RIGHT WAS NEVER GRANTE D OR TRANSFERRED. THE FACTUM THAT AFTER 10 YEARS AND AFTER RETURNING THE TANGIBLE PROPERTIES, THE RESPONDENT ASSESSEE COULD STILL HAV E CONTINUED TO USE TECHNICAL KNOWHOW AND INFORMATION WOULD BE A TRIVIA L AND INCONSEQUENTIAL FACTUM AS IN THE AUTOMOBILE INDUSTR Y, TECHNOLOGY UPGRADATION IS CONSTANT AND RAPID. GONE ARE THE DAY S WHEN ONE OR TWO MANUFACTURERS ENJOYED MONOPOLY RIGHTS AND THERE WAS A LONG AND INDETERMINATE WAIT AND QUEUE FOR PURCHASE OF OUT-OF -DATE MODELS. TECHNICAL UPGRADATION AND STATE-OF-THE-ART KNOW-HOW IS INJECTED EVERY YEAR IN THE AUTOMOBILE INDUSTRY. FAILURE TO KEEP UP AND UPGRADE WOULD RESULT IN PRODUCT REJECTION AND FALL IN SALES. PERS ISTENT UPGRADATION AND CUTTING EDGE TECHNOLOGY IS MANDATE AND BUSINESS REQ UIREMENT IN THE COMPETITIVE MARKET OF TWO/THREE WHEELERS. 18. THUS WHAT IS RELEVANT TO DETERMINE THE CHARACT ER OF THE EXPENSE IS THAT THE OWNERSHIP RIGHTS HAVE BE EN TRANSFERRED OR ONLY USER RIGHTS HAVE BEEN GIVEN BY VIRTUE OF THE LICENSE AGREEMENT. THIS PRINCIPLE HAS BEEN E CHOED IN A NUMBER OF OTHER DECISIONS ALSO WHICH WERE REFE RRED TO BEFORE US BY THE LD. COUNSEL FOR THE ASSESSEE: 1) SHRIRAM REFRIGERATION INDUSTRIES LTD. VS. CIT 127 ITR 746 (DEL) 2) SHRIRAM PISTONS AND RINGS LTD. VS. CIT 171 TAXMAN 81 (DEL) 21 19. APPLYING THE ABOVE TESTS TO THE FACTS OF THE PRESENT CASE, IT WOULD BE NECESSARY TO GO THROUGH T HE VARIOUS RELEVANT CLAUSES OF THE LICENSE AGREEMENT W HICH IN THE PRESENT CASE IS THE AGREEMENT DATED 23-04-02 RE AD WITH THE AMENDMENTS MADE VIDE AGREEMENT DATED 18-06 -08 & 16-03-09. THE SAME ARE BEING REPRODUCED HEREUNDER : 1.0 DEFINITIONS 1.5 THE TERM LICENSED TECHNOLOGY SHALL MEAN TECHN OLOGICAL AND TECHNICAL KNOWLEDGE, EXPERTISE, EXPERIENCE, KNO W-HOW, INVENTIONS, DATA, INSTRUCTIONS, TECHNIQUES PROCESS ES, DRAWINGS, SPECIFICATIONS, STANDARDS, CALCULATIONS, BILLS OF M ATERIAL, AND OTHER INFORMATION, WHETHER PATENTED OR UNPATENTED, AND AN Y PATENTS OR PATENT APPLICATIONS REGARDING DIMENSIONING, DESIGN, APPLICATION, MANUFACTURE, QUALITY CONTROL, ERECTION, INSTALLATIO N, TESTING, OPERATION AND MAINTENANCE OF FOSTER WHEELER CFB SY STBMS AS OWNED OR CONTROLLED BY LICENSOR AND SUCH INVENTI ONS OR IMPROVEMENTS AS SPECIFIED IN SECTION 7.4. 2.0 GRANTS 2.1 LICENSOR HEREBY GRANTS TO LICENSEE, FOR THE TERM OF AND SUBJECT TO THE PROVISIONS OF THIS AGREEMENT, AN EXC LUSIVE AND NON-TRANSFERABLE RIGHT AND LISLCNSC TO UTILIZE THE LICENSED TECHNOLOGY TO DESIGN MANUFACTURE, SELL, ERECT AND/O R USE EQUIPMENT HAVING A CAPACITY WHICH IS LESS THAN OR E QUAL TO TWO HUNDRED FIFTY (250) URNS OF STEAM PER 'NOW IN TERRI TORY I AND A NON-EXCLUSIVE RIGHT AND LICENSE TO SELL AND ERECT A ND/OR USE EQUIPMENT HAVING A CAPACITY WHICH IS LESS THAN OR E QUAL TO TWO HUNDREDS FIFTY (250) TONS OF STEAM PER HOUR IN TERRITORY III. THE LICENSE GRANTED HEREUNDER IS CONDITIONED UPON T HE FOLLOWING: 2.1.2 LICENSEE SHALL NOT DURING THE VALIDITY OF THI S AGREEMENT UTILIZE OR OTHERWISE ENTER INTO A LICENSE AGREEMENT WITH OT HERS FOR SIMILAR TECHNOLOGY COMPETING WITH LICENSED TECHNOLOGY, NOR SHALL THE LICENSEE UTILIZE THE LICENSED TECHNOLOGY IN COMBINATION WITH OTHER SIMILAR TECHNOLOGIES. 2.1.3 LICENSOR RETAINS FOR ITSELF, OR ITS AFFILIAGT ED COMPANIES, THE RIGHT TO DESIGN, MANUFACTURE, SELL, ERECT, AND/ OR USE EQUIPMENT IN TERRITORY I. 2.4 LICENSEE SHALL BE FREE TO SUBLICENSE LICENSED TECHNOLOGY TO ANOTHER INDIAN PARTY ON TERMS TO BE M UTUALLY AGREED TO BY LICENSOR, LICENSEE AND THE THIRD PARTY AND SUBJECT TO THE APPROVAL OF THE GOVERNMENT OF INDIA. 22 2.7 LICENSEE MAY SUBCONTRACT THE MANUFACTUR E OF COMPONENTS OF THE EQUIPMENT END ERECTION OF EQUIPMENT IN INDI A END LICENSEE SHALL EXERCISE CONTROL OVER THE QUALITY OF SUCH SUBCONTRACTED WORK. LICENSEE SHALL OBLIGATE ANY SU BCONTRACTOR NOT TO DISCLOSE THE LICENSED TECHNOLOGY AND TO USE IT FOR NO OTHER PURPOSE THAN THE PERFORMANCE OF THE SUBCONTRA CT. IT SHALL BE THE RESPONSIBILITY OF THE LICENSEE TO ENFO RCE SUCH OBLIGATIONS UPON ITS SUBCONTRACTORS. 2.8 LICENSEE WARRANTS THAT THE DESIGN, MANUFACTURE, ERECTION AND OPERATION OF THE EQUIPMENT WILL BE PERFORMED IN ACC ORDANCE WITH THE LICENSED TECHNOLOGY. 2.9 LICENSOR SHALL HAVE THE RIGHT TO INSPECT THE D ESIGN, MANUFACTURE AND ERECTION OF THE EQUIPMENT AT ANY TI ME DURING REGULAR BUSINESS HOURS INCLUDING ANY SUBCONTRACTED PORTION. SUCH INSPECTION BY LICENSOR SHALL NOT RELIEVE LICENSEE OF ITS OBLIGATIONS HEREUNDER NOT IMPOSE AN Y LIABILITY ON LICENSOR. 4.0 COMPENSATION 4.1 IN CONSIDERATION OF THE LICENSE AND RIGHTS GRANTED TO LICENSEE BY LICENSOR HEREUNDER, IN WHICH THE PARTIE S RECOGNIZE THAT TRADE SECRETS AND KNOW-HOW ARE SIGNI FICANT FACTORS, LICENSEE SHALL PAY LICENSOR COMPENSATION AS FOLLOWS : 4.1.1 FOR ALL EQUIPMENT A ROYALTY AS FOLLOWS: FIVE (5) PERCENT OF THE TOTAL INVOICED EX-FACTORY N ET SELLING PRICE OF ANY EQUIPMENT, EXCLUSIVE OF TAXES AND EXCI SE DUTIES, AND EXCLUDING FREIGHT AND INSURANCE CHARGES AND THE COST OF STANDARD BOUGHT-OUT COMPONENTS AND THE LANDED CO ST OF ANY IMPORTED COMPONENTS. 6.0 REPORTS 6.1 LICENSEE WILL PROVIDE DETAILED WRITTEN REPORTS FOR EACH ORDER OR CONTRACT FOR WHICH ROYALTY IS PAYABLE TO LICENSOR. SUCH REPORTS WILL BE SUBMITTED AT LEAST ONE WEEK IN ADVANCE OF A NY ROYALTY PAYMENT. EACH REPORT SHALL BE PROVIDED TO LICENSOR AS SPECIFIED IN SECTION 5.2.1.1 AND 5.2.1.2 HEREOF. EA CH REPORT WILL INCLUDE THE FOLLOWING DATA FOR EACH LICENSEE CONTRA CT OR ORDER: 6.1.1 LICENSEE'S IDENTIFYING CONTRACT NUMBER, 6.1.2 THE CORRESPONDING CONTRACT OR REFERENCE NUMBE R(S) ASSIGNED BY THE LICENSOR. 6.1.3 THE NAME AND ADDRESS OF LICENSEES CUSTOMER; 6.1.4 THE NET SELLING PRICE OF THE EQUIPMENT ON THE DATE OF THE REPORT; 6.1.5 THE SCHEDULED OR ACTUAL DATES FOR EQUIPMENT S HIPMENT; 23 6.1.6 THE TOTAL ROYALTY PAYABLE TO LICENSOR FOR ORD ERS OR CONTRACTS AWARDED TO THE LICENSEE AS OF THE DATE OF THE REPORT; 6.1.7 THE AMOUNT OF ROYALTY PREVIOUSLY PAID TO LICE NSOR; 6.1.8 THE ESTIMATED AMOUNT OF ROYALTY REMAINING TO BE PAID TO LICENSOR; 6.1.9 THE PROJECTED SCHEDULE FOR ROYALTY PAYMENTS O VER THE REMAINING LIFE OF THE ORDER BEING REPORTED; 6.2 CONTRACTS MADE BY LICENSEE FOR EQU1PEMNT AND ALL BO OKS, ACCOUNTS AND RECORDS RELATING THERETO WILL ALWAYS B E AVAILABLE FOR INSPECTION AND AUDIT BY LICENSOR OR ITS REPRESENTAT IVE AT ANY TIME DURING NORMAL BUSINESS HOURS. 7.0 PATENTS, INVENTIONS AND IMPROVEMENTS 7.1 7.2 LICENSEE SHALL ADVISE LICENSOR PROMPTLY UPO N LEARNING OF ANY UNAUTHORIZED DISCLOSURE OR USE OF T HE LICENSED TECHNILOGY AND/OR LICENSORS TRADEMARKS, THE LICENSOR MAY TAKE ANY OR NO ACTION AS, IN ITS S OLE DISCRETION, IT DEEMS PROPER WITH RESPECT THERETO. AT THE LICENSORS EXPENSES, THE LICENSEE SHALL COOPERATE W ITH THE LICENSOR AND SHALL PARTICIPATE AND ASSIST THE LICENSOR IN ANY ACTION TAKEN WITH RESPECT THERETO, INCLUDING PERMITTING THE LICENSOR TO TAKE SUCH ACTI ON IN THE NAME OF THE LICENSEE. THE LICENSEE SHALL MAKE AVAIL ABLE, WITHOUT EXPENSE TO LICENSOR ANY INFORMATION AND DAT A IN ITS CONTROL AND SHALL EXECUTE ANY PAPERS OR INSTRUMENTS NECESSARY OR DESIRABLE. 7.3 SHOULD ANY INVENTION, IMPROVEMENT OR MODIFICATI ON TO THE EQUIPMENT WHETHER PATENTABLE OR NOT BE MADE BY LICE NSEE OR BE ACQUIRED BY LICENSEE FROM A THIRD PARTY, LICE NSEE SHALL, IN SO FAR AS IT HAS THE RIGHT TO DO SO, GRANT LICEN SOR A NON- EXCLUSIVE, ROYALTY-FREE, IRREVOCABLE LICENSE TO UTI LIZE AND TO PERMIT ITS AFFILIATED COMPANIES AND LICENSEES TO UTILIZE SUCH INVENTION, IMPROVEMENT OR MODIFICATION IN CONNECTION WITH THE DESIGN, MANUFACTURE, SALE ERECTION AND/OR USE OF EQUIPMENT ANYWHERE IN THE WORLD, EXCEPT INDIA. THIS SHALL ALSO INCLUDE AN Y IMPROVEMENTS IN BOILER PERFORMANCE. 8.0 TRADEMARKS 8.1 LICENSOR, THROUGH ITS PARENT COMPANY, THE FOSTE R WHEELER LLC, HEREBY GRANTS TO THE LICENSEE A NON-EXCLUSIVE AND N ON- TRANSFERABLE LICENSE TO USE THE TRADEMARKS (HEREINA FTER LISTED) IN TERRITORIES I AND III AND AS MAY BE PERMITTED BY LI CENSOR, ON A CASE BY CASE BASIS, IN TERRITORY II FOR THE FOSTER WHEELER CFB SYSTEMS. ALL FOSTER WHEELER CFBSYSTEMS SHALL HAVE AFFIXED THERETO A METAL PLATE BEARING IN THE APPROPRIATE LANGUAGE THE WORDING 'MANUFACTURED BY (LICENSEE) UNDER LICENSE FROM FOSTER WHEELER ENERGY INTERNATIONAL, INC.' AND: --------------------------------------------------- ------------------- TRADEMARK RIGHTS OF FOSTER WHEELER CORPORATION USED UNDER LICENSE 24 AND/OR OTHER EQUIVALENT WORDING AND/OR OTHER INFORM ATION AS MAY BE AGREED TO BY LICENSOR IN THE MANNER AND TO T HE EXTENT AUTHORIZED, APPROVED AND DIRECTED IN WRITING BY LICENSOR. AN EXAMPLE OF SUCH NAMEPLATE IS SHOWN IN APPENDIX V ATTACHED HERETO. 8.5 LICENSEE SHALL DESIGN, MANUFACTURE, SELL AND ER ECT EQUIPMENT IN ACCORDANCE WITH THE LICENSED TECHNOLOGY. LICENSOR OR ITS AUTHORIZED REPRESENTATI VES SHALL HAVE THE RIGHT TO INSPECT ALL EQUIPMENT MANUFACTURED, DESIGNED, SOLD OR SUPPLIED BY OR FOR LICENSEE AT ALL STAGES OF MANUFACTURE OR ERECTION (WHETHER BEFO RE ,OR AFTER DELIVERY); WHEREVER SUCH EQUIPMENT OR PARTS THEREOF MAY BE LOCATED. IN THE EVENT THAT THE EQUIPMENT, OR ANY P ART THEREOF, DOES NOT CONFORM WITH THE LICENSED TECHNOLOGY, LICENSEE SHALL, UPON WRITTEN NOTICE FROM LICENSOR SETTING FORTH THE NATURE OF THE DEFEC T, CEASE THE MANUFACTURE OF SUCH EQUIPMENT UNTIL WRITT EN APPROVAL OF THE CORRECTIONS IS OBTAINED FROM LICENS OR. 8.6 ALL OF LICENSEE'S ADVERTISEMENTS, BROCHURES, BU LLETINS AND SALES MATERIAL RELATING TO EQUIPMENT SHALL INCLUDE APPROPRIATE WORDING STATING THAT LICENSEE IS UNDER LICENSE FROM LICENSOR AND ALL SUCH MATERIAL SHALL BE SUBMITTED TO LICENSOR FOR COMMENT AND APPROVAL PRIO R TO PUBLICATION. 10.0 CONFIDENTIALITY 10.1 LICENSEE AGREES TO HOLD IN CONFIDENCE AND NOT USE, EXCEPT AS EXPRESSLY AUTHORIZED BY THIS AGREEMENT, ANY AND ALL INFORMATION DISCLOSED (HEREAFTER 'CONFIDENTIAL INFORMATION) TO IT, DIRECTLY OR INDIRECTLY, BY THE LICENSOR AND/OR ITS AFFILIATED COMPANIES UNDER THIS AGREEMENT. LICENSEE AGREES TO PREVENT THE DISCLOSUR E OF THE CONFIDENTIAL INFORMATION AND TO KEEP SAME SEPAR ATE FROM TECHNICAL INFORMATION AND DATA OF LICENSEE AND OF THIRD PARTIES. LICENSEE AGREES THAT IN ORDER TO PREVENT T HE CO-MINGLING OF CONFIDENTIAL INFORMATION WITH THE TECHNOLOGY OF THIRD PARTIES, LICENSEE MUST REFRAIN FROM OFFERING CIRCUL ATING FLUIDIZED BED BOILERS, WHICH ARC OF A THIRD PARTY D ESIGN, UNLESS MUTUALLY AGREED UPON BY THE PARTIES IN WRITING. LIC ENSEE MAY ACT AS A SUBCONTRACTOR FOR SUCH EQUIPMENT TO A THIRD PARTY DESIGNER OR MANUFACTURER IN ACCORDANCE WITH SUCH TH IRD PARTY'S DESIGN. 10.2 LICENSEE SHALL MINIMIZE DUPLICATION OF THE CONFIDENTIAL INFORMATION AND MAY ONLY DISCLOSE CONFIDENTIAL INFORMATION TO ITS EMPLOYEES, CLIENTS AND SUBCONTRACTORS WHO NEED TO RECEIVE CONFIDENTIAL INFORMATION IN ORDER TO CARRY OUT THE PURPOSES OF T HIS AGREEMENT. SUCH DISCLOSURE SHALL BE LIMITED TO CONFIDENTIAL INFORMATION WHICH IS NECESSARY FOR THE PARTICULAR EMPLOYEE, CLIENT OR SUBCONTRACTOR TO PER FORM HIS FUNCTION. IN DOING SO, LICENSEE SHALL DEMAND SUCH P ARTIES TO KEEP THE INFORMATION CONFIDENTIAL TO THE SAME EXTEN T AS THE LICENSEE IS COMPELLED TO AND TO UTILIZE IT ONLY FOR THE PURPOSE UNDER THIS AGREEMENT. IT IS UNDERSTOOD THAT THE LIC ENSEE SHALL NOT PASS ON TO ITS SUBCONTRACTORS, AND/OR CLIENTS I NFORMATION RECEIVED FROM LICENSOR AND/OR ITS AFFILIATED COMPANIES TO SU CH AN EXTENT THAT SUCH SUBCONTRACTORS, AND/OR CLIENTS WOU LD BE IN A POSITION TO APPLY THE LICENSED TECHNOLOGY AS A WHOLE OR ANY ESSENTIAL PART THEREOF. 25 10.3 LICENSEE'S OBLIGATIONS UNDER THIS SECTION 10.0 SHALL SURVIVE THE EXPIRATION OR TERMINATION OF THIS AGREEMENT AND SHA LL REMAIN IN FULL FORCE AND EFFECT FOR A PERIOD OF THREE (3) YEA RS FOLLOWING UK EXPIRATION DATE, OR IF TERMINATED PRIOR TO THE EXPI RATION DATE, THEFT SUCHOBLIGATIONSSHALLCONTINUETHROUGH22 ND APRIL, 2012. 11.0 TERM AND TERMINATION 11.1 TERM OF AGREEMENT 11.1.1 THE TERM OF THIS AFREEMENT SHALL EXPIRE ON 22 ND APRIL, 2012. 11.1.2 ON EXPIRY OF THE TERM STIPULATED IN SECTION 11.1.1 ABOVE, THIS AGREEMENT SHALL BE RENEWED FOR A FURTHE R PERIOD OF FIVE (5) YEARS FOR WHICH PURPOSE LICENSEE HALL APPROACH THE GOVERNMENT OF INDIA/RESERVE BANK OF IN DIA FOR PERMISSION FOR SUCH RENEWAL INCLUDING PAYMENT O F ROYALTY, WELL IN TIME. THEREAFTER, THIS AGREEMENT S HALL BE RENEWED FOR ADDITIONAL SUCCESSIVE TERMS OF ONE ( 1) YEAR EACH, UNLESS EITHER PARTY GIVES WRITTEN NOTICE TO T HE OTHER PARTY OF ITS INTENTION NOT TO RENEW AT LEAST SIX (6 ) MONTHS PRIOR TO THE EXPIRATION DATE OF THE INITIAL TERM OR OF ANY RENEWAL TERM. EACH PARTY AGREES TO USE ITS BEST EFF ORTS TO EXPEDITIOUSLY OBTAIN SUCH CONSENTS, APPROVALS, LICE NSES, PERMITS AND PA MISSIONS AS ARE NECESSARY FOR RENEWA L. EACH PARTY SHALL BEAR ALL COSTS OF OBTAINING THE REQUIRE D APPROVALS, LICENSES, PERMITS AND PERMISSIONS FROM I TS GOVERNMENTAL AUTHORITIES. EACH PARTY SHALL CO-OPERA TE WITH AND ASSIST THE OTHER PARTY IN OBTAINING SUCH CONSENTS, APPROVALS, LICENSES, PERMITS AND PERMISSI ONS. LICENSEE NUT}', SUBJECT TO ITS SATISFACTION OF ITS ROYALTY AND OTHER PAYMENT OBLIGATIONS UNDER THIS AGREEMENT, CARRY OUT AFTER THE DATE OF EXPIRATION OR TERMINATI ON OF THIS AGREEMENT ORDERS ACCEPTED OR CONTRACTS ENTERED INTO BY LICENSEE. 11.2 RIGHTS OF TERMINATION OF AGREEMENT 11.2.1 LICENSOR OR LICENSEE HAVE THE RIGHT TO TERMINATE THIS AGREEMENT AT ANY TIME ON THIRTY (30) DAYS PRIOR WRITTEN NOTICE, IF THE NORMAL CONDUCT OF THE BUSINESS OF LICENSEE OR LICENSOR AS A COMMERCIAL OR INDUSTRIAL ENTERPRISE CEASES OR IS SUBSTANTIALLY ALTERED AS A DIRECT OR INDIRECT CONSEQUENCE OF MEASURES TAKEN BY A GOVERNMENTAL OR OTHER AUTHORITY OF IF A CONTROLLING INTEREST IN LICENSEE OR LICENSOR OR ALL OR SUBSTANTIALLY ALL OF THE ASSETS OF LICENSEE OR LICENSOR ARE DIRECTLY OR INDIRECTLY TRANSFERRED TOP OF THE ACT ACQUIRED BY ONE OR MORE PERSON(S), FIRM(S OR CORPORATION(S) WHOSE INTERESTS ARE SUCH THAT A FULFILLMENT OF THIS AGREEMENT SHALL REASONABLY BE UNACCEPTABLE TO THE OTHER PARTY. 11.2.2 IF ONE PAPRTY HERETO LIABLE FOR BREACH OF TH IS AGREEMENT AND IF SUCH PARTY HAS NOT CURED SUCH BREACH WITHIN TWO MON THS AFTER HAVING RECEIVED A WRITTEN NOTICE OF SUCH BREACH FRO M THE AGGRIEVED PARTY, THEN THE AGGRIEVED PARTY SHALL BE ENTITLED T O TERMINATE THIS AGREEMENT IMMEDIATELY UPON WRITTEN NOTICE TO T HE BREACHING PARTY. 11.2.3 EITHER PARTY HERETO MAY TERMINATE THIS AGREEMENT IMMEDIATELY, UPON WRITTEN NOTICE TO THE OTHER PARTY IN THE EVENT 26 THAT THE OTHER PARTY BECOMES INSOLVENT OR ANY VOLUN TARY OR INVOLUNTARY PETITION IN BANKRUPTCY OR FOR CORPOR ATE REORGANIZATION IS FILED BY OR AGAINST THE OTHER PAR TY, OR A RECEIVER IS APPOINTED WITH RESPECT TO A SUBSTANTIAL PART OF THE ASSETS OF THE OTHER PARTY, OR LIQUIDATION PROVI SION ARE COMMENCED BY OR AGAINST THE OTHER PARTY. 11.2.4 LICENSOR SHALL ALSO BE ENTITLED TO TERMINAT E THE AGREEMENT IMMEDIATELY UPON WRITTEN NOTICE TO LICENSEE IN THE EVENT LICENSEE, OR ANY OF ITS PARENTS, SUBSIDIARIES OR AF FILIATES, CHALLENGE THE VALIDITY OF ANY OF LICENSOR'S PATENTS WHICH ARE OR MAY BECOME THE SUBJECT HEREOF OR ANY CORRESPONDI NG PARALLEL PATENTS EXISTING IN OTHER COUNTRIES BY INSTITUTING PATENT OFFICE OR COURT PROCEEDINGS AND LICENSEE, OR SUCH PARENT, SUB SIDIARY OR AFFILIATE, FAILS, PROMPTLY AFTER DEMAND BY LICENSOR , TO WITHDRAW SUCH CHALLENGE. 11.3 UPON EXPIRATION OR TERMINATION: 11.3.1 UPON TERMINATION OR EXPIRATION OF THIS AGREEMENT, LICENSEE MAY CONTINUE TO USE THE KNOW-HOW INCLUDED IN THE LICENSED TECHNOLOGY AS WELL AS THE PATENTS LISTED IN APPENDIX VI HERETO WITHOUT MAKING ADDITIO NAL PAYMENTS TO LICENSOR. LICENSEE SHALL, HOWEVER, PA Y ALL OUTSTANDING ROYALTIES PAYABLE FOR ORDERS -------------------------------------------------- -------------------------- ACCEPTED OR CONTRACTS ENTERED INTO FOR CONTRACTUAL PLANTS BY LICENSEE UP TO THE EXPIRATION OF THIS AGREEMENT. SHOULD THIS AGREEMENT BE TERMINATED BY LICENSOR PRIOR TO THE EXPIRATION OF THE TERM OF THE AGREEMEN T, AS SPECIFIED IN SECTION U.LI HEREOF, ACCORDING TO SECT IONS 11.2.1, 11.2.2,11.2.3, OX 11 2.4, LICENSEE SHALL CE ASE TO USE THE LICENSED TECHNOLOGY AND SHALL IMMEDIATELY RETURN TO LICENSOR ALL TECHNICAL INFORMATION FURNIS HED UNDER THIS AGREEMENT AS WELL AS ALL COPIES THEREOF. 11.3.2 LICENSEE SHALL PAY TO LICENSOR AND/OR ITS AFFILIATED COMPANIES, ALL UNPAID COMPENSATIONS AS PROVIDED HEREIN, AND EACH PARTY SHALL CAUSE TO BE F ULFILLED ALL OF ITS OBLIGATIONS TO THE OTHER REGARDING ANY O RDER OR CONTRACT OBTAINED BY LICENSEE PRIOR TO SUCH EXPIRAT ION OR TERMINATION, INCLUDING THOSE ORDERS OR CONTRACTS UNCOMPLETED AT THE TIME OF SUCH EXPIRATION OR TERMI NATION. 11.3.3 LICENSEE SHALL NOT USE FOSTER WHEELER TRADEMARKS. AMENDMENT TO CLAUSE 2.4 MADE VIDE AGREEMENTS DATED 18-06-08 & 16-03-09. AMENDMENT DATED 18.6.2008 : 5. SECTION 2.4 OF THE LICENSE AGREEMENT IS DELETED. 27 AMENDMENT DATED 16.3.2009 : 5. SECTION 2.4 OF THE LICENSE AGREEMENT IS DELETED. 20. FROM THE READING OF THE AGREEMENT IT IS EVIDEN T THAT NO ABSOLUTE OWNERSHIP OF TECHNICAL KNOW-HOW HA D BEEN ACQUIRED BY THE ASSESSEE BY VIRTUE OF THE TECH NICAL COLLABORATION AGREEMENT ENTERED INTO WITH M/S FOSTE R WHEELER ENERGY INTERNATIONAL INC. THOUGH CLAUSE 2.1 GIVES AN EXCLUSIVE RIGHT OF MANUFACTURE, SALE AND DISTRIBUTION, WE FIND THAT THE SAME IS ONLY AGAINST THIRD PARTIES AND NOT THE LICENSOR. AS PER CLAUSE 2.1.3 T HE LICENSOR HAS RETAINED THE RIGHT WITH ITSELF. MOREOV ER CLAUSE 2.4 WHICH GAVE THE ASSESSEE RIGHT TO SUB LICENSE TH E TECHNOLOGY VIDE THE ORIGINAL AGREEMENT HAS BEEN WITHDRAWN BY THE AMENDMENTS MADE, THUS REFRAINING THE ASSESSEE FROM PERMITTING ANY THIRD PARTY TO USE THE INTELLECTUAL PROPERTY RIGHT. AS PER CLAUSE 2.7 THE LICENSEE CAN DISCLOSE THE INFORMATION TO SUB CONTRACTORS SUB JECT TO THE CONDITION THAT THE LICENSEE ENSURES THE TREATME NT OF THE SAME AS CONFIDENTIAL BY THE SUB CONTRACTOR. CL AUSE 2.9 & 8.5 GIVE THE LICENSOR THE RIGHT TO ACCESS THE ASSESSEES FACTORY AND OTHER FACILITIES TO CHECK AN D CONFIRM THAT THE CONDITIONS/OBLIGATIONS IMPOSED WER E BEING COMPLIED WITH. CLAUSE 6 REQUIRES THE ASSESSE E LICENSEE TO SUBMIT ALL INFORMATION OF PRODUCTS MANUFACTURED AND GIVE THE LICENSOR ACCESS TO ALL RE CORDS RELATED TO THE TRANSACTIONS CONTEMPLATED IN THE AGR EEMENT. CLAUSE 7.2 REQUIRES THE LICENSEE TO REPORT ANY INFRINGEMENT OR ILLEGAL USE OF INTELLECTUAL PROPERT Y BY ANY 28 THIRD PARTY TO THE LICENSOR. CLAUSE 7.3 PROVIDES TH AT EVEN IN RESPECT OF ANY INVENTIONS AND IMPROVEMENTS MADE BY THE LICENSEE I.E. THE ASSESSEE, THE LICENSEE IS REQ UIRED TO DISCLOSE IT TO THE LICENSOR AND THE LICENSOR WILL HAVE AN IRREVOCABLE RIGHT TO USE SUCH INVENTIONS AND IMPROVEMENTS. CLAUSE 4 PROVIDES THE CONSIDERATION T O BE PAID BY THE ASSESSEE FOR THE USE OF TECHNICAL INFOR MATION PROVIDED TO THE ASSESSEE UNDER THIS LICENSE WHICH I S IN THE FORM OF RUNNING ROYALTY. CLAUSE 8 GRANTS THE ASSESS EE LICENSEE NON-EXCLUSIVE AND NON-TRANSFERABLE LICENS E TO USE THE TRADE MARK. CLAUSE 10 RELATES TO THE CONFIDENTIALITY CLAUSE REQUIRING THE LICENSEE TO HO LD CONFIDENTIAL ALL INFORMATION AND USE IT STRICTLY AS PER THE AGREEMENT. AS PER CLAUSE 11.1.1 THE TERM OF THE CO NTRACT WAS FOR A PERIOD OF 10 YEARS AND ON EXPIRY THE ASSE SSEE COULD CARRY OUT ALL ORDERS SUBJECT TO PAYMENT OF RO YALTY. CLAUSE 11.3.1 OF THE AGREEMENT PROVIDES THAT ON TERMINATION OF AGREEMENT BY LICENSOR ,THE LICENSEE SHALL CEASE TO USE THE LICENSED PROPERTY AND RETURN TO TH E LICENSOR ALL DOCUMENTS AND TANGIBLE PROPERTY SUPPLI ED BY THE LICENSOR IN CONNECTION WITH THIS AGREEMENT. 21. THE ABOVE CLAUSES OF THE AGREEMENT PROVE BEYOND DOUBT THAT THE INTANGIBLE PROPERTY CONTINUED TO BE OWNED BY THE LICENSOR WHO HAD RETAINED ALL RIGHTS OVER IT, GIVING THE ASSESSEE ONLY USER RIGHTS SUBJECT TO AB SOLUTE CONTROL OVER THE SAME WITH RESPECT TO THE MANNER OF USER, PERIOD OF USER AND OTHERWISE AS IS EVIDENT FROM TH E 29 VARIOUS CLAUSES OF THE AGREEMENT. THE ASSESSEE HA D NOT ACQUIRED ANY KNOW-HOW LICENSED BY VIRTUE OF THIS AGREEMENT WHICH CAN BE SAID TO BE INTANGIBLE ASSET OF THE ASSESSEE. 22. THE FACTS OF THE ABOVE CASE WE FIND ARE IDENT ICAL TO THAT IN THE CASE OF HERO HONDA MOTORS LTD (SUPRA).FURTHER WE FIND THAT THE HONBLE DELHI HIGH COURT IN THAT CASE HAD CONSIDERED THE DECISION OF THE HON BLE APEX COURT IN THE CASE OF SOUTHERN SWITCHGEAR LIMIT ED AND DISTINGUISHED THE SAME ON FACTS. IN THE SAID CASE, THE HIGH COURT OBSERVED THAT THE ASSESSEE HAD ENTERED I NTO A COLLABORATION AGREEMENT FOR PROVIDING TECHNICAL KNO W-HOW FOR SETTING UP OF A FACTORY AND OPERATION THEREOF. THE FOREIGN COMPANY HAD AGREED NOT TO MANUFACTURE PRODU CTS IN INDIA OR GIVE RIGHT TO A THIRD PERSON TO DO THE SAME. REFERRING TO THE CLAUSES OF THE AGREEMENT, THE HIGH COURT HELD THAT TECHNICAL KNOWLEDGE SO SECURED HAD RESULT ED IN AN ENDURING ADVANTAGE AND BENEFIT AS THE SAME WAS AVAILABLE EVEN AFTER THE TERMINATION OF THE AGREEME NT SINCE THE FACTORY AND ITS OPERATIONS WOULD HAVE CON TINUED. THE DURATION OF THE AGREEMENT WAS 5 YEARS BUT THE METHOD, PRODUCTION, PROCEDURE ETC WOULD REMAIN WITH THE INDIAN ASSESSEE AND THEREFORE AN ENDURING BENEFIT/ADVANTAGE WAS ACQUIRED. THERE WAS ALSO CONFERMENT OF EXCLUSIVE RIGHT TO MANUFACTURE AND SE LL THE ARTICLE, WHICH WAS AN INDEPENDENT RIGHT SECURED AND WAS AN ENDURING NATURE. ACCORDINGLY 25% OF THE ROYALTY PAID 30 WAS DISALLOWED OF CAPITAL EXPENDITURE. THE HIGH COU RT FURTHER NOTED THAT IT WAS OBSERVED THAT THE ENTIRE ROYALTY WAS FOR ACQUISITION OF THE EXCLUSIVE PRIVILEGE TO MANUFACTURE AND SELL THE PRODUCTS AND THEREFORE IT WAS PARTLY CAPITAL AND PARTLY REVENUE IN NATURE. THUS T HE FACTS IN THE CASE OF THE ASSESSEE ARE DISTINGUISHABLE WIT H THE FACTS BEFORE THE HONBLE APEX COURT. ON THE OTHER H AND THE FACTS OF THE ASSESSEES CASE ARE IDENTICAL TO THE F ACTS IN THE CASE OF HERO HONDA MOTORS LTD (SUPRA) AND THE DECISION RENDERED THEREIN SQUARELY APPLIES IN THE P RESENT CASE. THEREFORE WE HOLD THAT THE PAYMENT OF ROYALT Y WAS REVENUE EXPENDITURE. ACCORDINGLY WE UPHOLD THE ORDE R OF THE LD. CIT( APPEAL) AND DISMISS THE APPEAL FILED B Y THE REVENUE. 23. IN EFFECT THE APPEAL OF THE REVENUE STANDS DISMISSED. 24. WE NOW TAKE UP GROUND NO.2 RAISED BY THE REVENUE IN ITA NO.929/CHD/2015. THE GROUND NO.2 RAISED BY THE REVENUE READS AS UNDER : 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE T HE LD. CIT(A) HAS ERRED IN DELETING DISALLOWANCE OF RS. 5 LACS OUT OF TELEPHONE EXPENSES AND VEHICLE RUNNING EXP ENSES WHEN NO SUPPORTING DOCUMENTS WAS ADDUCED BY THE ASSESSES BEFORE THE A.O. 25. THE ABOVE GROUND IS DIRECTED AGAINST THE ACTIO N OF THE LD. CIT (APPEALS) IN DELETING THE DISALLOWAN CE OF 31 RS.5 LACS MADE ON ACCOUNT OF TELEPHONE AND VEHICLE RUNNING EXPENSES. 26. BRIEF FACTS RELATING TO THE ISSUE ARE THAT DUR ING THE ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NO TED THAT THE ASSESSEE HAD DEBITED EXPENSES OF RS.2,53,00,992/- AND RS.7,86,44,167/- (TOTAL RS.10,39,45,159/-) ON ACCOUNT OF TELEPHONE AND VEHI CLE RUNNING EXPENSES. THE ASSESSEE WAS ASKED TO PRODUC E LOG BOOKS OF THE CAR AND TELEPHONE REGISTER TO SUBSTANT IATE ITS CLAIM OF THESE EXPENSES. THE ASSESSEE SUBMITTED TH AT NO LOG BOOKS AND TELEPHONE REGISTER HAD BEEN MAINTAINE D. FURTHER, IT WAS FOUND THAT SOME VOUCHERS WERE WITHO UT CASH MEMO/BILLS. TO COVER UP THE LEAKAGE OF REVENU E ON THIS ACCOUNT, THEREFORE, THE ASSESSING OFFICER MADE DISALLOWANCE OF A LUMP SUM EXPENSES OF RS.5 LACS. 27. DURING THE APPELLATE PROCEEDINGS THE ASSESSEE SUBMITTED THAT THE IMPUGNED EXPENSES WERE PETTY COM MON EXPENSES AND ARE PROPERLY VOUCHED AS PER SYSTEM OF INTERNAL CONTROL IN OPERATION IN THE COMPANY AND WE RE EXCLUSIVELY INCURRED FOR THE BUSINESS OF THE COMPAN Y. THE ASSESSEE FURTHER SUBMITTED THAT IT WAS A PUBLIC LIS TED COMPANY AND ITS ACCOUNTS WERE DULY AUDITED AND SUBJ ECT TO STRICT INTERNAL CONTROL SYSTEM. FURTHER THE ASS ESSEE POINTED OUT THAT NO SPECIFIC DEFECT HAD BEEN POINTE D OUT BY THE ASSESSING OFFICER. THE ASSESSEE, THEREFORE, CONTENDED THAT HE DISALLOWANCE MADE WAS UNWARRANTED 32 AND RELIED UPON THE FOLLOWING DECISIONS IN SUPPORT OF ITS CONTENTION : 1) DCIT VS. METALLISING EQUIPMENT CO.(P) LTD. (2005) 92 TTJ 95 (JODHPUR) 2) DCIT VS. MRS.IRENE D SOUZA (2006) 6 SOT 86 (BANGALORE) 3) SAYAJI IRON & ENGINEERING CO. VS. CIT (2002) 253 ITR 749 (GUJARAT) 28. THE LD. CIT (APPEALS) AFTER GOING THROUGH ASSESSEES SUBMISSIONS DELETED THE DISALLOWANCE MAD E HOLDING THAT SINCE NO SPECIFIC DEFECTS IN ANY VOUCH ER OR CLAIM OF EXPENSES WERE FOUND BY THE ASSESSING OFFIC ER AND IN VIEW OF THE FACT THAT THE ASSESSEE IS A LISTED C OMPANY, NO DISALLOWANCE ON ACCOUNT OF ESTIMATED PERSONAL US E OF VEHICLES AND TELEPHONES BY THE DIRECTORS AND THEIR FAMILY MEMBERS IN THE CASE OF A COMMISSIONER COULD BE MAD E. 29. BEFORE US, THE LD. DR RELIED UPON THE ORDER OF THE ASSESSING OFFICER, WHILE THE LD. COUNSEL FOR TH E ASSESSEE PLACED RELIANCE ON THE ORDER OF THE LD. CI T (APPEALS) IN THIS REGARD. 30. WE HAVE HEARD THE CONTENTIONS OF BOTH THE PARTIES. WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT (APPEALS) IN DELETING THE ADHOC DISALLOWANCE MADE B Y ATTRIBUTING PERSONAL USE OF VEHICLES AND TELEPHONES BY THE DIRECTORS AND FAMILY MEMBERS OF THE ASSESSEE COMPAN Y. THE LD. CIT (APPEALS) HAS RIGHTLY HELD THAT NO SPEC IFIC DEFECT IN ANY VOUCHER HAS BEEN FOUND BY THE ASSESSI NG 33 OFFICER AND IT IS WELL SETTLED IN VIEW OF THE NUMER OUS DECISIONS RENDERED BY THE TRIBUNAL AND HIGH COURTS RELIED UPON BY THE LD.AR, THAT IN CASE OF A COMPANY THERE CANNOT BE ANY DISALLOWANCE ON ACCOUNT OF ESTIMATED PERSONAL USE OF VEHICLES AND TELEPHONES BY THE DIRE CTORS AND THEIR FAMILY MEMBERS. IN VIEW OF THE SAME, WE UPHOLD THE ORDER OF THE LD. CIT (APPEALS) IN DELETING THE DISALLOWANCE MADE OF RS.5 LACS ON ACCOUNT OF TELEPH ONE AND VEHICLES RUNNING EXPENSES. GROUND NO.2 RAISED BY THE REVENUE IS, THEREFORE, DISMISSED. 31. THE APPEAL OF THE REVENUE IS DISMISSED. 32. IN THE RESULT, ALL THE THREE APPEALS FILED BY THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (BHAVNESH SAINI) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 30 TH DECEMBER, 2016 *RATI* COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. THE CIT 5. THE DR ASSISTANT REGISTRAR, ITAT, CHANDIGARH