Heidelberg Cement India Ltd., Gurgaon V. DCIT, Gurgaon

ITA 2054/DEL/2016

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 6868 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 6 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 13-04-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ASHIMA NEB
• Keywords: Capital asset; Depreciation; Additional depreciation; Revenue expenditure; Capital expenditure; Set aside; Liquidation
• Section: 32(1)(iia); 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : B : NEW DELHI BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER AND MS SUCHITRA KAMBLE, JUDICIAL MEMBER ITA NO.2054/DEL/2016 ASSESSMENT YEAR: 2011-12 HEIDELBERG CEMENT INDIA LTD., 9 TH FLOOR, TOWER-C, INFINITY TOWERS, DLF CYBER CITY, GURGAON. PAN: AABCM2359J VS DCIT, CIRCLE-2, 3 RD FLOOR, VANIJYA NIKUNJ, HSIIDC BUILDING, UDYOG VIHAR, PH. V, NEAR SHANKAR CHOWK, NH-8, GURGAON. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI DEEPAK CHOPRA, ADVOCATE & SH. HARPREET SINGH AJMANI, ADVOCATE REVENUE BY : MS ASHIMA NEB, SR. DR DATE OF HEARING : 28.08.2019 DATE OF PRONOUNCEMENT : 31.10.2019 ORDER PER R.K. PANDA, AM: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 1 ST FEBRUARY, 2016 OF THE CIT(A)-1, GURGAON, RELATING T O ASSESSMENT YEAR 2011-12. 2. GROUNDS OF APPEAL NO. 1 AND 1.1 RAISED BY THE READ AS UNDER:- 1. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW, I N CONFIRMING THE DISALLOWANCE MADE BY THE LD. AO, AMOUNTING TO INR 8 7,12,690/-, ON ACCOUNT OF ADDITIONAL DEPRECIATION CLAIMED BY THE APPELLANT ON NEW PLANT AND MACHINERY IN ACCORDANCE WITH THE PROVISIONS OF SECT ION 32(I)(IIA) OF THE ACT. ITA NO.2054/DEL/2016 2 1.1 THE LD. CIT(A) / LD. AO ERRED ON FACTS AND IN LAW, IN CONSIDERING ONLY THE NOMENCLATURE OF THE ASSETS TO HOLD THE DIS ALLOWANCE, WITHOUT APPRECIATING THE DETAILED NATURE AND USE OF THE ASS ETS. 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE IS A COMPANY ENGAGED IN MANUFACTURING HIGH QUALITY CEMENT. IT FILED ITS RE TURN OF INCOME ON 30.11.2011 DECLARING THE TOTAL INCOME OF RS.50,95,00,880/-. DU RING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT THE A SSESSEE HAS CLAIMED ADDITIONAL DEPRECIATION TO THE TUNE OF RS.3,03,91,277/-. FROM THE VARIOUS DETAILS FILED BY THE ASSESSEE, THE ASSESSING OFFICER NOTED THAT THERE AR E SEVERAL ITEMS ON WHICH ADDITIONAL DEPRECIATION HAS BEEN CLAIMED THAT ARE N OT REQUIRED FOR MANUFACTURING ACTIVITY OR ARE MERE REPLACEMENTS OF PLANT & MACHIN ERY EARLIER IN USE. HE, THEREFORE, ASKED THE ASSESSEE TO JUSTIFY THE SAME A ND TO EXPLAIN AS TO WHY THE CLAIM OF ADDITIONAL DEPRECIATION ON THE VARIOUS ITEMS AS PER PARA 1.1 OF HIS ORDER BE NOT DISALLOWED. THE ASSESSEE, IN RESPONSE TO THE SAID NOTICE SUBMITTED THAT ALL THE ITEMS AS POINTED OUT BY THE ASSESSING OFFICER ARE INTEGRA L PART OF THE PLANT & MACHINERY WHICH ARE ESSENTIAL FOR THE SMOOTH OPERATIONS OF TH E PLANT & MACHINERY. IT WAS EXPLAINED THAT SUCH ITEMS ARE NOT CAPABLE OF BEING USED IN ISOLATION SINCE THE APPLICATION OF SUCH ITEMS IS ESSENTIALLY BASED ON T HE FUNCTIONALITY OF THE PLANT & MACHINERY. THEREFORE, THEY FORM AN INTEGRAL PART O F THE PLANT AND ARE TO BE TREATED AS PLANT FOR THE PURPOSE OF ALLOWING ADDITIONAL DEP RECIATION. ITA NO.2054/DEL/2016 3 4. HOWEVER, THE ASSESSING OFFICER WAS NOT SATISFIED WI TH THE ARGUMENT ADVANCED BY THE ASSESSEE. HE REFERRED TO THE PROVI SIONS OF SECTION 32(1)(IIA) OF THE ACT AND OBSERVED THAT THE SAID SECTION CLEARLY ALLO WS ADDITIONAL DEPRECIATION FOR ACQUISITION AND INSTALLATION OF NEW PLANT & MACHINE RY AND NOT FOR REPLACEMENT OF PARTS OF PLANT & MACHINERY IN EXISTENCE/USE. HE AC CORDINGLY DISALLOWED AN AMOUNT OF RS.87,12,690/- BEING EXCESS CLAIM OF ADDITIONAL DEPRECIATION MADE BY THE ASSESSEE. 5. IN APPEAL, THE LD.CIT(A) UPHELD THE ACTION OF THE A SSESSING OFFICER. WHILE HOLDING SO, HE OBSERVED THAT THE LARGE AMOUNT OF CL AIM IS RELATED TO ROPE FOR THE ROPEWAY AND COAL SHED. THE DETAILS FILED BY THE AS SESSEE SHOWS THAT THE EXPENSES ARE FOR REPLACEMENT OF BURNER, MOTOR, WASTE GAS FAN , PRIMARY AIR FANS, ETC. ACCORDING TO HIM, THESE ARE NOT NEW MACHINERY WHICH HAS BEEN PURCHASED BY THE ASSESSEE, BUT, THESE ARE IN THE NATURE OF REPAIR AN D MAINTENANCE OF THE EXISTING MACHINERY. RELYING ON THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF ANURENA TRISTAR VS. ITO (2011) 330 ITR 168 AND THE DECISION OF THE JODHPUR BENCH OF THE ITAT IN ACIT VS. FRIENDS ENGINEERING WORKS (2012) 46 (II) I TCL 440 , THE LD.CIT(A) REJECTED THE CLAIM OF ADDITIONAL DEPRECIA TION MADE BY THE ASSESSEE. 6. AGGRIEVED WITH SUCH ORDER OF THE CIT(A), THE ASSESS EE IS IN APPEAL BEFORE THE TRIBUNAL. ITA NO.2054/DEL/2016 4 7. THE LD. COUNSEL FOR THE ASSESSEE STRONGLY CHALLE NGED THE ORDER OF THE CIT(A) IN DENYING THE CLAIM OF ADDITIONAL DEPRECIATION. H E SUBMITTED THAT THE GENUINENESS OF THE ITEMS PURCHASED ARE NOT IN DISPUTE. REFERRI NG TO THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. SARAVANA SPINN ING MILLS, 293 ITR 201, HE SUBMITTED THAT THE HON'BLE SUPREME COURT IN THE SAI D DECISION HAS HELD THAT THE MANUFACTURING PROCESS IN THE TEXTILE MILL WAS NOT O NE CONTINUOUS INTEGRATED PROCESS. THAT EACH MACHINE INCLUDING THE RING FRAM E WAS AN INDEPENDENT AND SEPARATE MACHINE CAPABLE OF INDEPENDENT AND SPECIFI C FUNCTION AND, THEREFORE, THE EXPENDITURE INCURRED FOR REPLACEMENT THEREOF WOULD NOT COME WITHIN THE MEANING OF CURRENT REPAIRS. THE REPLACEMENT OF THE RING FR AME CONSTITUTED SUBSTITUTION OF AN OLD ASSET BY A NEW ASSET AND, THEREFORE, THE EXPEND ITURE INCURRED BY THE ASSESSEE DID NOT FALL WITHIN THE MEANING OF CURRENT REPAIRS U/S 31(1) OF THE ACT. REFERRING TO THE DECISION OF THE HON'BLE SUPREME COURT IN THE CA SE OF CIT VS. MIR MOHAMMAD ALI, REPORTED IN 56 ITR 165 , HE SUBMITTED THAT WHERE THE ASSESSEE, A TRANSPORT OPERATOR REPLACED PETROL ENGINES IN TWO OF HIS BUSE S BY NEW DIESEL ENGINES, THE HON'BLE SUPREME COURT HELD THAT THE ASSESSEE WAS EN TITLED TO EXTRA DEPRECIATION UNDER THE PROVISIONS OF SECTION 10(2)(VIA) OF 1922 ACT IN RESPECT OF ENGINES SO REPLACED. HE ACCORDINGLY SUBMITTED THAT THE ASSESS EE IS ENTITLED TO ADDITIONAL DEPRECIATION AND, THEREFORE, THE CIT(A) WAS NOT JUS TIFIED IN REJECTING THE CLAIM OF THE ASSESSEE. ITA NO.2054/DEL/2016 5 8. THE LD. DR, ON THE OTHER HAND, HEAVILY RELIED ON TH E ORDER OF THE CIT(A). SHE SUBMITTED THAT IF THE EXPENSES OF REPAIR AND MA INTENANCE OF THE EXISTING MACHINERY ARE PERMITTED, THEN, EVEN THE REPAIR EXPE NDITURE WOULD BE ENTITLED TO ADDITIONAL DEPRECIATION. SHE ACCORDINGLY SUBMITTED THAT THE ORDER OF THE LD.CIT(A) BEING IN ACCORDANCE WITH LAW SHOULD BE UPHELD. 9. WE HAVE CONSIDERED THE RIVAL ARGUMENTS ADVANCED BY BOTH THE SIDES AND PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSI DERED THE VARIOUS DECISIONS CITED BEFORE US. WE FIND, THE ASSESSING OFFICER, IN THE INSTANT CASE, DISALLOWED ADDITIONAL DEPRECIATION TO THE TUNE OF RS.87,12,690 /- ON THE GROUND THAT ADDITIONAL DEPRECIATION IS ALLOWABLE ONLY FOR ACQUISITION AND INSTALLATION OF NEW PLANT & MACHINERY AND NOT FOR REPLACEMENT OF PARTS OF PLANT & MACHINERY ALREADY IN EXISTENCE/USE. WE FIND THE LD.CIT(A) UPHELD THE AC TION OF THE ASSESSING OFFICER ON THE GROUND THAT THE VARIOUS ITEMS ON WHICH ADDITION AL DEPRECIATION HAS BEEN DISALLOWED ARE NOT NEW MACHINERY WHICH HAS BEEN PUR CHASED BY THE ASSESSEE, BUT, IT IS IN THE NATURE OF REPAIR AND MAINTENANCE OF EX ISTING MACHINERY. IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT WHEN THE ASSESSING OFFICER HAS ALLOWED NORMAL DEPRECIATION ON THE PLANT & MACHINER Y WHICH WAS PURCHASED DURING THE YEAR, THEREFORE, THE ASSESSEE IS ENTITLE D TO ADDITIONAL DEPRECIATION ON PLANT & MACHINERY. WE DO NOT FIND ANY MERIT IN THE ARGUMENTS ADVANCED BY THE LD. COUNSEL. THE PROVISIONS OF SECTION 32(1)(IIA) CLEA RLY MENTION THAT IN THE CASE OF ITA NO.2054/DEL/2016 6 ANY NEW MACHINERY OR PLANT WHICH HAS BEEN ACQUIRED AND INSTALLED AFTER THE 31 ST DAY OF MARCH, 2005 BY AN ASSESSEE ENGAGED IN THE BU SINESS OF MANUFACTURE OR PRODUCTION OF ANY ARTICLE OR THING, A FURTHER SUM E QUAL TO 20% OF THE ACTUAL COST OF SUCH MACHINERY OR PLANT SHALL BE ALLOWED AS DEDUCTI ON UNDER CLAUSE (II). THUS, AN ANALYSIS OF THE AFOREMENTIONED PROVISION SHOWS THAT THE ASSESSEE HAS TO BY NEW MACHINERY OR PLANT AND NOT FOR REPLACEMENT OF ANY P ART OF THE PLANT OR MACHINERY. A PERUSAL OF THE LIST OF ASSETS ON WHICH ADDITIONAL DEPRECIATION HAS BEEN DENIED BY THE ASSESSING OFFICER SHOWS THAT THESE ARE MAINLY R EPLACEMENT OF VARIOUS PLANT & MACHINERY EARLIER IN USE. WE, THEREFORE, DO NOT FI ND ANY INFIRMITY IN THE ORDER OF THE CIT(A) REJECTING THE CLAIM OF ADDITIONAL DEPREC IATION ON THE GROUND THAT THE VARIOUS ITEMS ARE NOT NEW MACHINERY WHICH HAS BEEN PURCHASED BY THE ASSESSEE, BUT, IT IS IN THE NATURE OF REPAIR AND MAINTENANCE OF THE EXISTING MACHINERY. THE GROUNDS RAISED BY THE ASSESSEE ON THIS ISSUE ARE AC CORDINGLY DISMISSED. 9. GROUNDS OF APPEAL NOS.2 AND 2.1 TAKEN BY THE ASSESS EE READ AS UNDER:- 2. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW, I N CONFIRMING THE DISALLOWANCE MADE BY THE LD. AO AMOUNTING TO INR 8, 75,709/- ON ACCOUNT OF RECLASSIFICATION OF CERTAIN ASSETS AS BUILDING OTH ER THAN RESIDENTIAL, ELIGIBLE FOR DEPRECIATION AT 10%, WHICH WERE ORIGINALLY CLAS SIFIED BY THE APPELLANT AS PLANT AND MACHINERY, ELIGIBLE FOR DEPRECIATION AT 15%. 2.1. THE LD. CIT(A)/ LD. AO HAS ERRED ON FACTS AND IN LA W BY NOT CONSIDERING THE DETAILED NATURE AND USE OF THE ASSE TS, WHILE HOLDING THIS DISALLOWANCE. 10. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSING OFFICER, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, NOTED THAT THE ASSESSEE HAS CHARGED HIGHER RATE OF ITA NO.2054/DEL/2016 7 DEPRECIATION ON COAL SHEDS AND NEW GI SHEETS AND, THEREFORE, HE DISALLOWED AN AMOUNT OF RS.8,75,709/- ON ACCOUNT OF EXCESS DEPREC IATION CLAIMED. BEFORE THE CIT(A), IT WAS ARGUED THAT THE COAL SHEDS ARE INTEG RAL PART OF THE MANUFACTURING PROCESS AND SIMILARLY THE GI SHEETS UPON THE FACTOR Y BUILDING CANNOT BE TREATED AS A BUILDING BECAUSE IT IS A PART OF THE PLANT. HOWEVE R, THE LD.CIT(A) WAS NOT SATISFIED WITH THE ARGUMENTS ADVANCED BY THE ASSESSEE AND REJ ECTED THE GROUND BY OBSERVING AS UNDER:- 5.2 I HAVE GIVEN CAREFUL PERUSAL OF THE FACTS OF THE CASE. THE CLAIM OF THE APPLICANT THAT THE COAL SHED IS PART OF PLANT AND M ACHINERY IS NOT ACCEPTABLE BECAUSE IN A BUSINESS OPERATION OF MANUFACTURING EA CH AND EVERY BUILDING BY THAT LOGIC WOULD BECOME PLANT OR MACHINERY. THE GOD OWNS, WAREHOUSES, AND OTHER BUILDINGS WHICH ARE UTILIZED IN ORDINARY MANN ER EVEN FOR HOUSING ANY PLANT OR MACHINERY WOULD BECOME PLANT OR MACHINERY BY ITSELF. MOREOVER, GI SHEETS ARE SUCH MATERIAL WHICH IS UTILIZED FOR MAKI NG ROOFS OF THE BUILDINGS AND BY ITS NATURE THESE CANNOT BE CHARACTERIZED AS PLAN T OR MACHINE. THE CLAIM OF APPLICANT UNDER THE CIRCUMSTANCES IS WITHOUT ANY ME RITS AND IS REJECTED. THE GROUND OF APPEAL IS DISMISSED. 11. AGGRIEVED WITH THE ORDER OF THE CIT(A), THE ASSESSE E IS IN APPEAL BEFORE THE TRIBUNAL. 12. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE COAL SHEDS SHOULD BE CONSIDERED AS PLANT SINCE THESE ARE ASSOCIATED WIT H THE MANUFACTURING PROCESS. REFERRING TO THE DECISION OF THE CHADIGARH BENCH OF THE TRIBUNAL IN SHIVALIK HATCHERIES (P) LTD. VS. DCIT, 54 ITD 550, HE SUBMIT TED THAT POULTRY SHED AND WATER LINES SHEDS OF ASSESSEE DOING OF POULTRY FAR MING ARE PLANT ELIGIBLE FOR DEPRECIATION/INVESTMENT ALLOWANCE. HE ACCORDINGLY SUBMITTED THAT THE LD.CIT(A) IS NOT JUSTIFIED IN REJECTING THE CLAIM OF THE ASSESSE E. ITA NO.2054/DEL/2016 8 13. THE LD. DR, ON THE OTHER HAND, HEAVILY RELIED ON TH E ORDER OF THE CIT(A). 14. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES AND PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A). WE HAVE ALSO CONSIDERED VARIOUS DECISIONS CITED BEFORE US. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) ON THIS ISSUE. THE COAL SHED AND GI SHEETS, IN OUR OPINION, CANNOT BE CONSIDERED AS PLANT & MACHINERY WHEN THE ASSESSEE IS ENGAGED IN MANUFACTURE OF CEMENT. WE FIND MERIT IN THE LOGIC GIVEN BY THE CI T(A) THAT THE GODOWNS, WAREHOUSES AND OTHER BUILDINGS WHICH ARE UTILIZED I N AN ORDINARY MANNER EVEN FOR HOUSING PLANT OR MACHINERY WOULD NOT BECOME PLANT O R MACHINERY BY ITSELF. FURTHER, HE HAS ALSO GIVEN A FINDING THAT THE GI SH EETS ARE SUCH MATERIAL WHICH ARE UTILIZED FOR THE PLANT AND BY ITS NATURE THIS CANNO T BE CHARACTERIZED AS PLANT OR MACHINERY. UNDER THESE CIRCUMSTANCES, WE UPHOLD TH E ORDER OF THE CIT(A) AND DISMISS THE GROUNDS RAISED BY THE ASSESSEE ON THIS ISSUE. 15. GROUNDS OF APPEAL NOS.3 AND 3.1 RAISED BY THE ASSES SEE READ AS UNDER:- 3. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW, IN CONFIRMING DISALLOWANCE MADE BY THE LD. ASSESSING OFFICER AMOU NTING TO INR 2,64,34,500/- (NET OF DEPRECIATION) ON ACCOUNT OF C APITALIZATION OF 25% OF TECHNICAL KNOW-HOW FEE INCURRED BY THE APPELLANT IN THE SUBJECT YEAR, ON THE GROUND THAT SUCH EXPENSES HAVE RESULTED IN BENEFITS OF ENDURING NATURE TO THE APPELLANT AND THEREBY CONSTITUTES A CAPITAL ASSET. 3.1 THE LD. CIT(A)/LD.AO HAVE ERRED ON FACTS AND IN LA W IN NOT APPRECIATING THAT THE TECHNICAL KNOW-HOW HAS BEEN U TILIZED FOR SMOOTH RUNNING OF THE BUSINESS OF THE APPELLANT AND HAS NO T LEAD TO ACQUISITION OF ANY NEW CAPITAL ASSET. ITA NO.2054/DEL/2016 9 16. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSING OFFICER, DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTED THAT THE ASSESSEE H AS CLAIMED EXPENSES OF TECHNICAL KNOW-HOW FEE DURING THE YEAR TO THE TUNE OF RS.14,09,84,000/-. THIS FEE WAS PAID TO A FOREIGN COMPANY M/S HEIDELBERG CEMENT ASIA PTE LTD. (HCA) IN LIEU OF TECHNICAL KNOWHOW ASSISTANCE FROM THEM. THE ASSESSEE HAS DEBITED THE ABOVE AMOUNT AS REVENUE EXPENDITURE. ACCORDING TO THE ASSESSING OFFICER, THIS GIVES RISE TO BENEFIT/ADVANTAGE WHICH IS ENDURING I N NATURE. HE, THEREFORE, ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE CLAIM SHOULD NOT BE ALLOWED AS A CAPITAL EXPENDITURE AND NOT AS A REVENUE EXPENDITURE. IT W AS EXPLAINED BY THE ASSESSEE THAT THE EXPENDITURE WAS INCURRED BY THE ASSESSEE F OR TECHNICAL INFORMATION AND ASSISTANCE PROVIDED BY HCA IN RELATION TO VARIOUS S ERVICES THAT WERE TO BE RENDERED BY THEM. IT WAS SUBMITTED THAT HCA HAS BEEN CONSIS TENTLY PROVIDING TECHNICAL KNOWHOW SUPPORT TO THE ASSESSEE FROM WHICH VARIOUS BENEFITS ACCRUED TO THE ASSESSEE. THEREFORE, THE ASSESSEE HAS CORRECTLY CL AIMED THE AFORESAID AMOUNT AS REVENUE EXPENDITURE. SINCE THE SAME HAS BEEN INCUR RED FOR FACILITATING THE MANUFACTURING AND TRADING OPERATION OF THE ASSESSEE AND IT NEITHER HAS ACQUIRED ANY ASSET OF ENDURING NATURE NOR HAS PAID ANY CAPITAL A MOUNT FOR THE SAME SINCE THE AMOUNT PAID IS A PERCENTAGE LINKED WITH THE SALES A FFECTED WITH IT. VARIOUS DECISIONS WERE ALSO BROUGHT TO THE NOTICE OF THE AS SESSING OFFICER. HOWEVER, THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE ARGUME NTS ADVANCED BY THE ASSESSEE. HE ANALYSED THE SCOPE (CLAUSE 1) OF THE SAID AGREEM ENT. HE REPRODUCED THE SCOPE (CLAUSE 1) OF THE AGREEMENT WHICH READS AS UNDER:- ITA NO.2054/DEL/2016 10 'THE PURPOSE OF THIS AGREEMENT IS TO PROVIDE THE BA SIS FOR PROVIDING TECHNOLOGY FOR USE WITH THE VIEW TO ACHIEVING A HIG H TECHNICAL LEVEL OF PRODUCTION AND SALE OF CEMENT AND CEMENT RELATED PR ODUCTS BY THE MCL BY WAY OF SYSTEMATIC PROVISION OF KNOW-HOW FROM HCA TO MCL, FROM TIME TO TIME.' 17. FURTHER, AS PER CLAUSE 2 (PROVISION OF KNOW-HOW BY HCA) OF THE AGREEMENT, THE ASSESSEE WAS TO RECEIVE TECHNICAL KNOW-HOW INCL UDING DESIGNS, FORMULAE, CHARTS, DRAWINGS, CALCULATION SHEETS, STANDARDS AND OTHER INFORMATION AND KNOWLEDGE RELATING TO THE MANUFACTURING TECHNOLOGY OF THE PRODUCTS, APART FROM THE FOLLOWING BENEFITS:- I) IMPROVEMENT IN ALL TECHNICAL PROCESSES RIGHT FRO M EXTRACTION OF RAW MATERIAL TO MANUFACTURE OF END PRODUCTS. II) PROVIDING TECHNICAL KNOW HOW RELATING TO MANUF ACTURING ACTIVITY/PROCESSES. III) PUTTING INTO PLACE SYSTEMS RELATED TO ENHANCE D QUALITY OF AND PRODUCT DEVELOPMENT. IV) ENHANCED SAFETY MEASURES. V) UPGRADATION IN PLANT EFFICIENCY THROUGH MODERN A ND LATEST TECHNOLOGY. VI) SKILL UPGRADATION THROUGH TRAINING PROGRAMMES OF EMPLOYEES, BOTH ON THE JOB AND THROUGH DEDICATED WORKSHOPS. VII) ANALYSES AND LABORATORY TESTS TO UPGRADE AND OPTIMIZE PROCESSES. ITA NO.2054/DEL/2016 11 18. THEREFORE, HE NOTED THAT THE ACQUISITION OF TECHNIC AL KNOW-HOW SEEKS TO IMPROVE EACH AND EVERY ASPECT OF THE ENTIRE BUSINES S. THE ACQUISITION OF TECHNICAL KNOW-HOW HAS BROUGHT IN A COMPLETE AND COMPREHENSIV E OVERHAULING OF THE ENTIRE BUSINESS OF THE ASSESSEE. RELYING ON VARIOUS DECIS IONS, THE ASSESSING OFFICER HELD THAT 25% OF THE TOTAL TECHNICAL KNOW-HOW EXPENSES O F RS.14,09,84,000/- WHICH COMES TO RS.3,52,46,000/- HAS TO BE TREATED AS CAPI TAL EXPENDITURE BEING SPENT TOWARDS ACQUISITION OF CAPITAL ASSET AS IT GIVES RI SE TO ENDURING BENEFIT WHICH CAN BE ENJOYED BY THE ASSESSEE OVER A NUMBER OF YEARS. HE , THEREFORE, ALLOWED DEPRECIATION ON THE ABOVE AMOUNTING TO RS.88,11,500 /- AND MADE ADDITION OF RS.2,64,34,500/- TO THE TOTAL INCOME OF THE ASSESSE E. IN APPEAL, THE LD.CIT(A) UPHELD THE ACTION OF THE ASSESSING OFFICER. 19. AGGRIEVED WITH SUCH ORDER OF THE CIT(A), THE ASSESS EE IS IN APPEAL. 20. THE LD. COUNSEL FOR THE ASSESSEE STRONGLY CHALLENGE D THE ORDER OF THE CIT(A) UPHOLDING THE ORDER OF THE ASSESSING OFFICER. HE S UBMITTED THAT THE ASSESSEE WAS NOT A SUBSIDIARY OF FOREIGN COMPANY NOR IT IS A CAS E OF DIVERSION OF ANY PROFIT. REFERRING TO THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. HERO HONDA MOTORS LTD., 55 TAXMANN.COM 230 (DELHI) , HE SUBMITTED THAT THE HON'BLE HIGH COURT IN THE SAID DECISION HAS HELD TH AT WHERE THE ASSESSEE IS ENGAGED IN MANUFACTURING AND SELLING OF MOTORCYCLES, MADE P AYMENT OF ROYALTY TO A FOREIGN COMPANY FOR MERELY ACQUIRING RIGHT TO USE TECHNICAL KNOW-HOW WHEREAS OWNERSHIP AND INTELLECTUAL PROPERTY RIGHTS IN KNOW-HOW REMAIN ED WITH THE FOREIGN COMPANY, ITA NO.2054/DEL/2016 12 PAYMENT IN QUESTION WAS TO BE ALLOWED AS BUSINESS E XPENDITURE. REFERRING TO THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CAS E OF CIT VS G4S SECURITIES SYSTEM (INDIA) P. LTD., 338 ITR 46 (DEL), HE SUBMITTED THAT THE HON'BLE HIGH COURT IN THE SAID DECISION HAS HELD THAT THE ROYALTY PAID BY THE ASSESSEE TO FOREIGN COMPANY FOR USE OF TECHNICAL KNOW-HOW ON YEAR TO YE AR BASIS WOULD BE ALLOWABLE AS REVENUE EXPENDITURE. REFERRING TO THE DECISION OF THE HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. UPCOM CABLES LTD., REPORTED IN (2017) 78 TAXMANN.COM 235 (ALL), HE SUBMITTED THAT THE HON'BLE HIGH COURT IN THE SA ID DECISION HAS HELD THAT WHERE THE ASSESSEE ACQUIRED TECHNICAL KNOW-HOW FROM FOREIGN COMPANY AND PAID TECHNICAL KNOW HOW FEES AS WELL AS 2 PER CENT ROYALTY ON SELLING PRICE OF MANUFACTURED LICENSED PRODUCT, SUC H ROYALTY PAYMENT WAS TO BE TREATED AS REVENUE EXPENDITURE. HE SUBMITTED THAT IN THE INSTANT CASE, THE TECHNICAL KNOW-HOW AGREEMENT HAS INDEPENDENT CLAUSES UNDER WH ICH EACH AND EVERY TANGIBLE KNOW-HOW HAS TO BE RETURNED BACK TO THE OW NER. HE SUBMITTED THAT THE PAYMENT AS PER THE ABOVE AGREEMENT HAS BEEN MADE FO R ACHIEVING IMPROVEMENT IN ALL TECHNICAL PROCESSES. THE TECHNICAL INFORMATION AND ASSISTANCE RELATES TO IMPROVING OF PROCESS OF MANUFACTURING. AS PER THE TERMS OF THE AGREEMENT, THE HC ASIA HAS AGREED TO PROVIDE KNOW-HOW RELATING TO MAN UFACTURING TECHNOLOGY RELATED TO QUALITY AND PRODUCT DEVELOPMENT. THE ARRANGEMEN T WITH HC ASIA FOR PROVIDING TECHNICAL KNOW-HOW MAJORLY COVERS PROVIDING INFORMA TION ON VARIOUS PARAMETERS INVOLVED IN MANUFACTURING PROCESS OF THE ASSESSEE S UCH AS FUEL MIX, MANNER AND PROCESS OF UNDERTAKING THE PRODUCTION, NECESSARY SA FETY MEASURES TO BE ENSURED FOR ITA NO.2054/DEL/2016 13 SECURING A QUALITY PRODUCT WHICH WOULD BE ACCEPTED BY THE INDIAN MARKET, ETC. THUS, THE PAYMENT MADE FOR IMPROVING THE QUALITY OF THE PRODUCT BEING MANUFACTURED AND NOT TO INTRODUCE ANY NEW LINE OF P RODUCT AND SINCE THE TECHNICAL INFORMATION AND ASSISTANCE RELATES TO THE IMPROVING THE PROCESS OF MANUFACTURING, THEREFORE, THE SAID AMOUNT IS REVENUE IN NATURE AN D, THEREFORE, THE LD.CIT(A) IS NOT JUSTIFIED IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER BY TREATING 25% OF SUCH PAYMENT AS CAPITAL IN NATURE AND THEREBY ALLOWING O NLY DEPRECIATION ON THE SAME. 21. THE LD. DR, ON THE OTHER HAND, HEAVILY RELIED ON TH E ORDER OF THE CIT(A). SHE SUBMITTED THAT THE BENEFIT RECEIVED BY THE ASSE SSEE ON ACCOUNT OF SUCH PAYMENT AMOUNTS TO ENDURING BENEFIT BEYOND THE TERMS OF THE AGREEMENT. REFERRING TO THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F SOUTHERN SWITCH GEAR LTD., 232 ITR 359, SHE SUBMITTED THAT IN THAT CASE THE AS SESSEE HAS ENTERED INTO A COLLABORATION AGREEMENT FOR PROVIDING FOR TECHNICAL KNOW-HOW FOR SETTING UP OF A FACTORY AND OPERATION THEREOF. THE FOREIGN COMPANY AGREED NOT TO MANUFACTURE PRODUCTS IN INDIA AND GIVEN RIGHT TO A THIRD PERSON TO DO THE SAME. REFERRING TO THE CLAUSES OF THE AGREEMENT, IT WAS HELD THAT THE TECH NICAL KNOW-HOW SO ACQUIRED RESULTED IN ENDURING ADVANTAGE AND BENEFIT AND THAT THE SAME WAS AVAILABLE TO THE ASSESSEE FOR ITS MANUFACTURING AND INDUSTRIAL PROCE SSES EVEN AFTER TERMINATION OF THE AGREEMENT. SINCE THE FACTORY AND ITS OPERATION WOULD HAVE BEEN CONTINUED, THOUGH THE DURATION OF THE AGREEMENT WAS FIVE YEARS , BUT, THE ASSESSEE EVEN AFTER THE EXPIRY OF THE PERIOD, COULD USE THE METHODS OF PRODUCTION, PROCEDURE, ITA NO.2054/DEL/2016 14 EXPERIMENTS, IMPROVEMENTS WHICH HAD BEEN MADE AVAI LABLE TO THEM IN PURSUANCE OF THE AGREEMENT, AND, THEREFORE, AN ENDURING BENEF IT/ADVANTAGE WAS ACQUIRED. SHE ALSO SUBMITTED THAT THE MANUFACTURE AND SALE WAS AN INDEPENDENT RIGHT SECURED AND WAS OF AN ENDURING NATURE. ACCORDINGLY, 25% OF THE ROYALTY PAID WAS DISALLOWED AS CAPITAL EXPENDITURE. THE DECISION OF THE HON'BL E MADRAS HIGH COURT WAS UPHELD BY THE HON'BLE SUPREME COURT. SHE SUBMITTED THAT I N THE PRESENT CASE ALSO THE PAYMENT MADE BY THE ASSESSEE WAS FOR ACQUIRING BENE FIT OF ENDURING NATURE EVEN AFTER THE EXPIRY OF THE AGREEMENT. THE ASSESSEE CO MPANY IS INTO MANUFACTURING OF CEMENT AND ALL THE TECHNOLOGIES GIVEN TO IT FOR THE PROCESS OF MANUFACTURING GET MERGED INTO ITS BUSINESS PROCESS. THE BUSINESS LIN E OF THE ASSESSEE IS OF A PARTICULAR NATURE WHICH WOULD REQUIRE UPDATING EVER Y DAY LIKE SOFTWARE INDUSTRY OR MANUFACTURING OF HIGHLY SOPHISTICATED INSTRUMENTS. SHE SUBMITTED THAT THE ARGUMENT OF THE ASSESSEE THAT IT WOULD RETURN ALL T HE TANGIBLE KNOW-HOW TO THE OWNER APPEARS WORTH PAPER ARGUMENT ONLY BECAUSE IN A CEMENT MANUFACTURING THE CHANGES ARE PERIPHERAL. SHE ACCORDINGLY SUBMITTED THAT SINCE THE LD.CIT(A) HAS PASSED THE ORDER BY RELYING ON VARIOUS DECISIONS AN D ON THE BASIS OF THE FACTS OF THE PRESENT CASE, THEREFORE, THE SAME SHOULD BE UPHELD AND THE GROUNDS RAISED BY THE ASSESSEE SHOULD BE DISMISSED. 22. WE HAVE HEARD THE ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECI SIONS CITED BEFORE US. WE FIND ITA NO.2054/DEL/2016 15 THE ASSESSING OFFICER, IN THE INSTANT CASE, DISALLO WED 25% OF THE TOTAL TECHNICAL KNOW-HOW EXPENSES OF RS.14,09,84,000/- WHICH COMES TO RS.3,52,46,000/- TREATING THE SAME AS CAPITAL EXPENDITURE BEING SPENT TOWARDS ACQUISITION OF CAPITAL ASSET AS IT GIVES RISE TO ENDURING BENEFIT WHICH CAN BE ENJO YED BY THE ASSESSEE OVER A NUMBER OF YEARS. HE ACCORDINGLY ALLOWED DEPRECIATI ON ON THIS @ 25% AMOUNTING TO RS.88,11,500/- AND MADE AN ADDITION OF RS.2,64,3 4,500/- TO THE TOTAL INCOME OF THE ASSESSEE. WHILE DOING SO, THE ASSESSING OFFICE R HELD THAT THE SCOPE READ WITH THE PROVISIONS OF TECHNICAL KNOW-HOW CLEARLY INDICA TE THAT THE ACQUISITION OF TECHNICAL KNOW-HOW SEEKS TO IMPROVE EACH AND EVERY ASPECT OF THE ENTIRE BUSINESS. THE AGREEMENT BETWEEN THE ASSESSEE AND THE HCA SHOW S THAT THE ACQUISITION OF TECHNICAL KNOW-HOW HAS BROUGHT IN A COMPLETE AND CO MPREHENSIVE OVERHAULING OF THE ENTIRE BUSINESS OF THE ASSESSEE. THEREFORE, TH E AGREEMENT CLEARLY INDICATES THAT THE TECHNICAL KNOWLEDGE THE ASSESSEE OBTAINED FROM THIS AGREEMENT WITH HCA SECURED TO THE ASSESSEE AN ENDURING ADVANTAGE AND T HOUGH BENEFIT WHICH WAS AVAILABLE TO THE ASSESSEE FOR ITS MANUFACTURING AND INDUSTRIAL PROCESS EVEN AFTER THE TERMINATION OF AGREEMENT CEASES, BUT, WHEN THE AGRE EMENT NEVER TERMINATES ON ACCOUNT OF REVISION/AUTOMATIC RENEWAL THE BENEFIT G OES ON AND ON. FURTHER, CONTINUOUS USE OF IMPROVED PRACTICES OVER SEVERAL Y EARS LEADS TO CREATION OF INSTITUTIONAL MEMORY OF ADVANCED PROCEDURES AND TEC HNIQUES. THE ASSESSING OFFICER FURTHER NOTED THAT DUE TO LATENT LEARNING O F SYSTEMATIC PROCEDURES AND TECHNIQUES THROUGH PERIODIC TRAINING OF PERSONNEL I N THE FORM OF WORKSHOPS AND ON THE JOB TRAININGS CONTINUES TO REAP BENEFITS TO THE ASSESSEE WAY BEYOND PERIODS ITA NO.2054/DEL/2016 16 CONFINED WITH THE AGREEMENT. ACCORDING TO HIM, THE TRAINED MANPOWER CONTINUES TO PERFORM AT HIGHER LEVELS OF EFFICIENCY WITH BETT ER TECHNIQUES EVEN IF THE TECHNICAL KNOW-HOW AGREEMENT WAS TO TERMINATE. WE FIND THE L D.CIT(A) WHILE UPHOLDING THE ACTION OF THE ASSESSING OFFICER NOTED THAT THE PAYMENT MADE BY THE ASSESSEE HAS BESTOWED BENEFITS OF ENDURING NATURE WHICH WOUL D NOT GET TERMINATED WITH THE EXPIRY OF THE AGREEMENT. ACCORDING TO HIM, WHEN TH E ASSESSEE COMPANY IS INTO MANUFACTURING OF CEMENT AND ALL THE TECHNOLOGIES GI VEN TO IT FOR MANUFACTURING OF CEMENT WOULD GET MERGED INTO ITS BUSINESS PROCESS. THE BUSINESS LINE OF THE ASSESSEE IS OF A PARTICULAR NATURE WHICH WOULD REQU IRE UPDATING EVERYDAY LIKE SOFTWARE INDUSTRY OR MANUFACTURING OF HIGHLY SOPHIS TICATED INSTRUMENTS. THE ARGUMENT OF THE ASSESSEE THAT IT WOULD RETURN ALL T HE DESIGNS ACCORDING TO HIM APPEARS WORTH PAPER ARGUMENT ONLY BECAUSE IN A CEME NT MANUFACTURING PLANT, IF THE DESIGNS HAVE BEEN USED FOR MAKING THE BUSINESS PROC ESS THE CHANGES ARE IRREVERSIBLE. IT IS THE SUBMISSION OF THE LD. COUNS EL THAT THE ASSESSEE HAS TO CONTINUOUSLY UPGRADE PLANT EFFICIENCY BY EMPLOYING MODERN AND LATEST TECHNIQUES TO REDUCE COSTS AND IMPROVE ITS PRODUCTIVITY AND QU ALITY. THE EXPENDITURE ON TECHNICAL KNOW-HOW WAS INCURRED BY THE ASSESSEE FOR TECHNICAL INFORMATION AND ASSISTANCE PROVIDED BY HCA FOR THE VARIOUS SERVICES THAT WERE TO BE RENDERED BY HCA TO THE ASSESSEE. IT IS ALSO HIS SUBMISSION THA T THE BENEFIT OF THE TECHNICAL KNOW-HOW DOES VEST ONCE AND FOR ALL THEREBY RESULTI NG IN AN ENDURING BENEFIT OR FOR THE PURPOSES OF BRINGING INTO EXISTENCE ANY ASSET O R ADVANTAGE OF AN ENDURING NATURE, RATHER, THE OBJECT OF THE TECHNICAL ASSISTA NCE WAS FOR RUNNING THE BUSINESS ITA NO.2054/DEL/2016 17 EFFECTIVELY AND PROFITABLY. FURTHER, IT IS ALSO HI S SUBMISSION THAT THE PAYMENT COMPRISING 2% OF SALES AS FEE FOR TECHNICAL KNOW-HO W IS RECURRENT DEPENDING ON SALES AND PERTAINS ONLY TO THE PERIOD OF AGREEMENT. WE FIND SOME FORCE IN THE ABOVE ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSEE. WE FIND, CLAUSE 2.2 OF THE AGREEMENT READS AS UNDER:- '2.2 ALL THE TECHNICAL INFORMATION SUPPLIED BY HCA (WHETHER IN WRITING OR ORALLY OR IN ANY OTHER MANNER) MENTION IN PARA 2.1 ABOVE FOR USE BY MCL AND ALL COPIES OF THE TECHNICAL INFORMATION (OR ANY OF IT) MADE BY THE MCL SHALL BE AND REMAIN THE PROPERTY OF HCA AND MCL ACK NOWLEDGES THE COPYRIGHT IN THE TECHNICAL INFORMATION SHALL BELONG TO AN REMAIN VESTED WITH HCA. HCA HEREBY GRANTS TO MCL LICENCE TO MAKE SUCH NUMBER OF COPIES OF THE TECHNICAL INFORMATION (OR ANY PART TH EREOF) AS THE MCL MAY REASONABLY REQUIRE FOR THE PURPOSES OF AGREEMEN T.' 22.1 WE FIND CLAUSE 5 OF THE AGREEMENT READS AS UND ER:- TECHNICAL KNOW-HOW FEE IN RESPECT OF EACH QUARTER OF A YEAR EQUAL TO 2% ON THE BASIS OF THE NET EX-FACTORY PRICE OF THE PRODUC E EXCLUSIVE OF EXCISE DUTIES MINUS THE COST OF STANDARD BOUGHT-OUT COMPONENTS AN D LANDED COST OF IMPORTED COMPONENTS, IRRESPECTIVE OF THE SOURCE OF PROCUREMENT, INCLUDING OCEAN FREIGHT, INSURANCE, CUSTOM DUTIES AND NET OF DISTRIBUTION COSTS (FRIGHT AND FORWARDING) ETC. AND AS SHOWN IN THE UNAUDITED/AUDI TED FINANCIAL ACCOUNTS OF MCI. 22.2 SIMILARLY, CLAUSE 13 OF THE AGREEMENT READS AS UNDER:- '13.1 UPON THE EXPIRATION OF THE TERM OR EARLIER TE RMINATION OF THIS AGREEMENT, MCL SHALL: 13.1.1 AT ITS OWN COST PROMPTLY RETURN TO HCA, OR OTHERWISE DISPOSE OF AS HCA MAY INSTRUCT, ALL TECHNICAL DOCUMENTATION AN D ALL OTHER DOCUMENTATION AND PAPERS SUPPLIED BY MCL BY HCA AND ALL COPIES THEREOF AND NOTES AND EXTRACTS TAKEN THERE FROM BY MCL, AND 13.1.2 DESTROY ALL CATALOGUES, ADVERTISING AND PROM OTIONAL MATERIAL, STATIONERY AND MATERIALS OF ANY SORT RELATING TO TH E PRODUCTS.' ITA NO.2054/DEL/2016 18 23. WE FIND SOMEWHAT SIMILAR ISSUE HAD COME UP BEFORE T HE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. HERO HONDA MOTORS LTD. (SUPRA). IN THAT CASE: THE ASSESSEE WAS A JOINT VENTURE BETWEEN THE HERO GROUP AND HONDA, JAPAN, FOR MANUFACTURE AND SALE OF MOTORCYCLE USING TECHNOLOGY LICENCED BY HONDA; THE ASSESSEE AND HONDA THEREUPON ENTERED INTO AN AGREEM ENT CALLED 'LICENCE AND TECHNICAL ASSISTANCE AGREEMENT' IN TERMS WHICH ASSE SSEE PAID ROYALTY TO THE HONDA; THE ASSESSEE CLAIMED DEDUCTION OF SAID PAYMENT UNDE R SECTION 37(1). THE ASSESSING OFFICER REJECTED ASSESSEE'S CLAIM HOLDING THAT IT W AS IN THE NATURE OF CAPITAL EXPENDITURE; AND THE TRIBUNAL, HOWEVER, ALLOWED ASS ESSEE'S CLAIM ON REVENUE'S APPEAL. 24. ON APPEAL FILED BY THE REVENUE, THE HON'BLE HIGH CO URT HELD AS UNDER:- 14. WHAT IS PLACED BEFORE US IS THE 'LICENCE AND T ECHNICAL ASSISTANCE AGREEMENT' DATED 2ND JUNE, 1995 FOR THE TERRITORY O F INDIA. THE TERM 'INTELLECTUAL PROPERTY RIGHT' STOOD DEFINED TO MEAN THOSE PATENTS, UTILITY MODELS, DESIGN PATENTS AND OTHER INTELLECTUAL PROPERTY RIGH TS RELATING DIRECTLY TO THE PRODUCTS OR THE LICENSED PARTS THEREOF OR TO MANUFA CTURING OF THE PRODUCTS AND THEIR LICENSED PARTS, BUT EXCLUDED TRADEMARKS, PATE NTS, UTILITY MODELS, DESIGN PATENTS AND INTELLECTUAL PROPERTY RIGHTS RELATING T O THE MANUFACTURING FACILITIES AND THE MANUFACTURE THEREOF. THE TERM 'KNOW-HOW' WA S DEFINED AS ANY OR ALL SECRET, TECHNICAL INFORMATION EXCEPT FOR INTELLECTU AL PROPERTY RIGHTS, WHETHER IN WRITING OR NOT, INCLUDING BUT NOT LIMITED TO DRAWIN GS, STANDARDS, SPECIFICATIONS, MATERIAL LIST, PROCESS MANUALS AND DIRECTION MAPS E TC. DIRECTLY RELATED TO PRODUCTS OR LICENSED PARTS THEREOF, OR NECESSARY FO R MANUFACTURE OF THE SAME. THE TERM 'TECHNICAL INFORMATION' WAS TO MEAN 'KNOW- HOW' AND ANY TECHNICAL INFORMATION NOT INCLUDED IN 'KNOW-HOW' WHICH RELATE D TO THE PRODUCT OR LICENSED PART OR WAS NECESSARY FOR MANUFACTURE OF P RODUCT OR LICENSED PARTS WHICH THE HONDA OWNED AT THE TIME OF EXECUTION OF T HE AGREEMENT OR WOULD OWN FROM TIME TO TIME DURING THE SUBSISTENCE OF THE AGREEMENT. THE TERM 'PRODUCTS' MEANT TWO-WHEELERS OR THREE-WHEELERS AS EXPRESSLY SPECIFIED UNDER CLAUSES (A) AND (B), IDENTIFIED BY LICENSOR'S DEVEL OPMENT CODES, VIZ. 198S, KCCA, ETC. WHICH HAD ALREADY BEEN DEVELOPED AND WAS UNDER MANUFACTURE UNDER THE EARLIER AGREEMENT. UNDER CLAUSE (C), IT W OULD INCLUDE ADDITIONAL ITA NO.2054/DEL/2016 19 MODELS OR TYPES OF TWO/THREE WHEELERS PURSUANT TO ' MODEL CHANGE' AS SPECIFIED IN THE MODEL AGREEMENT. THE TERM 'NEW MODELS' WAS T O MEAN NEW MODELS DEVELOPED BY HONDA AT THE REQUEST OF THE RESPONDENT ASSESSEE WITH NEW DEVELOPMENT CODE AND SUBJECT TO NEW MODEL AGREEMENT . SIMILARLY, THE TERM 'MODEL CHANGE' WAS DEFINED AS CONDUCT THROUGH WHICH A NEW MODEL WITH NEW DEVELOPMENT CODE WAS MADE BY A CHANGE IN ANY PART O R ENTIRETY OF THE PRODUCT, INCLUDING BUT NOT LIMITED TO APPEARANCE, STRUCTURE, CHARACTERISTICS OR SPECIFICATIONS AND IN EACH CASE WAS SUBJECT TO A NE W MODEL AGREEMENT. THE AGREEMENT SPECIFICALLY RECORDED THAT THE RESPONDENT ASSESSEE WAS ALREADY ENGAGED IN THE BUSINESS OF MANUFACTURING, ASSEMBLIN G, SELLING AND OTHERWISE DEALING WITH TWO/THREE WHEELERS AND THEIR PARTS AS A JOINT VENTURE. IT REFERRED TO THE EARLIER COLLABORATION AGREEMENT DATED 24TH JANU ARY, 1984 AND THE SUBSEQUENT AMENDMENT THERETO WHICH CONFERRED AND HA D GRANTED TO THE RESPONDENT ASSESSEE A RIGHT AND LICENCE TO MANUFACT URE, ASSEMBLE, SELL, DISTRIBUTE, REPAIR AND SERVICE TWO/THREE WHEELERS. 15. THE OTHER TERMS OF THE AGREEMENT WERE: (1) RIGHTS AND LICENSES GRANTED BY THE LICENSOR TO THE RESPONDENT ASSESSEE WERE EXCLUSIVE, INDIVISIBLE AND NON-TRANSF ERRABLE, WITHOUT THE RIGHT TO GRANT SUB-LICENSES TO MANUFACT URE, ASSEMBLE, SELL AND DISTRIBUTE THE PRODUCT OR PARTS THEREOF. T HE RIGHTS AND DUTIES UNDER THE AGREEMENT WERE NOT ASSIGNABLE OR D ELEGATABLE, DIRECTLY OR INDIRECTLY. (2) THE AFORESAID LICENSE WAS FOR THE TERM OF THE AGRE EMENT, I.E. 10 YEARS FROM THE EFFECTIVE DATE OF 21ST JUNE, 1994. (3) THE AGREEMENT COULD BE TERMINATED BY 60 DAYS' NOTI CE TO THE DEFAULTING PARTY, IF IT FAILED TO CURE THE SAME WIT HIN THE NOTICE PERIOD. THE AGREEMENT COULD ALSO BE TERMINATED FORT HWITH BY A PARTY, IF THE OTHER PARTY HAD TRANSFERRED WHOLE OR AN IMPORTANT PART OF BUSINESS; WENT INTO LIQUIDATION, BANKRUPTCY OR INSOLVENCY; MERGED WITH, OR WAS DIRECTLY OR INDIRECTLY TRANSFER RED TO THIRD PARTY; OR ON SIGNIFICANT CHANGE IN SHAREHOLDING OWN ERSHIP. (4) UPON EXPIRATION OF THE TERM OF THE AGREEMENT, I.E. AFTER 10 YEARS, OR TERMINATION DUE TO DEFAULT OF PERFORMANCE OF OBL IGATIONS, THE RESPONDENT ASSESSEE COULD CONTINUE TO MANUFACTURE, ASSEMBLE, SELL OR DELIVER SERVICES BUT SUBJECT TO DUE PERFORM ANCE OF THEIR OBLIGATIONS, INCLUDING PAYMENT OF ROYALTY. (5) IN THE EVENT OF PRE-MATURE TERMINATION, I.E. WITHI N 10 YEARS, EXCEPT DUE TO DEFAULT OF PERFORMANCE OF OBLIGATIONS , THE RESPONDENT ASSESSEE WAS TO PROMPTLY DISCONTINUE MAN UFACTURING ACTIVITIES, SALE AND OTHER DISPOSITIONS OF THE PROD UCTS AND THE ITA NO.2054/DEL/2016 20 PARTS, AS WELL AS THE USE OF INTELLECTUAL PROPERTY RIGHT AND TECHNICAL INFORMATION. (6) FURTHER IN THE EVENT OF EXPIRATION OR TERMINATION, THE RESPONDENT WAS TO PROMPTLY RETURN ALL DOCUMENTS AND TANGIBLE P ROPERTIES IN CONNECTION WITH THE AGREEMENT INCLUDING COPIES AND TRANSLATIONS AND ALL INFORMATION RECEIVED UNDER THE SECRET AND C ONFIDENTIALITY CLAUSES. (7) HONDA HAD RIGHT TO ACCESS THE RESPONDENT'S FACTORI ES AND OTHER FACILITIES FOR INSPECTIONS TO CHECK AND CONFIRM WHE THER CONDITIONS/OBLIGATIONS IMPOSED WERE BEING COMPLIED WITH. (8) KNOWHOW, TECHNICAL INFORMATION AND OTHER NON-PUBLI C TECHNICAL OR BUSINESS INFORMATION WAS TO REMAIN SOLELY AND EX CLUSIVELY THE PROPERTY OF HONDA AND WAS TO BE HELD IN TRUST AND I N CONFIDENCE FOR HONDA BY THE RESPONDENT ASSESSEE. THIS INFORMAT ION WAS NOT TO BE DIVULGED, COMMUNICATED OR MADE KNOWN TO THIRD PERSONS IN ANY MANNER WHATSOEVER, EXCEPT AS EXPRESSLY PROVIDED . RESPONDENT WAS TO TAKE ALL NECESSARY PRECAUTIONS TO KEEP THE SAID INFORMATION SECRET AND CONFIDENTIAL AND RESTRI CT ITS USE STRICTLY AS PER THE FIRST AS WELL AS THE PRESENT AG REEMENT. THE RESPONDENT ASSESSEE WAS TO ESTABLISH AND MAINTAIN I NTERNAL REGULATIONS AND PROCEDURES FOR PROTECTION OF SECREC Y. THE INFORMATION COULD BE DISCLOSED TO EMPLOYEES, DIRECT ORS OR APPROVED SUB-CONTRACTORS WHEN IT WAS REASONABLY NEC ESSARY FOR THE PURPOSE OF MANUFACTURE, ASSEMBLY, REPAIR AND SE RVICING, SUBJECT TO OBTAINING A 'WRITTEN PROMISE' FROM THE A PPROVED SUB- CONTRACTORS TO TREAT ALL INFORMATION AS SECRET AND CONFIDENTIAL. (9) THE AFORESAID RIGHTS AND OBLIGATIONS WERE TO PERSI ST EVEN ON EXPIRATION OR TERMINATION OF THE AGREEMENT. (10) THE RESPONDENT ASSESSEE WAS NOT TO USE OR CAUSE OR PERMIT USE BY ANY THIRD PARTY, INTELLECTUAL PROPERTY RIGHT OR TEC HNICAL INFORMATION PROVIDED UNDER THE AGREEMENT. (11) THE RESPONDENT ASSESSEE WAS NOT TO CLAIM ANY TITLE OR PROPERTY RIGHT WHATSOEVER DURING THE EXISTENCE OF THE AGREEM ENT. UPON TERMINATION AS A RESULT OF DEFAULT OF THE RESPONDEN T ASSESSEE, NO SUCH RIGHT, TITLE, PROPERTY OR INTEREST WHATSOEVER COULD BE CLAIMED. (12) THERE WERE STIPULATIONS IN CASE RESPONDENT ASSESSEE BECAME AWARE OR HAD KNOWLEDGE OF ANY INFRINGEMENT OR ILLEG AL USE OF INTELLECTUAL PROPERTY RIGHT OF HONDA IN INDIA BY A THIRD PARTY. ITA NO.2054/DEL/2016 21 (13) THE RESPONDENT WAS TO SUBMIT MONTHLY WRITTEN REPORT IN THE DESIGNATED FORM TO HONDA REGARDING MANUFACTURE, SAL E AND INVENTORY AND/OR SALE OF PARTS OR PRODUCTS. HONDA W AS ENTITLED TO HAVE ACCESS TO BOOKS OF ACCOUNTS, FINANCIAL STATEME NTS AND RECORDS, TO THE EXTENT THEY RELATE TO TRANSACTIONS AS CONTEMPLATED UNDER THE AGREEMENT. (14) THE RESPONDENT COULD NOT, WITHOUT HONDA'S PRIOR WRI TTEN CONSENT, DIRECTLY OR INDIRECTLY OR THROUGH ITS SUBSIDIARY, A FFILIATE, DISTRIBUTOR OR AGENT OR ANY OTHER PARTY, CARRY ON O R PARTICIPATE IN THE BUSINESS OF MANUFACTURING, ASSEMBLING, DISTRIBU TING OR OTHERWISE DEALING IN TWO/THREE WHEELERS OF OTHER PA RTIES. (15) ON THE QUESTION OF CONSIDERATION PAYABLE, ARTICLE 2 5 OF THE AGREEMENT PROVIDED FOR FEES UNDER TWO HEADS NAMELY, (1) MODEL FEE; AND, (2) RUNNING ROYALTY. A. 'MODEL FEE' WAS PAYABLE ON MODEL CHANGE UNDER THE NEW MODEL AGREEMENT. IT WAS NON-REFUNDABLE AND NON-CREDITABLE AGAINST OTHER PAYMENTS. THE AGREEMENT IN ADDITION STIPULATE D THE AMOUNT OF MODEL FEE PAYABLE IN RESPECT OF THE PRODUCT, 'C- 100' OF US$ 10,00,000/- WAS PAYABLE IN THREE EQUAL INSTALMENTS; I.E., (I) WITHIN FIRST 60 DAYS OF THE AGREEMENT BEING TAKEN O N RECORD BY THE GOVERNMENT AUTHORITIES IN INDIA; (II) WITHIN 60 DAYS OF HONDA DELIVERING TO THE RESPONDENT THE TECHNICAL INFORMAT ION NECESSARY FOR MANUFACTURE AND ASSEMBLY; AND, (III) WITHIN 60 DAYS AFTER THE PARTIES CONFIRMED IN WRITING THAT THE MANUFACTURE O F THE MODEL HAD COMMENCED ON COMMERCIAL BASIS, OR 4 YEARS AFTER THE AGREEMENT, WHICHEVER WAS EARLIER. B. ROYALTY WAS RUNNING AND PERIODICAL PAYMENT AS SPEC IFIED IN EXHIBIT 1 OR THE AMOUNTS CALCULATED BY MULTIPLYING THE RATE SPECIFIED IN EXHIBIT 1 WITH REFERENCE TO THE EX-FAC TORY/EX- WAREHOUSE SALES PRICE. 16. READING THE AFORESAID TERMS AND CONDITIONS AND APPLYING 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 KNOWHOW AND INFOR MATION. THE OWNERSHIP AND THE INTELLECTUAL PROPERTY RIGHTS IN THE KNOWHOW OR TECHNICAL INFORMATION WERE NEVER TRANSFERRED OR BECAME AN ASSET OF THE RESPOND ENT ASSESSEE. THE OWNERSHIP RIGHTS WERE ARDENTLY AND VIGOROUSLY PROTE CTED BY HONDA. THE PROPRIETORSHIP IN THE INTELLECTUAL PROPERTY WAS NOT CONVEYED TO THE RESPONDENT ASSESSEE BUT ONLY A LIMITED AND RESTRICTED RIGHT TO USE ON STRICT AND STRINGENT TERMS WERE GRANTED. THE OWNERSHIP IN THE INTANGIBLE CONTINUED TO REMAIN THE EXCLUSIVE AND SOLE PROPERTY OF HONDA. THE INFORMATI ON, ETC. WERE MADE ITA NO.2054/DEL/2016 22 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 COMMENCED UNDER THE AGREEMENT DATED 24TH JANUARY, 1984. AFTER EXPIRY OF THE FIRST AGREEMENT, THE SECO ND AGREEMENT DATED 2ND JUNE, 1995, ENSURED CONTINUITY IN MANUFACTURE, DEVE LOPMENT, PRODUCTION AND SALE. THE PERIOD OF AGREEMENT, 10 YEARS IN THE PRES ENT CASE, WOULD BE INCONSEQUENTIAL FOR THE AGREEMENT MERELY PERMITTED AND ALLOWED USE OF TECHNOLOGY SUBJECT TO PAYMENT OF ROYALTY AND COMPLI ANCES 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 HAVE CONTINUED TO U SE TECHNICAL KNOWHOW AND INFORMATION WOULD BE A TRIVIAL AND INCONSEQUENTIAL FACTUM AS IN THE AUTOMOBILE INDUSTRY, TECHNOLOGY UPGRADATION IS CONSTANT AND RA PID. GONE ARE THE DAYS WHEN ONE OR TWO MANUFACTURERS ENJOYED MONOPOLY RIGH TS AND THERE WAS A LONG AND INDETERMINATE WAIT AND QUEUE FOR PURCHASE OF OU T-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 UPG RADE WOULD RESULT IN PRODUCT REJECTION AND FALL IN SALES. PERSISTENT UPG RADATION AND CUTTING EDGE TECHNOLOGY IS MANDATE AND BUSINESS REQUIREMENT IN T HE COMPETITIVE MARKET OF TWO/THREE WHEELERS. 25. WE FIND THE HON'BLE DELHI HIGH CURT IN THE CASE OF CIT VS. G4S SECURITIES SYSTEM (INDIA) P. LTD. (SUPRA), HAS OBSERVED AS UND ER:- 9. FROM THE TERMS OF THE AGREEMENT IT IS NOTIC ED THAT THIS ARRANGEMENT WAS FOR A PERIOD OF 5 YEARS, WHICH MAY BE EXTENDED BY A NOTHER PERIOD OF 5 YEARS UNLESS EITHER PARTY GIVES 6 MONTHS NOTICE TO THE OT HER PARTY PRIOR TO THE END OF SUCH 5 YEARS PERIOD. THE PAYMENT OF COMMISSION @ 1% WAS BASED ON THE NET SALES AND NOT LUMPSUM. ON THE TERMINATION OF EXPIRA TION OF THE SUB LICENSE AGREEMENT, THE ASSESSEE WAS TO RETURN ALL G4F KNOWH OW OBTAINED PURSUANT TO THE SAID AGREEMENT. NOT ONLY THAT, THE ASSESSEE WAS NOT EVEN ENTITLED TO MAKE USE OF THE TRADE MARK NAME OR G4F KNOWHOW AND WAS F ORTHWITH TO CHANGE ITS' CORPORATE AND/OR TRADE NAMES. ALL RIGHTS AND KNOWHO W, THEREFORE, CONTINUED TO VEST IN G4F AND IT WAS ONLY THE RIGHT TO USE THE KN OWHOW THAT WAS MADE AVAILABLE TO THE ASSESSEE AND THAT TOO BASED ON ITS NET SALES. THAT MEANS ALL THE ROYALTY PAID IN THE SHAPE OF 1 % OF NET SALES FOR T HE USE OF TRADE MARK AND RIGHT TO USE KNOWHOW COULD NOT BE CONSIDERED TO BE OF END URING NATURE AND THUS CAPITAL EXPENDITURE. THE EXPENDITURE WAS TO BE OF R EVENUE NATURE. IN THE CASE OF JONAS WOOD HEAD AND SONS VS. CIT, 117 ITR 55, IT WAS HELD THAT THE QUESTION REGARDING CAPITAL OR REVENUE EXPENDITURE D EPENDS ON THE TERMS OF AGREEMENT IN EACH CASE. IN THE CASE OF CIT VS. GUJA RAT CARBON LTD., 254 ITR 294, IT WAS HELD THAT THE PAYMENT OF REVENUE UNDER THE AGREEMENT WAS DIRECTLY RELATABLE TO SERVICES WHICH WERE IN THE REVENUE FIE LD AND WERE ALLOWABLE AS REVENUE EXPENDITURE. IN THE CASE OF GOODYEAR (I) LT D. VS. ITO 73 ITD ITA NO.2054/DEL/2016 23 189(DELHI), THE ASSESSEE HAD NOT ACQUIRED OWNERSHIP RIGHT OF TECHNICAL KNOWHOW BUT TRANSFER OF USE OF LICENSES. THERE WAS NO ADVANTAGE OF ENDURING NATURE AND HENCE IT WAS HELD TO BE A CASE OF REVENU E EXPENDITURE. IN THE CASE OF TRAVANCORE SUGAR AND CHEMICALS LTD. 62 ITR 566 (SC) IT WAS HELD THAT WHENEVER A PAYMENT IS BASED ON A PERCENTAGE OF TURN OVER OR PROFITS, IT NECESSARILY HAS NO RELATION TO THE CAPITAL VALUE OF THE ASSET, BECAUSE IT CANNOT BE KNOWN AT THE TIME OF THE AGREEMENT WHAT THE TURN OVER OR PROFITS WILL BE OVER A PERIOD OF YEARS. IN ANOTHER CASE REPORTED AS DCIT VS. SWARAJ ENGINES LTD. (2002) 124 TAXMAN 188, THE TRIBUNAL HELD, REVE NUE PAYMENT IS ALLOWABLE AS REVENUE EXPENDITURE, SINCE IT IS RELATED TO SALE S AND THAT IT IS PAID FOR BETTER CONDUCT, EFFICIENCY AND IMPROVEMENT OF THE EXISTING BUSINESS OR PRODUCT MANUFACTURED BY THE ASSESSEE. IN THE CASE OF CIT VS . LUMAX INDUSTRIES LTD. (2008) 173 TAXMAN 290 (DELHI), THIS COURT HAS ALSO HELD THAT THE PAYMENT OF LICENSE FEE ON YEAR TO YEAR BASIS FOR ACQUISITION O F TECHNICAL KNOWLEDGE WOULD NOT AMOUNT TO CAPITAL EXPENDITURE, BUT THE REVENUE EXPENDITURE. 10. FROM THE RATIO OF THE ABOVE SAID CASES, WE ARE OF THE CONSIDERED VIEW THAT UNDER THE TERMS OF THE AGREEMENT AS NOTED ABOV E, THE OWNERSHIP RIGHTS OF THE TRADE MARK AND KNOWHOW THROUGHOUT VESTED WITH G 4F AND ON THE EXPIRATION OR TERMINATION OF THE AGREEMENT THE ASSE SSEE WAS TO RETURN ALL G4F KNOWHOW OBTAINED BY IT UNDER THE AGREEMENT. THE PAY MENT OF ROYALTY WAS ALSO TO BE ON YEAR TO YEAR BASIS ON THE NET SALES O F THE ASSESSEE AND AT NO POINT OF TIME THE ASSESSEE WAS ENTITLED TO BECOME THE EXC LUSIVE OWNER OF THE TECHNICAL KNOWHOW AND THE TRADE MARK. HENCE, THE EX PENDITURE INCURRED BY THE ASSESSEE AS ROYALTY IS REVENUE EXPENDITURE AND IS T HEREFORE, RELATABLE UNDER SECTION 37(1) OF THE ACT. WE THUS, ANSWER THE QUEST ION IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE AND CONSEQUENTLY D ISMISS ALL THE THREE APPEALS. 26. WE FIND THE HON'BLE ALLAHABAD HIGH COURT IN THE CAS E OF CIT VS. UPCOM CABLES LTD. (SUPRA) HAS OBSERVED AS UNDER:- 35. THE QUESTION AS TO WHETHER A PARTICULAR PAYME NT MADE TOWARDS TECHNICAL KNOW-HOW FEE OR ROYALTY TO A FOREIGN COMP ANY IN LIEU OF AN AGREEMENT WILL BE A 'CAPITAL EXPENDITURE' OR 'REVEN UE EXPENDITURE' WOULD DEPEND UPON FACTS OF INDIVIDUAL CASE, AND, IN PARTI CULAR, VARIOUS TERMS OF AGREEMENT INVOLVED THEREIN. 36. IN THE PRESENT CASE, A CONCURRENT FINDING HAS BEEN RECORDED BY CIT(A) AND TRIBUNAL BOTH THAT ON TERMINATION OF AGREEMENT, WHICH WAS FOR A PERIOD OF FIVE YEARS, ASSESSEE WOULD RETURN ALL RELEVANT MATE RIAL RELATING TO KNOW-HOW ACQUIRED THROUGH AGREEMENT. THIS IS ONE OF THE RELE VANT CONSIDERATION OBSERVED IN ALEMBIC CHEMICAL WORKS LTD. (SUPRA) TO HOLD THAT IN SUCH A CASE, PAYMENT TOWARDS 'ROYALTY' WOULD BE 'REVENUE EXPENDI TURE AND NOT 'CAPITAL'. ITA NO.2054/DEL/2016 24 THE AGREEMENT ALSO SHOWS THAT IT WAS NOT AN EXCLUSI VE RIGHT AVAILABLE TO THE ASSESSEE, INASMUCH IN PARA 13 OF ANNEXURE, OF FOREI GN COLLABORATION, APPROVAL ACCORDED BY GOVERNMENT OF INDIA PROVIDES THAT IN CA SE ITEM OF MANUFACTURE IS ONE WHICH IS PATENTED IN INDIA, PAYMENT OF 'ROYALTY '/LUMP SUM MADE BY INDIAN COMPANY TO FOREIGN COLLABORATOR, DURING PERIOD OF A GREEMENT SHALL CONSTITUTE FULL COMPENSATION FOR USE OF PATENT RIGHT TILL EXPI RY OF LIFE OF PATENT AND INDIAN COMPANY SHALL BE FREE TO MANUFACTURE THAT ITEM EVEN AFTER EXPIRY OF THE COLLABORATION AGREEMENT WITHOUT MAKING ANY ADDITION AL PAYMENTS. ASSESSEE CLAIMED THAT ROYALTY PAYMENT IS PART OF PERCENTAGE OF SELLING PRICE OF PRODUCT AND NOT FOR ACQUIRING TECHNICAL KNOW-HOW OF MANUFAC TURED LICENSED PRODUCT HAVING ENDURING BENEFIT. THESE FACTS AVAILABLE ON R ECORD HAVE NOT BEEN DISPUTED AND WE HAVE NOT BEEN SHOWN ANY AUTHORITY S O AS TO JUSTIFY TO TAKE A DIFFERENT VIEW THAN WHAT HAS BEEN TAKEN BY TRIBUNAL . 37. IN VIEW THEREOF, WE ANSWER BOTH THE AFORESAID QUESTIONS AGAINST REVENUE AND IN FAVOUR OF ASSESSEE AND CONFIRM THE V IEW TAKEN BY TRIBUNAL ON ALL THESE ASPECTS. 27. RESPECTFULLY FOLLOWING THE DECISIONS CITED, SUPRA, WE HOLD THAT THE LD.CIT(A) IS NOT JUSTIFIED IN UPHOLDING THE ACTION OF THE ASS ESSING OFFICER IN TREATING 25% OF THE TECHNICAL KNOW-HOW FEES AS CAPITAL IN NATURE. WE, THEREFORE, SET ASIDE THE ORDER OF THE CIT(A) ON THIS ISSUE AND DIRECT THE ASSESSIN G OFFICER TO TREAT THE ENTIRE AMOUNT AS REVENUE IN NATURE. THE GROUNDS RAISED BY THE ASSESSEE ON THIS ISSUE ARE ACCORDINGLY ALLOWED. 28. GROUND OF APPEAL NO.4 RELATING TO LEVY OF INTEREST U/S 234A BEING MANDATORY AND CONSEQUENTIAL IN NATURE IS DISMISSED. 29. GROUND OF APPEAL NO.5 BEING PREMATURE AT THIS JUNCT URE IS DISMISSED. ITA NO.2054/DEL/2016 25 30. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. THE DECISION WAS PRONOUNCED IN THE OPEN COURT ON 3 1.10.2019. (SUCHITRA KAMBLE) (R.K. PANDA) JUDICIAL MEMBER ACCO UNTANT MEMBER DATED: OCTOBER, 2019 DK COPY FORWARDED TO : 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASSTT. REGISTRAR, ITAT, NEW DELHI