PERMA PIPE INDIA P. LTD, MUMBAI V. DCIT 10(2), MUMBAI

ITA 2188/MUM/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 92354 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-04-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 12-02-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 01-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PAVAN KUMAR BEER LA
• Assessee Lawyers: F V IRANI
• Keywords: Capital asset; Revenue expenditure; Capital expenditure
• Section: 143(3); 234B

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI BEFORE S/SHRI B.R.BASKARAN (AM) AND VIVEK VARMA, (JM) . . , , ./ I.T.A . NO 2188 / MUM/20 1 4 ( / ASSESSMENT YEAR : 20 09 - 10 ) PERMA PIPE INDIA PVT.LTD., KALYANIWALLA AND MISTRY, 3 RD FLOOR, ARMY AND NAVI BUILDING, 148, M G ROAD, FORT, MUMBAI - 400001 / VS. DY. COMMISSIONER OF INCOME TAX 10(2), ROOM NO.432, AAYAKA R BHAVAN, M K ROAD, MUMBAI - 400020 ( / APPELLANT ) .. ( / RESPONDENT ) ./ ./PAN/GIR NO. : AAECP4835H / A PPELLANT BY SHRI F V IRANI / RE SPONDENT BY SHRI PAVAN KUMAR BEERLA / DATE OF HEARING : 1 2. 2 . 2015 / DATE OF PRONOUNCEMENT : 2 1 . 4 . 2015 / O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE ASSESSEE HAS FILED THIS APPEAL CHALLENGING THE ASSESS MENT ORDER DATED 12.3.2013 PASSED BY THE ASSESSING OFFICER U/S 143(3) R.W.S. 144C(1) OF THE ACT IN CONFORMITY WITH THE DIRECTIONS ISSUED BY THE DISPUTE RESOLUTION PANEL (DRP). THE ASSESSEE IS AGGRIEVED BY THE DECISION OF THE AO/DRP IN HOLDING THAT THE ROY ALTY PAID BY THE ASSESSEE IS CAPITAL IN NATURE. ITA. NO . 2188 /M UM/ 20 1 4 2 2. THE FACTS IN BRIEF RELATING TO THE ABOVE SAID ISSUE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF INSULATION PROCESSING OF PIPES USED IN OIL AND GAS INDUSTRY. DURING THE YEAR UNDER CONSIDERATION IT OBTAINED A CONTRACT FROM M/S JINDAL SAW WORKS LIMITED, KUTCH, GUJARAT FOR INSULATION PROCESS OF PIPES FOR BARMET - SALAYA PIPE LINE PROJECT. FOR CARRYING OUT THIS CONTRACT, THE ASSESSEE ENTERED INTO AN AGREEMENT WITH M/S PERMA PIPE MIDDLE EAST FZC (HEREIN AFTER PPME) FOR ACQUIRING NECESSARY TECHNOLOGY. AS PER THE AGREEMENT, THE ASSESSEE WAS REQUIRED TO PAY A LUMP SUM FOR TECHNOLOGY TRANSFER AND FURTHER A ROYALTY OF 5% OF THE GROSS REVENUE RECEIVED FROM THE CONTRACT. THE ASSESSEE CAPITALISED THE TECHNOLO GY TRANSFER FEE, BUT CLAIMED THE ROYALTY AMOUNT AS REVENUE EXPENDITURE. HOWEVER, BOTH THE AO AS WELL AS LD DRP TOOK THE VIEW THAT THE ROYALTY PAYMENT REPRESENTS PAYMENT MADE FOR TRANSFER OF MARKETING AND COMMERCIAL SUPPORT, EXPERIENCE AND SKILL BY PPME TO THE ASSESSEE AND IT REPRESENTS PAYMENT MADE FOR ACQUISITION OF AN EXCLUSIVE RIGHT FOR PROVIDING SERVICES IN THE FORM OF INSULATION OF PIPES TO JINDAL SAW LTD. ACCORDINGLY, THE AO/DRP TOOK THE VIEW THAT THE ROYALTY PAYMENT ALSO CONSTITUTES CAPITAL EXPENDI TURE IN THE HANDS OF THE ASSESSEE. THE AO, IN THIS REGARD, PLACED RELIANCE ON THE DECISION OF HONBLE SUPREME COURT RENDERED IN THE CASE OF SOUTHERN SWITCHGEAR LTD VS. CIT (1998)(232 ITR 359)(SC), WHEREIN THE HONBLE APEX COURT HAS UPHELD THE DECISION OF H ONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. SOUTHERN SWITCHGEAR LTD (1984)(148 ITR 272). ACCORDINGLY, THE AO/DRP DISALLOWED THE CLAIM OF ROYALTY PAYMENT. AGGRIEVED, THE ASSESSEE HAS FILED THIS APPEAL BEFORE US. 3. WE HEARD THE PARTIES AND PERUSED THE RECORD. THE DISPUTE BEFORE US REVOLVES AROUND THE PAYMENT MADE BY THE ASSESSEE IN PURSUANCE OF THE AGREEMENT ENTERED BY THE ASSESSEE WITH PPME. HENCE, WE FEEL IT PERTINENT TO EXTRACT BELOW THE RELEVANT CLAUSES OF THE AGREEMENT. ITA. NO . 2188 /M UM/ 20 1 4 3 COPY FROM AGREEME NT DATED :1.7.2008 1. THE LICENSOR (MEANS PPME)* IS ENGAGED IN THE MANUFACTURE, FABRICATION, PROCESSING AND SUPPLY OF INSULATED PIPE PRODUCTS AND HAS GAINED SUBSTANTIAL EXPERIENCE IN THE SAID FILED . 2. THE LICENSEE (MEANS ASSESSEE)* HAS RECENTLY BEEN EN GAGED BY JINDAL SAW LTD (CONTRACTOR) FOR THE INSULATION OF PIPES IN CONNECTION WI TH THE BARMER SALAYA PIPELINE (BSPL) PROJECT AWARDED TO THE LATER BY CAIRN EN ERG Y INDIA PRIVATE LIMITED (OWNER ) IN INDIA ( HEREINAFTER REFERRED TO AS THE PROJECT ). 3. THE LICEN SEE REQUIRES THE TECHNOLOGY ALONG WITH THE LATEST IMPROVEMENTS FOR THE INSULATION OF PIPES IN CONNECTION WITH THE PROJECT AND HAS OBTAINED AN D IS DESIROUS OF OBTAINING THE BE NEFITS OF THE LICENSORS TECHNOLOGY , KNOWLEDGE, TECHNICAL PROCESSES AND EXPERIENCE FOR THE INSULATION OF SUCH PIPES WHICH THE LICENSEE PROPRO S ES TO UNDERTAKE WHILE EXECUTING THE PROJECTS IN THE CONTRACTORS FACTORY AT J INDAL SAW LTD, VILLAGE - SAMAGHOGHA, MANDVI, PARAGPUR ROAD, TALUKE - MUNDRA, DISTRICT KUTCH, GUJARAT - 370415 (* SUPPLIED BY US) . ARTICLE 3: CONSIDERATION THE LICENSEE SHALL PAY TO THE LICENSOR A LUMP SUM TECHNOLOGY TRANSFER FEE AS ALSO ROYALTY PAYMENT IN CONSIDERATION FO R THE USE OF THE SAID TECHNOLOGY AND PROVISION OF THE RELATED PROCESS AND TECHNICAL KNO W - HOW ON AN ONGOING BASIS DURING THE EXECUTION OF THE PROJECT. THE LICENSEE SHALL PAY HE LICENSOR A LUMP SUM TECHNOLOGY TRANSFER FEE AMOUNTING TO USD 2 MILLION WHICH SHALL BECOME DUE AND PAYABLE AS DETAILED BELOW: A) 12.50% ON THE LAST DAY OF THE MONTH IN W HICH THE MIDPOINT OF THE PROJECT IS ACHIEVED B) 87.50% ON THE LAST DAY OF THE MONTH IN WHICH THE THREE QUARTER POINT OF THE PROJECT IS ACHIEVED THE ROYALTY PAYMENTS FO R SUPPLY OF TECHNICAL KNOW - HOW DURING THE COURSE OF THE PROJECT SHALL BE COMPUTED AT THE RATE OF 5% OF D OMESTIC REVENUE INVOICE D , BASED ON THE GUIDELINES PRESCRIBED BY ITA. NO . 2188 /M UM/ 20 1 4 4 THE MINISTRY OF COMMERCE AND INDUSTRY, GOVERNMENT OF INDIA, SUCH ROYALTY RELATING TO THE PROJECT SHALL BE COMPUTED ON THE BASIS OF THE TOTAL REVENUE INVOLVED BY THE LICENSEE FROM THE COMMENCEMENT OF THE PROJECT BUT SHALL BECOME DUE AND PAYABLE ONLY ON THE LAST DAY OF THE MONTH IN WHICH THE THREE QUARTER POINT OF THE PROJECT HAS BEEN ACHIEVED ARTICLE 8: DURATION THE AGREEMENT SHALL REMAIN IN FORCE TILL DECEMBER 31, 2009 FROM THE DA TE HEREOF. AFTER THIS PERIOD, THE AGREE ME NT WILL AUTOMATICALLY EXTEND FOR A FURTHER PERIOD OF 6 MONTHS UNLESS DECIDED OTHERWISE BY BOTH THE PARTIES . ARTICLE 9: ARBITRATION ALL DISPUTES, CONTROVERSIES , OR DIFFERENCES ARISING OUT O F OR I N R EL A TION TO OR IN CONNECTION WITH THIS AGREEMENT, WHICH CANNOT BE SETTLED BY DISCUSSION AND MUTUAL ACCORD SHALL BE FINALLY SETTLED BY ARBITRATION , THE ARBITRATION SHALL BE HELD IN INDIA IN ACCORDANCE WITH TH E INDIAN ARBITRATION AND CONCILIATION ACT, 1996. THE SEAT OF THE ARBITRATION SHALL BE IN MUMBAI. THE ARBITRATION PROCEEDINGS SHALL BE CONDUC T ED IN ENGLISH LANGUAGE. DEMAND FOR ARBITRATION SHALL BE MADE IN WRITING AND SHALL BE SERVED UPON THE PARTY TO WHOM THE DEMAND IS ADDRESSED BY REGISTERED PO ST . JUDGMENT UPON THE AWARD RENDERED, BE ENTER E D IN MUMBAI COURT, HAVING JURISDICTION OR APPLICATION MAY BE MADE TO SUCH COURT FOR A JUDICIAL ACCEPTANCE OF THE AWARD AND AN ORDER OF ENFORCEMENT, AS THE CASE MAY BE. ARTICLE 10: TERMINATION IF THE LICEN SEE COMMI T S BRE A CH OF ANY TERM OF THIS AGREEMENT, THE LICENSOR SHALL BE ENTITLED TO TERMINATE THIS AGREEMENT BY GIVING FIFTEEN DAYS NOTICE IN WRITING TO THE LICENSEE AND UNLESS THE BREACH IS REMEDIED BY THE LICENSEE WITHIN THE SAID PERIOD, THIS AGREEMENT WILL STAND TERMINATED ON THE EXPIRATION OF THE SAID PERIOD. IF THE LICENSOR COMMITS BREACH OF ANY TERM OF THIS AGREEMENT, THE LICENSEE WILL BE ENTITLED TO TERMINATE THIS AGREEMENT BY GIVING FIFTEEN DAYS NOTICE IN W RITING TO THE LICENSOR AND UNLESS THE BR EACH IS REMEDIED BY T HE LICENSOR WITHIN THE SAID PERIOD, THIS AGREEMENT WILL STAND TERMINATED ON THE EXPIRATION OF THE SAID PERIOD. ITA. NO . 2188 /M UM/ 20 1 4 5 ARTICLE 11: OWNERSHIP OF THE TECHNOLOGY IT IS AGREED BETWEEN THE PARTIES HERETO THAT THE OWNERSHIP IN THE TECHNOLOGY IS T HAT OF THE LICENSOR. WHEN THIS AGREEMENT IS TERMINATED BY EFFLUX OF TIME OR OTHERWISE, THE LICENSEE SHA LL NOT USE THE TECHNOLOGY OR THE TECHNICAL KNOW HOW ACQUIRE BY IT UNDER OR BY VIRTUE OF THIS AGREEMENT FOR ANY PURPOSE WHATSOEVER AND SHALL RETURN TO TH E LICENSOR ALL INFORMATION, DATA AND OTHE R MATERIAL SUPPLIED BY THE LICENSOR TO THE LICENSEE IN TERMS OF THIS AGREEMENT. . .. APPENDIX - A DETAILS OF TECHNICAL KNOWHOW GRANTED 1. FACILITY SET UP DESIGN PREPARATION OF THE TECHNICAL DESIGN, ENGINEERING DRA WINGS AND TECHNICAL SPECIFICATION FOR THE FOLLOWING PROCESS AREAS: MACHINERY L AYOUT MATERIAL F LOW L AYOUT MECHANICAL/ M ACHINE DESIGN CHEMICAL PLUMBING D ESIGN H VAC D ESIGN ELECTRICAL P ANELS D ESIGN CONTROLS AND A UTOMATION D ESIGN ELECTRICAL D ISTRIBUTION S YSTEM D ESIGN DETERMINATION OF E LECTRICAL L OAD R EQUIREMENTS MATERIAL S TORAGE AND H ANDLING S YSTEMS A NALYSIS AND D ESIGN LOW V OLTAGE S YSTEMS D ESIGN QA L AB D ESIGN PROCUREMENT ASSISTANCE IN SOURCING AND PROCUREMENT OF ALL MACHINERY REQUIRED FOR PROCESS OUTPUT OF PI PE UP TO 3 KM /DAY OF 90 MM POLYURENTHANE AND 5 MM OF HDPE JACKETING AND SUITABLE FOR THE PROCESSING OF NO LESS THAT 600 KM. ITA. NO . 2188 /M UM/ 20 1 4 6 ADVICE IN SOURCING AND PROCUREMENT OF A PROTOTYPE FOA M MACHINE AND FOR CONDUCTING ALL FOAMING TESTS PRIOR TO PURCHASE AT VENDOR FACILITY. PROVIDING TECHNICAL PARAME TERS TO QUALITY EQUIPMENT AND MANUFACTURES TESTING REVIEW AND EVALUATION OF THE TRAINING PROCEDURES TO TRAIN AND TEST THE RESPONSIBILITY OF PIPL PERSONNEL PROVIDE OFF - SITE SUPPORT OF TECHNICAL ASSISTANCE AND ROUTING ASSISTANCE FOR MACHINERY TESTING REVIEW AND EVALUATION OF ACCEPTANCE TESTS RUN AT MANUFACTURING FACILITIES OF THE THIRD PARTY MACHINERY SUPP LIER OUTSIDE INDIA PRIOR TO SHIPMENT. COMMISSIONING PROVIDING OFF - SITE ANALYSIS SUPPORT OF THE ENGINEERING DESIGN AND FABRICATION DESIGN OF ALL EQUIPMENT TO ENSURE COMPLIANCE WITH DRAWINGS, SPECIFICATIONS AND STANDARDS . FORMULATION PROVIDING THE REQUIRE TECHNICAL FORMULATION AND KNOW - HOW REQUIRED FOR CARRYING OUT THE INSULATION PROCESS ON THE PIPES. 2. PROCESS DEVELO PMENT ASSISTANCE CONDUCT TRIAL AT PPME FACILITIES AS REQUIRED BY PPIL TO DESIGN AND TEST PROCESS SUITABLE FOR APPLICATIONS OF INSULATED PIPING SYSTEMS FOR THE OIL AND GAS AND DISTRICT COOLING INDUSTRIES IN INDIA AND TO PROVIDE THE RESULTS OF SUCH TES TS. UTILIZE PPME QA LAB TO CONDUCT ALL REQUIRED TESTS TO ENSURE THAT PROCESS ARE FULLY CONFORMED TO SPECIFIED STANDARDS . IDENTIFY THIRD PARTY TEST AGENCIES CAPABLE OF DOING SPECIAL TESTING FOR INSULATED PIPING SYSTEMS AND CO - ORDINATE WITH TEST AGE NCIES TO OBTAIN THIRD PARTY CERTIFICATION AS REQUIRED BY PPIL. TO PROVIDE THE RESULT OF ANY CHANGES IN THE TECHNICAL FORMATION PROCESS FOR INSULATION OF P APERS TO PROVIDE THE RESULTS OF ANY RESEARCH RESULTING IN AN UPGRADATION IN THE PROCESS FLOW LEADING TO INCREAS E EFFICIENCIES AND C OST SAVINGS FOR PPIL ITA. NO . 2188 /M UM/ 20 1 4 7 TO PROVIDE AND KEEP UPDATED ANY NEW PROCESS DEVELOPMENT CARRIED OUT AT PPME FACILITIES ON AN ONGOING BASIS . 3. PLANT OPERATION, SYSTEM AND PROCEDURES DEVELOPMENT QUALITY, HEALTH, SAFETY AND ENVIRONMENT ITP - PROV IDING ASSISTANCE WITH THE INSPECTION AND TEST PLAN AND PROVIDING NECESSARY TECHNICAL UPDATES WHENEVER REQUIRED QA - PROVIDING ASSISTANCE FOR PREPARATION OF THE QUALITY ASSURANCE PLAN AND PROVIDING NECESSARY TECHNICAL UPDATES WHENEVER REQUIRED HSE - PROVIDING ASSISTANCE WITH PREPARATION OF THE HEALTH, SAFETY, AND ENVIRONMENT PLAN FOR THE EMPLOYEE OF PPIL PQT - PROVIDING ASSISTANCE IN DEVISING THE PRE - QUALIFICATION TEST (PQT) PLANT AND PROVIDING NECESSARY TECHNICAL UPDATES WHENEVER REQUIRED OPERATING PROCED URES PROVIDING ON CALL TECHNICAL ASSISTANCE WILL ALL PROCESS OPERATING PROCEDURES AT AND WHEN REQUIRED BY PPIL. TRAINING PROVIDING TRAINING OR TECHNICAL ASSISTANCE AT THE PPME FACILITIES TO THE PPIL PERSONNEL AS REQUESTED TO CARRY OUT ALL THE ABOVE ACTI VITIES AND DISCIPLINES INDEPENDENTLY. 4. TECHNICAL SUPORT FOR MARKETING IN THE FORMATIVE STAGE, TO PROVIDE OFF - SITE SALES SUPPORT SERVICES TO PPIL INCLUDING BUT NOT LIMITED TO: A) ESTIMATING TECHNIQUES FOR ANY PROJECT B) PRODUCT DESIGNING FOR ANY PROJECT C) SUBM TAL OF PRESENTATION TO CUSTOMERS D) PRESENTATION TO PROSPECTIVE CUSTOMERS E) MARKETING MATERIAL 4. ADVERTING OUR ATTENTION TO THE ABOVE SAID CLAUSES, THE LD A.R SUBMITTED THAT THE ENTIRE AGREEMENT IS ONLY FOR A SHORT PERIOD ONLY, I.E., FOR THE PERIOD FROM 1.7.20 08 TO 31.12.2009 AND THE SAME IS EXTENDABLE BY ANOTHER SIX MONTHS, MEANING THEREBY, THE AGREEMENT IS VALID AT THE MAXIMUM FOR A PERIOD OF TWO YEARS ONLY. HE FURTHER SUBMITTED THAT THE OWNERSHIP OF TECHNOLOGY REMAINED WITH LICENSOR, I.E., PPME AND NOT WIT H ITA. NO . 2188 /M UM/ 20 1 4 8 THE ASSESSEE. FURTHER AS PER ARTICLE 5, THE ASSESSEE IS REQUIRED TO MAINTAIN CONFIDENTIALITY OF THE TECHNOLOGY AND OTHER INFORMATION PROVIDED BY THE PPME. AS PER ARTICLE 11, ALL THE INFORMATION, DATA AND OTHER MATERIAL HAVE TO BE RETURNED BACK TO PPME ON TERMINATION OF THE AGREEMENT. ACCORDINGLY, THE LD A.R CONTENDED THAT THE TECHNOLOGY TRANSFER FEE ALSO IS REQUIRED TO BE ALLOWED AS REVENUE EXPENDITURE, BUT THE ASSESSEE HAS CAPITALISED THE SAME FOR A SAFER COURSE. HE FURTHER SUBMITTED THAT THE ROYALT Y PAYMENT IS MADE BY THE ASSESSEE TOWARDS PLANT OPERATION, SYSTEM AND PROCEDURES DEVELOPMENT AND THE SAME IS INTENDED TO ENSURE QUALITY, I.E., IT IS FOR PROVIDING OPERATIONAL AND COMMERCIAL SUPPORT. ACCORDINGLY HE SUBMITTED THE ROYALTY PAYMENT IS IN THE N ATURE OF PLANT MAINTENANCE AFTER THE INSTALLATION OF THE TECHNOLOGY AND HENCE THE SAME PARTAKES THE CHARACTER OF REVENUE EXPENDITURE. 5. ON THE CONTRARY, THE LD D.R PLACED STRONG RELIANCE ON THE ORDER OF THE AO/DRP AND ALSO THE DECISION RENDERED IN T HE CASE OF SOUTHERN SWITCHGEAR LTD (SUPRA). 6. WE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE DEPARTMENT IS PLACING RELIANCE FULLY ON THE DECISION RENDERED IN THE CASE OF SOUTHERN SWITCHGEAR LTD (SUPRA). HOWEVER, A PERUSAL OF THE SAID ORDER WOULD SHOW THAT THE ASSESSEE THEREIN WAS ENTITLED TO USE THE TECHNOLOGY EVEN AFTER THE TERMINATION OF THE CONTRACT. FURTHER THE LICENSOR OF THE TECHNICAL KNOWHOW HAD AGREED NOT TO MANUFACTURE IN INDIA ANY OF THE SCHEDULED PRODUCTS OR TO GRANT OR MAKE AVA ILABLE TO ANY OTHER PERSON, FIRM OR COMPANY ANY MANUFACTURING INFORMATION, LICENSES, RIGHTS FOR ANYONE OF THE SCHEDULED PRODUCTS. THUS, IT WAS SEEN THAT THE ASSESSEE THEREIN WAS HAVING EXCLUSIVE RIGHT ON THE MANUFACTURE OF THE SCHEDULED PRODUCTS AND HENCE , UNDER THESE SET OF FACTS, IT WAS HELD THAT THE AMOUNT PAID FOR TECHNICAL KNOWHOW WAS CAPITAL EXPENDITURE. ITA. NO . 2188 /M UM/ 20 1 4 9 7. IN THE INSTANT CASE, THE DURATION OF THE AGREEMENT WAS UTMOST FOR TWO YEARS ONLY. THE ASSESSEE DOES NOT BECOME OWNER OF THE TECHNICAL KNOWH OW. IT HAD TO RETURN BACK ALL DATA, INFORMATION ETC. ON COMPLETION OF THE AGREEMENT. IT HAS TO MAINTAIN STRICT CONFIDENTIALITY ABOUT THE TECHNOLOGY. FURTHER, THE ASSESSEE ITSELF HAS CAPITALISED THE TECHNOLOGY TRANSFER FEE. THE ROYALTY AMOUNT IS PAID TO PROVIDE OPERATIONAL AND COMMERCIAL SUPPORT. UNDER THESE SET OF FACTS, WE ARE OF THE VIEW THAT THE ROYALTY AMOUNT PAID BY THE ASSESSEE SHOULD BE TREATED AS REVENUE EXPENDITURE ONLY. WE FIND SUPPORT FOR OUR VIEW FROM THE DECISION RENDERED BY THE HONBLE S UPREME COURT IN THE CASE OF CIT VS. I.A.E.C (PUMPS) LTD (1998)(232 ITR 316). THE HEAD NOTES OF THE SAID ORDER READS AS UNDER: - THE ASSESSEE ENTERED INTO AN AGREEMENT WITH A FOREIGN COLLABORATOR (ATURIA) TO USE ITS PATENTS AND DESIGNS EXCLUSIVELY IN IND IA. THE AGREEMENT WAS FOR A DURATION OF 10 YEARS WITH THE PARTIES HAVING THE OPTION TO EXTEND THE AGREEMENT OR RENEW THE SAME. DURING THE CURRENCY OF THE AGREEMENT THE FOREIGN COLLABORATOR HAD UNDERTAKEN NOT TO SURRENDER ITS PATENTS WITHOUT THE CONSENT OF THE ASSESSEE AND TO MAKE AVAILABLE TO THE ASSESSEE ANY IMPROVEMENTS, MODIFICATIONS AND ADDITIONS TO DESIGNS. THE ASSESSEE WAS NOT TO DISCLOSE TO THIRD PARTIES ANY OF THE DOCUMENTS MADE AVAILABLE TO THE ASSESSEE WITHOUT HAVING RECEIVED A WRITTEN AUTHORIZATI ON FROM THE FOREIGN COLLABORATOR. THE TRIBUNAL HELD THAT THE AMOUNT PAID BY THE ASSESSEE UNDER THE AGREEMENT CONSTITUTED REVENUE EXPENDITURE. THE HIGH COURT CONCLUDED THAT THE FEATURES OF AGREEMENT CLEARLY ESTABLISHED THAT WHAT WAS OBTAINED BY THE ASSESSEE WAS ONLY A LICENCE AND WHAT WAS PAID BY THE ASSESSEE TO THE FOREIGN COLLABORATOR WAS ONLY A LICENCE FEE AND NOT THE PRICE FOR ACQUISITION OF ANY CAPITAL ASSET AND, THEREFORE, THE TRIBUNAL WAS RIGHT IN TREATING THE AMOUNT AS REVENUE EXPENDITURE. ON APPEAL TO THE SUPREME COURT THE REASONING AND CONCLUSION OF THE HIGH COURT WERE UNASSAILABLE. THE HIGH COURT RIGHTLY HELD THAT THE EXPENDITURE INCURRED IN THE INSTANT CASE BY THE ASSESSEE WAS ONLY A REVENUE EXPENDITURE. THE INSTANT APPEAL FAILED AND WERE DISMI SSED. ITA. NO . 2188 /M UM/ 20 1 4 10 8. IN VIEW OF THE ABOVE, WE SET ASIDE THE ORDER OF AO/DRP ON THIS ISSUE AND DIRECT THE AO TO ALLOW THE ROYALTY PAYMENT AS REVENUE EXPENDITURE. 9. THE ASSESSEE HAS ALSO CHALLENGED THE LEVY OF INTEREST U/S 234B AND 234C. THE LEVY OF INTEREST IS CONSEQUENTIAL IN NATURE AND HENCE THE GROUNDS RELATING THERETO DO NOT REQUIRE ANY ADJUDICATION. 10. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 21 ST APR , 2015 . 21 ST APR , 2015 SD SD ( / VIVEK VARMA ) ( . . / B.R. BASKARAN) / JUD ICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI: 21ST APR , 201 5 . . . ./ SRL , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - CONCERNED 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI CONCERNED 6. / GUARD FILE. / BY ORDER, TRUE COPY (ASSTT. REGISTRAR) , /ITAT, MUMBAI