ACIT, CHENNAI V. TTK Protective Devices Limited, CHENNAI

ITA 258/CHNY/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 90708 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-07-2015
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 20-07-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 30-01-2015
• Court: TRIBUNAL
• Department Lawyers: P B SEKARAN
• Keywords: Capital asset; Business income; Depreciation; Revenue expenditure; Capital expenditure
• Section: 37(1)

Judgement Text

, , IN THE INCOME-TAX APPELLATE TRIBUNAL B BENCH, CHE NNAI . , . !' !' !' !' , # # # # $ $ $ $ BEFORE SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER & SHRI V. DURGA RAO, JUDICIAL MEMBER ./ I.T.A.NO.258/MDS/2015 # ' %' / ASSESSMENT YEAR :2010-11 THE ASSISTANT COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 3(1), NEW BLOCK, 4 TH FLOOR, 121, MAHATMA GANDHI ROAD, NUNGAMBAKKAM, CHENNAI 600 034. VS. M/S. TTK PROTECTIVE DEVICES LIMITED (FORMERLY KNOWN AS M/S. TTK LIG LTD.), NO. 6, CATHEDRAL ROAD, CHENNAI 600 086. [PAN :AABCT1184G] ( &' &' &' &' /APPELLANT ) ( ()&' ()&' ()&' ()&' / RESPONDENT ) &' * + / APPELLANT BY : SHRI P.B. SEKARAN, CIT ()&' * + / RESPONDENT BY : SHRI SAROJ KUMAR PARIDA, ADVOCATE * , / DATE OF HEARING : 20.07.2015 -% * , /DATE OF PRONOUNCEMENT : 24.07.2015 . . . . / O R D E R PER V. DURGA RAO, JUDICIAL MEMBER : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) III, CHENN AI DATED 25.09.2014 RELEVANT TO THE ASSESSMENT YEAR 2010-11. 2. THE FIRST GROUND OF APPEAL OF THE REVENUE IS RE LATING TO THE PAYMENT OF LOGO CHARGES. IN THE ASSESSMENT ORDER, THE ASSESSIN G OFFICER HAS OBSERVED THAT THE PAYMENT OF LOGO CHARGES IS ONLY A CAPITAL EXPENDITURE, WHICH PROVIDES THE ASSESSEE WITH ENDURING BENEFIT AND FOR WHICH THE ACT PROVIDES I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.2 22 258 5858 58/M/ /M/ /M/ /M/1 11 13 33 3 2 FOR DEPRECIATION BENEFITS ALSO. THE DECISION OF THE ITAT ON THIS ISSUE IN THE ASSESSEES CASE FOR EARLIER ASSESSMENT YEARS HAD NO T BECOME FINAL. ACCORDINGLY, HE DISALLOWED THE CLAIM OF THE ASSESSE E. 3. ON APPEAL, THE LD. CIT(A), BY FOLLOWING THE DEC ISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR EARLIER ASSESSMENT YEARS, A LLOWED THE GROUND RAISED IN THE APPEAL FILED BY THE ASSESSEE. 4. THE REVENUE CARRIED THE MATTER IN APPEAL BEFORE THE TRIBUNAL. 5. AT THE TIME OF HEARING, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ISSUE INVOLVED IN THIS APPEAL IS SQUARELY COVERED BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSM ENT YEARS 2002-03 TO 2007-08. 6. ON THE OTHER HAND, THE LD. DR RELIED ON THE ORD ER OF THE ASSESSING OFFICER AND SUBMITTED THAT AGAINST THE DECISION OF THE TRIBUNAL, THE DEPARTMENT HAS PREFERRED APPEAL BEFORE THE HONBLE JURISDICTIONAL HIGH COURT. 7. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. WE FIND TH AT THE LD. CIT(A), BY FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEE S OWN CASE FOR THE ASSESSMENT YEARS 2002-03 TO 2007-08 IN I.T.A. NOS. 1791 TO 1796/MDS/2011 I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.2 22 258 5858 58/M/ /M/ /M/ /M/1 11 13 33 3 3 VIDE ORDER DATED 31.10.2012, DECIDED THE ISSUE IN F AVOUR OF THE ASSESSEE, WHEREIN, THE TRIBUNAL HAS OBSERVED AS UNDER: 20. WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION TO THE ISSUE AND ALSO PERUSED THE RELEVANT FINDINGS, CONTENTS OF PAPER BO OK REFERRED AND CASE LAW CITED. UNDISPUTED FACTS ARE THAT VIDE AGREEMENT IN QUESTION, THE ASSESSEE HAD AGREED TO PAY ANOTHER ENTITY VIDE AGREEMENT DATED 3 1.3.00/6.5.00 FOR USING THE MONOGRAM, NAMELY TTK. THE RELEVANT EXTRACT OF THE SAID AGREEMENT AS AVAILABLE IN THE PAPER BOOK READS AS UNDER:- WHEREAS TTK HAS BEEN IN THE BUSINESS OF VARIOUS CO NSUMER AND PHARMACEUTICALS PRODUCTS AND HAS BEEN MARKETING AND DISTRIBUTING THE CONSUMER AND PHARMACEUTICALS PRODUCTS FOR OVER FIVE DECADES AND HAS EARNED A WIDE REPUTATION AND HAS CREATED A STRONG I MAGE AND AWARENESS ON THE MINDS OF PUBLIC AND HAS ALSO EVOLV ED AN ORIGINAL ARTISTIC WORK IN THE FORM OF A MONOGRAM ENTITLED T TK (HEREINAFTER REFERRED TO AS THE SAID MONOGRAM) WHICH HAS ESTABLI SHED AN IDENTITY OF ITS OWN IN THE PUBLIC MINDS RELATING TO THE QUALITY OF THE PRODUCTS AND OTHER SERVICES, AS WELL AS THE STATURE OF THE ORGAN IZATION. WHEREAS TTK IS THE OWNER OF THE COPYRIGHT OF THE SA ID MONOGRAM HAVING SECURED A REGISTRATION OF THE SAID COPYRIGHT UNDER NO.A- 39006/83 UNDER THE COPYRIGHT ACT, 1957. WHEREAS TTK LIG, A COMPANY ALREADY IN THE BUSINES S OF MANUFACTURE OF RUBBER CONTRACEPTIVES IS DESIROUS O F PROMOTING AND STRENGTHENING ITS BUSINESS BASE BY ESTABLISHING A P ROPER IDENTITY IN THE MINDS OF PUBLIC AT LARGE WHICH WILL CREATE A STRONG MARKETING BASE FOR THE PRODUCTS OF THE COMPANY AND REFLECT AN IMMEDIAT E IDENTITY IN THE MINDS OF THE PUBLIC WITH REFERENCE TO THE PRODUCTS SERVICES AND STATURE OF THE LICENSES AND FOR THE PURPOSE HAS APPROACHED TTK FOR LICENSE AND PERMISSION TO USE THE SAID MONOGRAM ON OR IN RE LATION TO THE GOODS MANUFACTURED AND MARKETED BY TTK LIG AND IN RELATION TO OTHER BUSINESS ACTIVITIES OF TTK LIG. WHEREAS TTK HAD ACCEDED TO THE REQUEST OF TTK LIG TO GRANT LICENSE AND PERMISSION TO TTK LIG TO USE THE SAID MONOGRAM, SUBJECT TO CERTAIN TERMS AND CONDITION, WHICH TERMS AND CON DITIONS IN WRITING BY THIS DEED OF AGREEMENT. WHEREAS BOTH THE PARTIES HERETO CONSIDER IT NECESSA RY AND EXPEDIENT TO RECORD SUCH TERMS AND CONDITIONS IN WRITING BY T HIS DEED OF AGREEMENT. I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.2 22 258 5858 58/M/ /M/ /M/ /M/1 11 13 33 3 4 NOW THEREFORE, IN CONSIDERATION OF THE PREMISES AND OF THE MUTUAL COVENANTS AND OBLIGATIONS HEREIN CONTAINED, THE PARTIES HERETO AGREE AS FOLLOWS: 1. TTK HEREBY CONFIRMS HAVING LICENSED AND PERMITT ED THE USE OF THE SAID MONOGRAM BY TTK-LIG FOR A PERIOD OF THREE YEAR S WITH EFFECT FROM 1 ST APRIL 2000, AS PER APPROVAL ACCORDED BY THE GOVERN MENT OF INDIA VIDE LETTER NO.2/M-7964 DATED 3 RD MAY, 2000. COPY OF GOVERNMENT APPROVAL IS ANNEXED TO THIS AGREEMENT. 2. THE LICENSE AND PERMISSION GRANTED BY TTK IN FA VOUR OF TTK-LIG AS AFORESAID, SHALL ENTITLE TTK-LIG, SO LONG AS THI S AGREEMENT IN FORCE, TO USE THE SAID MONOGRAM ON OR IN RELATION T O THE GOODS OF TTK-LIG AND IN RELATION TO THE BUSINESS ACTIVITIES OF TTK-LIG, INCLUDING THE USE OF THE SAID MONOGRAM ON STATIONER Y, TRADE LITERATURE, PACKING OF GOODS, LABELS, WRAPPERS AND ADVERTISEMENTS OF TTL-LIG. TTK-LIG SHALL NOT UNDER ANY CIRCUMSTANC ES TRANSFER OR ASSIGN ANY OF THEIR RIGHTS UNDER THIS AGREEMENT. 3. TTK-LIG ACCEPTS THAT THE SAID MONOGRAM SHALL BE USED BY TTK- LIG UNDER THIS AGREEMENT IN A MANNER INDICATIVE OF THE FACT THAT THE COPYRIGHT IN THE SAID MONOGRAM IS OWNED BY TTK. ILLUSTRATIVE OF THE WORDS TO APPEAR IN CLOSE PROXIMITY TO THE SA ID MONOGRAM, FOR THE PURPOSE OF CARRYING OUT THE REQUIREMENTS OF THIS CLAUSE ARE: 1981 T.T.KRISHNAMACHARI & CO WHEN THE SAID MONOGRAM IS USED ON OR IN RELATION TO THE GOODS OF TTK- LIG A UNIT 1981 T.T.KRISHNAMACHARI & CO WHEN THE SAID MONOGRAM IS USED OTHERWISE IN RELATION TO THE NAME OF TTK-LIG 4. THE AGREEMENT SHALL BE IN FORCE FOR A PERIOD OF THREE YEARS EFFECTIVE FROM 1 ST APRIL, 2000 AND MAY BE RENEWED THEREAFTER BY THE C ONSENT OF BOTH THE PARTIES, SUBJECT TO GOVERNMENT APPROVAL. 5. THE RENEWAL OF THIS AGREEMENT MAY BE EFFECTED BY BOTH THE PARTIES HERETO BY EXCHANGE OF LETTERS SIGNED BY PERSONS DUL Y AUTHORIZED IN THIS BEHALF. 6. IN CONSIDERATION OF THE SAID LICENSE AND PERMISS ION GRANTED BY TTK., TTK-LIG SHALL PAY TO TTK AS NON-REFUNDABLE LI CENSE FEE, A SUM EQUIVALENT TO TWO PERCENT OF THE TOTAL SALES OF THE COMPANY ON QUARTERLY REST. I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.2 22 258 5858 58/M/ /M/ /M/ /M/1 11 13 33 3 5 THE ABOVE SAID AGREEMENT FOR USING THE MONOGRAM IN QUESTION, WAS ALSO APPROVED BY DEPARTMENT OF COMPANY AFFAIRS, MINISTRY OF LAW, JUSTICE AND COMPANY AFFAIRS, GOVERNMENT OF INDIA VIDE LETTER DA TED 03.05.00, WHICH IS REPRODUCED HEREUNDER BELOW:- 1. IN EXERCISE OF THE POWERS DELEGATED TO THE UNDE RSIGNED BY THE GOVERNMENT OF INDIA UNDER SECTION 637 OF THE COMPAN IES ACT, 1956 IN NOTIFICATION NO.GSR 563 E DATED 19.08.93,I, THE REG IONAL DIRECTOR, DEPARTMENT OF COMPANY AFFAIRS, CHENAI-6, DO HEREBY APPROVE UNDER PROVISO TO SUB SECTION (1) OF SECTION 297 OF THE CO MPANIES ACT, FOR ENTERING INTO CONTRACT WITH M/S. T.T. KRISHNAMACHAR I & CO. FOR LICENSING USE OF TRADE NAME AND LOGO THEREOF IN CON SIDERATION OF PAYMENT OF 2% LICENSE FEE CALCULATED ON THE TOTAL S ALES OF THE COMPANY FOR A PERIOD OF 3 YEARS WITH EFFECT FROM 1.4.2000. 2. THE APPROVAL ACCORDED IN PARA 1 ABOVE IS SUBJE CT TO THE FOLLOWING CONDITIONS: (I) THE CONTRACT SHALL BE FOR A PERIOD OF 3 YEARS WITH EFFECT FROM 1.4.2000 TO 31.3.2003. (II) THE TOTAL VALUE OF SERVICES TO BE AVAILED FRO M THE CONTRACTEE PARTY HEREIN SHALL NOT EXCEED THE LIMIT MENTIONED I N PARA 1 ABOVE DURING THE CONTRACT PERIOD. (III) THE PRICES TO BE PAYABLE FOR THE SERVICES TO BE OBTAINED FROM THE CONTRACTEE PARTY SHALL BE REASONABLE AND SHALL NOT BE HIGHER THAN THE PREVAILING MARKET RATES. (IV) THE COMPANY SHALL ENSURE THAT THE CONTRACT WI TH THE CONTRACTEE PARTY IS COMPETITIVE AND IS NOT LESS ADVANTAGEOUS T O IT AS COMPARED TO SIMILAR CONTRACTS WITH OTHER PARTIES. 3. THIS APPROVAL HAS BEEN ACCORDED WITHOUT PREJUD ICE TO ANY ACTION THAT MAY BE REQUIRED TO BE TAKEN BY THE COMP ANY UNDER ANY OTHER PROVISIONS OF THE COMPANIES ACT, 1956 OR ANY OTHER LAW IN FORCE. DATED AT CHENNAI THE 27 TH DAY OF APRIL 2000. THERE IS HARDLY ANY DISPUTE BETWEEN THE PARTIES ABO UT THE FACTUM OF PAYMENT MADE BY ASSESSEE OF LOGO CHARGES @ 2% OF THE GROSS SALES. THE ONLY STRIFE IS THAT PER REVENUE, IT IS CAPITAL EXPENDITURE WHEREAS THE ASSESSEES PLEA OF TREATING IT AS A REVENUE EXPENDITURE STANDS ACCEPTE D BY CIT(A). WE FIND THAT IN EXACTLY THE SIMILAR CIRCUMSTANCES, THE HONBLE D ELHI HIGH COURT IN THE CASE OF G4S SECURITIES SYSTEM HAD HELD AS UNDER:- THE OWNERSHIP RIGHTS OF THE TRADE MARK AND KNOW-HO W THROUGHOUT VESTED WITH THE FOREIGN COMPANY AND ON THE EXPIRATION OR TERMIN ATION OF THE AGREEMENT THE I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.2 22 258 5858 58/M/ /M/ /M/ /M/1 11 13 33 3 6 ASSESSEE WAS TO RETURN ALL THE KNOW-HOW OBTAINED BY IT UNDER THE AGREEMENT. THE PAYMENT OF ROYALTY WAS ALSO TO BE ON YEAR TO YE AR BASIS ON THE NET SALES OF THE ASSESSEE AND AT NO POINT OF TIME WAS THE ASSESS EE ENTITLED TO BECOME THE EXCLUSIVE OWNER OF THE KNOW-HOW AND TRADE MARK. HEN CE, THE EXPENDITURE INCURRED BY THE ASSESSEE AS ROYALTY WAS REVENUE EXP ENDITURE AND WAS DEDUCTIBLE UNDER SECTION 37(1) OF THE INCOME-TAX AC T, 1961. 20.1. SIMILARLY, THE CO-ORDINATE BENCH OF DELHI IT AT IN THE CASE OF DCM BENETTON(SUPRA) HAS ALSO HELD USAGE OF SUCH BRAND N AME ETC. TO BE REVENUE EXPENDITURE BY OBSERVING AS FOLLOWS:- FROM THE AGREEMENT IT IS CLEAR THAT THE ASSESSEE W AS ONLY GRANTED NON-ASSIGNABLE LICENCE, RIGHT AND PRIVILEGE WITH RE FERENCE TO THE LICENSED MARKS TO MANUFACTURE ON THE MARK AND DISTR IBUTE THE LICENSED PRODUCT IN INDIA AND TO USE THE EXPRESSION BENETT ON. THE ASSESSEE DID NOT BECOME THE OWNER OF THE LICENSED MARKS OR T HE HOLDER OF THE TRADE-MARKS. SUCH LICENSE MARKS AT ALL TIMES REMAI N THE PROPERTY OF THE LICENSOR. THE LICENSE WAS INITIALLY GRANTED FOR A PERIOD FROM OCTOBER, 1992 TILL FALL/WINTER SEASON OF 1999-2000. HOWEVER, TO CONTINUE TO USE THE LICENSE MARK FOR MANUFACTURING OF THE LICENSED PRODUCTS, THE ASSESSEE WAS TO PAY ROYALTY @ % % OF THE AMOUNT OF NET SALES. BY PAYING THE ROYALTY THE ASSESSEE DID NOT A CQUIRE ANY RIGHT IN THE LICENSES TRADE-MARKS. ONLY THE PRODUCTS MANUFAC TURED BY THE ASSESSEE I.E. GARMENTS WILL BEAR THE LICENSED MARKS FOR WHICH THE LICENSE HAS BEEN GRANTED. ACCORDINGLY, IT CAN BE SA ID THAT THE ASSESSEE HAS NOT ACQUIRED ANY CAPITAL ASSET BUT HAS MERELY P AID TO THE LICENSOR FOR USE OF SUCH TRADE-MARKS. THEREFORE, EXPENSES A RE TO BE TREATED AS REVENUE EXPENDITURE AND NOT CAPITAL EXPENDITURE. TH E ASSESSEE WAS REQUIRED TO PAY ROYALTY EVERY YEAR. BUT FOR PAYMENT OF ROYALTY, EVERY YEAR THE ASSESSEE COULD NOT CONTINUE RECEIVING THE LICENSE TO USE THE LICENSES MARKS ON THE PRODUCTS MANUFACTURED BY IT. THUS MAKING PAYMENT EVERY YEAR IT CANNOT BE SAID THAT THE ASSES SEE RECEIVED ADVANTAGE OF ENDURING NATURE PRIMARILY TO BRING IT AS CAPITAL EXPENDITURE. TAKING CUE FROM THE SAME, WE HOLD THAT IN THE INSTA NT CASE ALSO, TITLE OF THE LOGO IN QUESTION HAS NOT PASSED OVER TO THE ASSES SEE. FURTHER, THERE IS NO ACQUISITION OF ASSETS OR PART OF ANY CAPITAL ASSET. USAGE OF LOGO BY THE ASSESSEE IS ONLY FOR DISPLAYING IT ON THE PRODUCT M ANUFACTURED I.E. RUBBER CONTRACEPTIVES. THAT TOO, FOR A LIMITED PERIOD AS PROVIDED IN THE AGREEMENT IN LIEU OF PAYMENT @ 2% OF THE GROSS SALES. WHEN WE A PPLY THE TENOR OF THE CASE LAW ABOVE CITED TO THE FACTS OF THE INSTANT CASE, W E HOLD THE INSTANT LOGO CHARGES ARE ALSO REVENUE EXPENDITURE WITHIN THE ME ANING OF SEC.37 OF THE ACT IN THE NATURE OF WHOLLY AND EXCLUSIVELY FOR THE PUR POSE OF ASSESSEES BUSINESS. CONSEQUENTLY, WE SEE NO REASON TO INTERFERE IN THE FINDINGS OF THE CIT(A). THEREFORE, THE SAME ARE HEREBY UPHELD. I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.2 22 258 5858 58/M/ /M/ /M/ /M/1 11 13 33 3 7 8. IN VIEW OF THE ABOVE, WE FIND NO INFIRMITY IN T HE ORDER PASSED BY THE LD. CIT(A) ON THIS ISSUE AND THE GROUND RAISED BY THE R EVENUE IS DISMISSED. 9. THE NEXT GROUND OF APPEAL OF THE REVENUE RELATE S TO ROYALTY PAYMENT. IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS OBSERVED THAT THE PAYMENT OF ROYALTY FOR TECHNICAL KNOW-HOW IS A CAPI TAL EXPENDITURE, WHICH PROVIDES THE ASSESSEE AN ENDURING BENEFIT AND FOR W HICH THE ACT PROVIDES FOR DEPRECIATION AND ACCORDINGLY, HE DISALLOWED THE CLA IM OF THE ASSESSEE. 10. ON APPEAL, THE LD. CIT(A), BY FOLLOWING THE DE CISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR EARLIER ASSESSMENT YEARS, A LLOWED THE GROUND RAISED IN THE APPEAL FILED BY THE ASSESSEE. 11. AFTER HEARING BOTH SIDES, WE FIND THAT THE LD. CIT(A), BY FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 2002-03 TO 2007-08 IN I.T.A. NOS. 1791 TO 1796/MDS/ 2011 VIDE ORDER DATED 31.10.2012, DECIDED THE ISSUE IN FAVOUR OF THE ASSE SSEE, WHEREIN, THE TRIBUNAL HAS OBSERVED AS UNDER: 18. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AT L ENGTH AND ALSO GONE THROUGH RELEVANT FINDINGS AND CASE LAWS. THERE IS NO QUARREL BETWEEN THE PARTIES THAT THE ASSESSEE AND OTHER ENTITY, NAM ELY M/S.LRC PRODUCTS HAD ENTERED INTO AN AGREEMENT DATED 07.03.00 AND 01 .04.05 FOLLOWED BY SUPPLEMENTARY AGREEMENTS DATED 13.07.01 & 28.03.07 RESPECTIVELY. THE RELEVANT CLAUSES IN THE AGREEMENT ARE REPRODUCED AS FOLLOWS:- LRC IS THE OWNER OF CERTAIN DATA AND INFORMATION R ELATING TO NEW FORMULATIONS IN THE MANUFACTURE OF RUBBER CONTRACEP TIVES WHICH IT HAS AGREED TO MAKE AVAILABLE ON A CONTINUOUS BASIS TO T TK-LIG FOR I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.2 22 258 5858 58/M/ /M/ /M/ /M/1 11 13 33 3 8 UPGRADING QUALITY OF RUBBER CONTRACEPTIVES BY TTK-L IG IN THEIR PLANTS IN INDIA TTK LIG HAS AGREED TO RECEIVE SUCH DATA AND INFORMA TION UPON THE FOLLOWING TERMS AND CONDITIONS: DEFINITION INFORMATION MEANS INFORMATION AND DATA SUPPLIED B Y LRC OR GENERATED BY TTK-LIG PURSUANT TO THIS AGREEMENT, WH ETHER WRITTEN GRAPHIC OR ORAL INCLUDING OPERATING INSTRUCTIONS, D ESIGNS, MATERIALS, PRODUCTION SPECIFICATIONS, FORMULAE, DRAWINGS, BLUE PRINTS AND OTHER TECHNICAL AND COMMERCIAL INFORMATION, TOGETHER WITH ANY SAMPLES OR SPECIMENS THEREOF, BUT EXCLUDING: (A) INFORMATION WHICH AT THE TIME OF DISCLOSURE IS IN THE PUBLIC DOMAIN (B) INFORMATION WHICH SUBSEQUENT TO DISCLOSURE BECO MES PART OF THE PUBLIC DOMAIN BY PUBLICATION OR OTHERWISE (OTHER T HAN THROUGH DISCLOSURES BY TTK-LIG IN BREACH OF THIS AGREEMENT. (C) INFORMATION WHICH MAY BE RECEIVED BY TTK-LIG FR OM ANY THIRD PARTY HAVING THE RIGHT TO DISCLOSE THE SAME TO TTK- LIG, PROVIDED THAT SUCH INFORMATION WAS NOT OBTAINED BY THE SAID THIRD PARTY IMPROPERLY. LRC INCLUDES ANY OF ITS WHOLLY-OWNED SUBSIDIARIES AS DEFINED BY SECTION 736 OF THE U K COMPANIES ACT, 1985 UNDERTAKING BY TTK-LIG TTK-LIG HEREBY AGREES (A) TO USE THE INFORMATION SOLELY FOR THE PURPOSE M ENTIONED A ABOVE FOR WHICH PURPOSE IT SHALL COMMUNICATE THE INFORMAT ION SOLELY TO THOSE OF ITS EMPLOYEES WHO REASONABLY REQUIRE THE S AME FOR THE PURPOSES HEREOF AND WHO ARE BOUND TO TTK-LIG BY LIK E OBLIGATIONS AS TO CONFIDENTIALITY. (B) NOT OTHERWISE TO DISCLOSE THE INFORMATION TO AN Y PERSON FIRM OR COMPANY WITHOUT THE PRIOR WRITTEN PERMISSION OF LRC I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.2 22 258 5858 58/M/ /M/ /M/ /M/1 11 13 33 3 9 (C) UPON CONCLUSION OF THE PURPOSE AS AFORESAID OR SOONER AT LRCS REQUEST, TO RETURN ALL THE INFORMATION TO LRC TOGET HER WITH ALL COPIES OF WRITTEN AND GRAPHIC MATERIAL AND TO RETAI N NO COPIES THEREOF AND PROVIDE LRC WITH A CERTIFICATE THAT NO COPIES HAVE BEEN RETAINED. WHEREAS BOTH THE PARTIES HERETO CONSIDER IT NECESSA RY AND EXPEDIENT TO RECORD SUCH TERMS AND CONDITIONS IN WRITING BY T HIS DEED OF AGREEMENT NOW THEREFORE, IN CONSIDERATION OF THE PREMISES AND OF THE MUTUAL COVENANTS AND OBLIGATIONS HEREIN CONTAINED, THE PARTIES HERETO AGREE AS FOLLOWS: 1. IN CONSIDERATION OF THE NEW FORMULATIONS BEING M ADE AVAILABLE BY LRC, TTK LIG SHALL PAY TO LRC A TECHNICAL KNOWHOW F EE, A SUM EQUIVALENT TO 2% (TWO PERCENT) OF THE TOTAL ANNUAL SALES TURNOVER OF THE COMPANY ON QUARTERLY RESTS, SUBJECT TO DEDUC TION OF TAX AT SOURCES AS APPLICABLE UNDER THE PROVISIONS OF INDIA N INCOME TAX ACT, 1961 AND SUBJECT TO APPROVAL UNDER THE FOREIGN EXCHANGE REGULATION ACT, 1973 AND OTHER APPLICABLE ACT AND R EGULATIONS IN INDIA. 2. THIS AGREEMENT SHALL BE N FORCE FOR A PERIOD OF FIVE YEARS EFFECTIVE 1 ST APRIL 2000 AND MAY BE RENEWED THEREAFTER BY MUTUAL CONSENT OF BOTH THE PARTIES. THE RENEWAL OF THIS A GREEMENT MAY BE EFFECTED BY BOTH THE PARTIES HERETO BY EXCHANGE OF LETTERS SIGNED BY PERSONS DULY AUTHORISED IN THIS BEHALF. 3. WITHOUT PREJUDICE TO THE PROVISIONS OF ANY CLAUS E HEREIN, IN THE EVENT OF ANY BREACH OF THIS AGREEMENT OR DEFAULT TH EREUNDER COMMITTED BY TTK-LIG, LRC MAY CALL UPON TTK-LIG TO SET RIGHT SUCH BREACH OR DEFAULT WITHIN A PERIOD OF 30 DAYS A ND IF TTK-LIG SHOULD FAIL TO SET RIGHT THE BREACH OR DEFAULT WITH IN SUCH PERIOD, LRC SHALL BE ENTITLED TO SERVE A NOTICE IN WRITING ON TTK-LIG TERMINATING THIS AGREEMENT AND THIS AGREEMENT SHALL STAND TERMINATED IMMEDIATELY ON SERVICE OF SUCH NOTICE. 4. TTK-LIG SHALL BE ENTITLED TO TERMINATE THIS AGRE EMENT WITHOUT ASSIGNING ANY REASON WHATSOEVER BY GIVING THREE MON THS NOTICE IN WRITING SERVED ON LRC. 5. THE OBLIGATIONS OF CONFIDENTIALITY CONTAINED HER EIN SHALL CONTINUE FOR A PERIOD OF FIVE YEARS AFTER THE TERMINATION OR EXPIRY OF THE AGREEMENT FOR WHATEVER REASON. I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.2 22 258 5858 58/M/ /M/ /M/ /M/1 11 13 33 3 10 18.1. IN THE SUBSEQUENT AGREEMENT DATED 01.04.05 A S WELL, WE HAVE COME ACROSS THE SAME SET OF CLAUSES. IT IS THEREFO RE, CLEAR THAT ASSESSEES OBLIGATION TO PAY ROYALTY @ 2%(SUPRA) ST EMS FROM THE TERMS INCORPORATED IN THE AGREEMENTS. WE NOTICE THAT IN THE SAID AGREEMENTS, THERE IS NO COVENANT GRANTING EXCLUSIVE RIGHTS OF T ECHNICAL KNOW-HOW OR TITLE IN FAVOUR OF THE ASSESSEE PERTAINING TO TECHN ICAL INPUTS AS OBTAINED FROM THE OTHER ENTITY. FURTHER, THE ELEMENT OF EN DURABILITY IS ALSO NOWHERE FORTHCOMING AND EVEN DURATION OF THE AGREEM ENT IS NOT INDEFINITE I.E. IT IS FOR A PERIOD OF FIVE YEARS. IN ADDITION TO THIS, THERE IS NO CLAUSE OF EXCLUSIVE USAGE IN FAVOUR OF ASSESSE E FOR USING THE TECHNICAL INPUTS. IN THESE CIRCUMSTANCES, IN OUR O PINION, THE CASE LAW OF M/S. SOUTHERN SWITCH GEAR (SUPRA) DOES NOT APPLY TO THE FACTS OF THE CASE AS IN THE SAID CASE, THE NON-COMPETE CLAUSE WA S THERE WHEREIN THE FOREIGN COMPANY CONCERNED HAD AGREED NOT TO MANUFAC TURE SIMILAR PRODUCTS IN INDIA AND NOT TO GIVE RIGHTS OF MANUFA CTURE TO OTHERS. THE INSTANT CASE IS RATHER COVERED BY CASE LAW OF M/S. IAEC PUMPS LTD., WHEREIN THE LICENSE TO USE THE INTELLECTUAL KNOW-HO W WAS FOR TEN YEARS WITH CLAUSES FOR RESCINDING THE AGREEMENT BEFORE TH E EXPIRY OF SAID TIME PERIOD AS WELL. SIMILARLY IN THE CASE OF M/S.G4S S ECURITIES SYSTEM, THERE WAS NO EXCLUSIVE USE OF THE TECHNICAL KNOW -HOW AND ROYALTY WAS PAYABLE ON YEAR TO YEAR BASIS AND THE HONBLE DELHI HIGH COURT HAD HELD THAT THE OWNERSHIP RIGHTS OF THE TRADE MARK AND KNOW-HO W THROUGHOUT VESTED WITH THE FOREIGN COMPANY AND ON T HE EXPIRATION OR TERMINATION OF THE AGREEMENT THE ASSE SSEE WAS TO RETURN ALL THE KNOW-HOW OBTAINED BY IT UNDER THE AG REEMENT. THE PAYMENT OF ROYALTY WAS ALSO TO BE ON YEAR TO YEAR B ASIS ON THE NET SALES OF THE ASSESSEE AND AT NO POINT OF TIME WAS T HE ASSESSEE ENTITLED TO BECOME THE EXCLUSIVE OWNER OF THE KNOW- HOW AND TRADE MARK. HENCE, THE EXPENDITURE INCURRED BY THE ASSESS EE AS ROYALTY WAS REVENUE EXPENDITURE AND WAS DEDUCTIBLE UNDER SE CTION 37(1) OF THE INCOME-TAX ACT, 1961. ACCORDINGLY WE ARE OF THE VIEW THAT THE CIT(A) HAS NOT RIGHTLY DELETED THE DISALLOWANCE OF EXPENDITURE AS MADE BY THE ASSE SSING OFFICER TO THE TUNE OF 25%. THEREFORE, WE HOLD THAT THE PAYMENT M ADE BY THE ASSESSEE IN THE SHAPE OF TECHNICAL KNOW-HOW FEE BY WAY OF RO YALTY @ 2% OF THE GROSS SALES IS REVENUE EXPENDITURE. SO, THE ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE. I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.2 22 258 5858 58/M/ /M/ /M/ /M/1 11 13 33 3 11 12. BEFORE US, THE REVENUE COULD NOT CONTROVERT TH E ABOVE FINDINGS OF THE TRIBUNAL OR FILED ANY HIGHER COURT DECISION HAVING MODIFIED OR REVERSED THE ABOVE DECISION. THE LD. CIT(APPEALS) HAS RIGHTLY FO LLOWED THE ABOVE JUDGEMENT AND WE FIND NO INFIRMITY IN THE ORDER PAS SED BY THE LD. CIT(APPEALS) ON BOTH ISSUES. ACCORDINGLY, THE APPEA L FILED BY THE REVENUE IS DISMISSED. 13. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON FRIDAY, THE 24 TH OF JULY, 2015 AT CHENNAI. SD/ - SD/ - (A. MOHAN ALANKAMONY) ACCOUNTANT MEMBER (V. DURGA RAO) JUDICIAL MEMBER CHENNAI, DATED, THE 24.07.2015 VM/- . * (#,/0 10%, /COPY TO: 1. &' / APPELLANT, 2. ()&' / RESPONDENT, 3. 2 ( ) /CIT(A), 4. 2 /CIT, 5. 03! (#,# /DR & 6. !4' 5 /GF.