M/s Groz Engineering Tools Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 4776/DEL/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 82118 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 3 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-11-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 20-10-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 12-08-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PARMINDER KAUR
• Keywords: Depreciation; Cost of acquisition; Royalty expenses
• Section: 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C : NEW DELHI BEFORE SHRI G.D. AGARWAL, VICE PRESIDENT AND SHRI A.T . VARKEY , JUDICIAL MEMBER ITA NO . 4776 /DEL/ 2013 ASSESSMENT YEAR : 2008 - 09 GROZ ENGINEERING TOOLS PVT. LTD., VS. DCIT, C - 717, NEW FRIEN DS COLONY, RANGE - 12(1), NEW DELHI 110065 NEW DELHI. AABCG4017H (APPELLANT) (RESPONDENT) APPELLANT BY: SMT. RANO JAIN, ADV. RESPONDENT BY: SMT. PARMINDER KAUR, SR. DR ORDER PER A.T. VARKEY, J.M. THIS IS AN APPEAL ARISING FROM AN ORDER OF LD. CIT(A) - XV, DELHI DATED 29 TH JULY, 2013 RELATES TO A.Y. 2008 - 09. 2. THE SOLITARY ISSUE INVOLVED IN THE GROUNDS RAISED BY THE ASSESSEE RELATES TO DENIAL OF DEDUCTION OF RS. 57,7,094/ - REPRESENTING EXPENDITURE INCURRED ON PAYMENT OF ROYALTY TO M/S MACNAUGHT PVT. LTD., U.K. 3. AFTER CONSIDERING THE RIVAL SUBMISSIONS, THE EVIDENCE ON RECORD, WE FIND THE ISSUE IS SQUARELY COVERED BY AN ORDER OF THE CO - ORDINATE BENCH OF THIS TRIBUNAL DATED 1 ST OCTOBER, 2014, IN ASSESSEES OWN CASE FOR AY 2005 - 06 TO 20 07 - 08. IN THE SAID ORDER THE CLAIM OF THE EXPENDITURE ON THE PAYMENT OF ROYALTY WAS ALLOWED BY HOLDING AS UNDER: 9. WE HAVE HEARD BOTH THE SIDES. THE ASSESSEE COMPANY IS A MANUFACTURING COMPANY AND ENGAGED IN THE ENGINEERING TOOLS. IT IS A 100% EXPORT ORIENTED UNIT LOCATED IN GURGAON, HARYANA. THIS UNIT IS ELIGIBLE FOR EXEMPTION U/S 10B OF THE ACT ON THE PROFIT EARNED. THE ASSESSEE COMPANY WAS PAYING THE ROYALTY EXPENSES TO MACNAUGHT ON THE VARIOUS PRODUCTS SOLD BY IT AS AGREED WITH MACNAUGHT ON ITA NO. 477 6 /D/ 2013 M/S GROZ ENGINEERING TOOLS P. LTD. 2 19.1 1.2002. MACNAUGHT IS AN AUSTRALIAN COMPANY. IT HAS NO CONNECTION WITH THE MANAGEMENT OF THE ASSESSEE COMPANY. THIS ROYALTY IS BEING PAID BY THE ASSESSEE FOR PUTTING THE TRADEMARK MACNAUGHT ON THE PRODUCTS OF THE ASSESSEE AND USING DRAWING ETC. THIS ROY ALTY WAS LINKED TO THE VOLUME OF SALES. THE ASSESSEE IS USING THE KNOWHOW, TRADEMARK AND LICENSES WITHOUT ANY RIGHT TO THE LICENSE. THE RIGHTS REMAINED WITH THE LICENSOR, THEREFORE, THIS PAYMENT OF ROYALTY CANNOT BE TREATED AS CAPITAL IN NATURE. IT WAS PAID FOR USE OF TECHNOLOGY AND TRADEMARK, THEREFORE, THE SAME WAS REVENUE EXPENSES. FURTHER, THIS EXPENDITURE HAS BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. THE ASSESSEE HAS DEDUCTED TDS AND DEPOSITED THE SAME WITH THE GOVERNMENT. THE GENUINENESS OF THE PAYMENT IS ALSO NOT IN DOUBT. IN SUCH CIRCUMSTANCES, WE FIND THAT THE CIT(A) WAS NOT JUSTIFIED IN SUSTAINING/ENHANCING THE ADDITION AND THE ASSESSING OFFICER WAS NOT JUSTIFIED IN TREATING THE AMOUNT AS CAPITAL IN NA TURE. CONSIDERING THE VARIOUS CASE LAWS RELIED UPON BY THE LD. AR FOR THE ASSESSEE, WE ALLOW THE APPEAL OF THE ASSESSEE. SINCE WE HAVE ALLOWED THE APPEAL OF THE ASSESSEE WE DO NOT FIND ANY NECESSITY TO CONSIDER THE ALTERNATE PLEADINGS OF THE LD. AR WITH REGARD TO THE CLAIM OF DEPRECIATION AND TAKING THE COST OF ACQUISITION OF TECHNOLOGY AT INITIAL STAGE AT SUM TOTAL OF THE ROYALTY PAID IN VARIOUS SUBSEQUENT YEARS. 4. FOLLOWING THE AFORESAID ORDER, IT IS HELD THAT EXPENDITURE INCURRED ON ROYALTY IS A REV ENUE EXPENDITURE, INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. AS A RESULT, THE CLAIM MADE BY THE ASSESSEE IS ALLOWED AND DISALLOWANCE IS DELETED. 5. IN THE RESULT, THE APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 14.11.2014 . - SD/ - - SD/ - (G.D. AGARW AL) (A.T. VARKEY) VICE PRESIDENT JUDICIAL MEMBER DATED: 14.11.2014 *KAVITA, P.S. ITA NO. 477 6 /D/ 2013 M/S GROZ ENGINEERING TOOLS P. LTD. 3 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, NEW DELHI TRUE COPY BY ORDER ASSISTANT REGISTRAR