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

ITA 939/DEL/2017

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 0949 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 4 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-07-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Assessment Year: 2012-2013
• Appeal Filed On: 17-02-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Capital asset; Depreciation; Additional depreciation; Revenue expenditure; Capital expenditure; Set aside; Liquidation
• Section: 143(3); 32(1)(iia); 37(1); 73; 13; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I: NEW DELHI (THROUGH VIDEO CONFERENCING) BEFORE, SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER I.T.A NO.939/DEL/2017 (ASSESSMENT YEAR 2012-13) HEIDELBERG CEMENT INDIA LIMITED 9 TH FLOOR, TOWER-C, INFINITY TOWER, DLF CYBERCITY, GURGAON PANAABCM 2359J VS. DY.CIT, CIRCLE-2, GURGAON (APPELLANT) (RESPONDENT) APPELLANT BY SH. HARPREET SINGH AJMANI, ADV. SH. N. NARANG, CA RESPONDENT BY MS. SUNITA SINGH, CIT-DR DATE OF HEARING 07.07.2021 DATE OF PRONOUNCEMENT 07.07.2021 ORDER PER ANIL CHATURVEDI, AM: THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST FI NAL ASSESSMENT ORDER DATED 23.12.2016 PASSED U/S 143(3) /144C OF THE INCOME TAX ACT, 1961 (HEREINAFTER CALLED THE ACT) . 2 ITA NO.939/DEL/2017 HEIDELBERG CEMENT INDIA LIMITED VS . DCIT 2.0 THE FOLLOWING GROUNDS HAVE BEEN RAISED BY THE A SSESSEE: 1. THE LD. AO/ HONBLE DRP HAS ERRED ON THE FACTS, IN THE CIRCUMSTANCES AND IN LAW WHILE DISALLOWING THE ADDI TIONAL DEPRECIATION CLAIMED BY THE APPELLANT ON NEW PLANT AND MACHINERY IN ACCORDANCE WITH THE PROVISIONS OF SECT ION 32(I)(IIA) OF THE ACT AMOUNTING TO INR 9,17,283/-. 1.1 THE LD. AO/ HONBLE DRP HAS ERRED ON THE FACT S, IN THE CIRCUMSTANCES AND IN LAW IN CONSIDERING THE NOMENCL ATURE OF THE ASSETS WITHOUT APPRECIATING THE DETAILED NATURE AND USE OF THE ASSETS. 2. THE LD. AO/ HONBLE DRP HAS ERRED ON THE FAC TS, IN THE CIRCUMSTANCES AND IN LAW WHILE DISALLOWING DEPRECIA TION AMOUNTING TO INR 10,07,066/- ON ACCOUNT OF RECLASSI FICATION OF CERTAIN ASSETS AS BUILDING OTHER THAN RESIDENTIAL , ELIGIBLE FOR DEPRECIATION AT 10%, WHICH WERE ORIGINALLY CLASSIFI ED BY THE APPELLANT AS PLANT AND MACHINERY, ELIGIBLE FOR DE PRECIATION AT 15%. 2.1 THE LD. AO/ HONBLE DRP HAS ERRED ON THE F ACTS, IN THE CIRCUMSTANCES AND IN LAW BY NOT CONSIDERING THE DET AILED NATURE AND USE OF SUCH ASSETS. 3. THE LD. AO/ HONBLE DRP HAS ERRED ON THE FAC TS, IN THE CIRCUMSTANCES AND IN LAW WHILE DISALLOWING THE AMOU NT OF INR 2,99,88,750/- (NET OF DEPRECIATION) ON ACCOUNT OF C APITALIZATION OF 25% OF TECHNICAL KNOW-HOW FEE INCURRED BY THE AP PELLANT IN 3 ITA NO.939/DEL/2017 HEIDELBERG CEMENT INDIA LIMITED VS . DCIT THE SUBJECT YEAR, ON THE GROUND THAT SUCH EXPENSES HAVE RESULTED IN BENEFITS OF ENDURING NATURE TO THE APPE LLANT AND THEREBY CONSTITUTES A CAPITAL ASSET. 3.1 THE LD. AO/ HONBLE DRP HAS ERRED ON THE FAC TS, CIRCUMSTANCES AND IN LAW IN NO APPRECIATING THAT TH E TECHNICAL KNOW-HOW HAS BEEN UTILIZED FOR SMOOTH RUNNING OF TH E BUSINESS OF THE APPELLANT AND HAS NOT LEAD TO ACQUISITION OF ANY NEW CAPITAL ASSET. 4. THE LD. AO/HON,BLE DRP HAS ERRED ON THE FACTS, IN THE CIRCUMSTANCES AND IN LAW IN INITIATING THE PENALTY PROCEEDINGS AGAINST THE APPELLANT UNDER SECTION 271(I) (C) OF T HE ACT. THE ABOVE GROUNDS ARE WITHOUT PREJUDICE TO EACH OTH E. THE APPELLANT CRAVES LEAVE TO ALTER, AMEND OR WITHD RAW ALL OR ANY OF THE GROUNDS HEREIN OR ADD ANY FURTHER GROUND S AS MAY CONSIDERED NECESSARY EITHER BEFORE OR DURING THE HE ARING. 3.0 AT THE OUTSET, THE LD. AUTHORIZED REPRESENTATI VE (AR) SUBMITTED THAT ALL THE THREE ISSUES UNDER CHALLENGE WERE COVERED BY THE ORDER OF THIS TRIBUNAL IN ASSESSEES OWN CASE FO R ASSESSMENT YEAR 2011-12 IN ITA NO.2054/DEL/2016 VIDE ORDER DAT ED 31.10.2019. THE LD. AUTHORIZED REPRESENTATIVE PLA CED A COPY OF THE SAID ORDER ON RECORD. 4 ITA NO.939/DEL/2017 HEIDELBERG CEMENT INDIA LIMITED VS . DCIT 4.0 PER CONTRA, THE LD. CIT-DR FAIRLY ACCEP TED THAT ALL THE THREE ISSUES UNDER CHALLENGE IN THIS APPEAL WERE COVERED IN FAVOUR OF EITHER OF THE PARTIES BY THE ORDER OF THE ITAT IN A SSESSEES OWN CASE FOR ASSESSMENT YEAR 2011-12. 5.0 HAVING HEARD BOTH THE PARTIES AND AFTER HAVING GONE THROUGH THE RECORDS AS WELL AS ORDER OF THIS TRIBUN AL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2011-12, WE AGREE WITH T HE SUBMISSION OF THE LD. AUTHORIZED REPRESENTATIVE THA T ALL THE THREE ISSUES UNDER CHALLENGE ARE COVERED BY THE ORDER OF THE TRIBUNAL (ITAT) IN ITA NO.2054/DEL/2016 FOR ASSESSMENT YEAR 2011-12 VIDE ORDER DATED 31.10.2019. 5.1 GROUND NOS.1 & 1.1 CHALLENGE THE DISALLOWANCE O F ADDITIONAL DEPRECIATION ON NEW PLANT AND MACHINERY TO THE TUNE OF RS.9,17,283/-. ON THIS ISSUE, IT WAS THE ASSESSING O FFICERS VIEW THAT ADDITIONAL DEPRECIATION WAS ALLOWABLE FOR ACQUIS ITION OF NEW PLANT AND MACHINERY AND NOT ON REPLACEMENT OF PARTS OF PLANT AND MACHINERY ALREADY IN EXISTENCE. THE LEARNED DISPUTE RESOLUTION PANEL (DRP) UPHELD THE FINDINGS OF THE ASSESSING OF FICER. WE NOTE 5 ITA NO.939/DEL/2017 HEIDELBERG CEMENT INDIA LIMITED VS . DCIT THAT THIS ISSUE HAS BEEN DECIDED AGAINST THE ASSESS EE BY THE ITAT IN ASSESSMENT YEAR 2011-12. THE RELEVANT OBSERVATIONS OF THIS TRIBUNAL ARE CONTAINED IN PARAGRAPH -9 OF THE ORDER WHICH ARE BEING REPRODUCED HEREIN UNDER FOR A READY REFERENCE: 9. WE HAVE CONSIDERED THE RIVAL ARGUMENTS ADVANCED BY BOTH THE SIDES AND PERUSED THE ORDERS OF THE ASSESSING O FFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF TH E ASSESSEE. WE HAVE ALSO CONSIDERED 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 ON LY FOR ACQUISITION AND INSTALLATION OF NEW PLANT & MACHINE RY AND NOT FOR REPLACEMENT OF PARTS OF PLANT & MACHINERY ALREA DY IN EXISTENCE/USE. WE FIND THE LD. CIT(A) UPHELD THE AC TION OF THE ASSESSING OFFICER ON THE GROUND THAT THE VARIOUS IT EMS ON WHICH ADDITIONAL DEPRECIATION HAS BEEN DISALLOWED ARE NOT NEW MACHINERY WHICH HAS BEEN PURCHASED BY THE ASSESSEE, BUT, IT IS IN THE NATURE OF REPAIR AND MAINTENANCE OF EXISTING MACHINERY. IT IS THE SUBMISSION OF THE ID. COUNSEL FOR THE ASS ESSEE THAT WHEN THE ASSESSING OFFICER HAS ALLOWED NORMAL DEPRE CIATION ON THE PLANT & MACHINERY WHICH WAS PURCHASED DURING TH E YEAR, THEREFORE, THE ASSESSEE IS ENTITLED TO ADDITIONAL D EPRECIATION ON PLANT & MACHINERY. WE DO NOT FIND ANY MERIT IN THE ARGUMENTS ADVANCED BY THE LD. COUNSEL. THE PROVISIONS OF SECT ION 32(1)(IIA) 6 ITA NO.939/DEL/2017 HEIDELBERG CEMENT INDIA LIMITED VS . DCIT CLEARLY MENTION THAT IN THE CASE OF ANY NEW MACHINE RY OR PLANT WHICH HAS BEEN ACQUIRED AND INSTALLED AFTER THE 31 ST DAY OF MARCH, 2005 BY AN ASSESSEE ENGAGED IN THE BUSINESS OF MANUFACTURE OR PRODUCTION OF ANY ARTICLE OR THING, A FURTHER SUM EQUAL TO 20% OF THE ACTUAL COST OF SUCH MACHINERY O R PLANT SHALL BE ALLOWED AS DEDUCTION UNDER CLAUSE (II). THUS, AN ANALYSIS OF THE AFOREMENTIONED PROVISION SHOWS THAT THE ASSESSE E HAS TO BY NEW MACHINERY OR PLANT AND NOT FOR REPLACEMENT OF A NY PART OF THE PLANT OR MACHINERY. A PERUSAL OF THE LIST OF AS SETS ON WHICH ADDITIONAL DEPRECIATION HAS BEEN DENIED BY THE ASSE SSING OFFICER SHOWS THAT THESE ARE MAINLY REPLACEMENT OF VARIOUS PLANT & MACHINERY EARLIER IN USE. WE, THEREFORE, DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) REJECTING THE CLAIM OF ADDITIONAL DEPRECIATION ON THE GROUND THAT THE VARI OUS ITEMS ARE NOT NEW MACHINERY WHICH HAS BEEN PURCHASED BY THE A SSESSEE, BUT, IT IS IN THE NATURE OF REPAIR AND MAINTENANCE OF THE EXISTING MACHINERY. THE GROUNDS RAISED BY THE ASSESSEE ON TH IS ISSUE ARE ACCORDINGLY DISMISSED. 5.2 THEREFORE, RESPECTFULLY FOLLOWING THE ORDER OF THE CO- ORDINATE BENCH ON THIS ISSUE, WE DISMISS GROUND NOS .1 & 1.1 OF THE ASSESSEES APPEAL. 5.3 GROUND NOS.2 & 2.1 CHALLENGE THE DISALLOWANCE O F DEPRECIATION OF RS.10,07,066/- ON ACCOUNT OF RE-CLA SSIFICATION OF 7 ITA NO.939/DEL/2017 HEIDELBERG CEMENT INDIA LIMITED VS . DCIT ASSETS AS BUILDING OTHER THAN RESIDENTIAL, ELIGI BLE FOR DEPRECIATION @ 10%, WHICH WAS ORIGINALLY CLASSIFIED BY THE ASSESSE E AS PLANT AND MACHINERY, ELIGIBLE FOR DEPRECIATION AT 15%. WE NO TE THAT THIS ISSUE IS ALSO COVERED AGAINST THE ASSESSEE BY THE ORDER O F THE ITAT IN ASSESSMENT YEAR 2011-12. THE RELEVANT OBSERVATIONS OF THE CO- ORDINATE BENCH ARE CONTAINED IN PARA-14 AND THE SAM E ARE BEING REPRODUCED HEREIN UNDER FOR A READY REFERENCE: 14. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE B Y BOTH THE SIDES AND PERUSED THE ORDERS OF THE ASSESSING OFFIC ER AND THE CIT(A). WE HAVE ALSO CONSIDERED VARIOUS DECISIONS C ITED BEFORE US. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF TH E CIT(A) ON THIS ISSUE. THE COAL SHED AND GI SHEETS, IN OUR OPINION, CANNOT BE CONSIDERED AS PLANT & MACHINERY WHEN THE ASSESSEE I S ENGAGED IN MANUFACTURE OF CEMENT. WE FIND MERIT IN THE LOGIC GIVEN BY THE CIT(A) THAT THE GODOWNS, WAREHOUSES AN D OTHER BUILDINGS WHICH ARE UTILIZED IN AN ORDINARY MANNER EVEN FOR HOUSING PLANT OR MACHINERY WOULD NOT BECOME PLANT O R MACHINERY BY ITSELF. FURTHER, HE HAS ALSO GIVEN A F INDING THAT THE GI SHEETS ARE SUCH MATERIAL WHICH ARE UTILIZED FOR THE PLANT AND BY ITS NATURE THIS CANNOT BE CHARACTERIZED AS PLANT OR MACHINERY. UNDER THESE CIRCUMSTANCES, WE UPHOLD THE ORDER OF THE CIT(A) AND DISMISS THE GROUNDS RAISED BY THE AS SESSEE ON THIS ISSUE. 8 ITA NO.939/DEL/2017 HEIDELBERG CEMENT INDIA LIMITED VS . DCIT 5.4 RESPECTFULLY FOLLOWING THE ORDER OF TH E CO-ORDINATE BENCH IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2011-12, WE DISMISS GROUND NOS.2 & 2.1 OF THE ASSESSEES APPEAL. 5.5 GROUND NOS.3 & 3.1 CHALLENGE THE ADDI TION OF RS.2,99,88,750/- (NET OF DEPRECIATION) ON ACCOUNT O F CAPITALIZATION OF 25% OF TECHNICAL KNOW-HOW FEE. THE ASSESSING OFFI CER HAD HELD THAT 25% OF THE TECHNICAL KNOW-HOW EXPENSES OF RS.15 ,99,41,000/- WAS TO BE TREATED AS CAPITAL EXPENDITURE SPENT TOWAR DS ACQUISITION OF CAPITAL ASSETS. ACCORDINGLY, DEPRECIATION CLAIM WAS REDUCED BY RS.2,99,88,750/- BY THE ASSESSING OFFICER. WE NOTE THAT IDENTICAL ISSUE HAD COME UP BEFORE THIS TRIBUNAL IN 2011-12 A LSO IN ASSESSEES OWN CASE AND THIS ISSUE WAS DECIDED IN FAV OUR OF THE ASSESSEE BY THE TRIBUNAL. THE RELEVANT OBSERVATIONS OF THE TRIBUNAL ARE CONTAINED IN PARAGRAPHS 22 TO 27 OF THE ORDER O F THE ITAT AND THE SAME ARE BEING REPRODUCED HEREIN UNDER FOR A RE ADY REFERENCE: 22 WE HAVE HEARD THE ARGUMENTS MADE BY BOTH T HE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND CIT (A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO 9 ITA NO.939/DEL/2017 HEIDELBERG CEMENT INDIA LIMITED VS . DCIT CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. WE FIND THE ASSESSING OFFICER, IN THE INSTANT CASE, DISALLOWED 25% OF THE TOTAL TECHNICAL KNOW-HOW EXPENSES OF RS.14,09,84,000/- WH ICH COMES TO RS.3,52,46,000/- TREATING THE SAME AS CAPITAL EX PENDITURE BEING SPENT TOWARDS ACQUISITION OF CAPITAL ASSET AS IT GIVES RISE TO ENDURING BENEFIT WHICH CAN BE ENJOYED BY THE ASSESS EE OVER A NUMBER OF YEARS. HE ACCORDINGLY ALLOWED DEPRECIATI ON ON THIS @ 25% AMOUNTING TO RS.88,11,500/- AND MADE AN ADDITIO N OF RS.2,64,34,500/- TO THE TOTAL INCOME OF THE ASSESSE E. WHILE DOING SO, THE ASSESSING OFFICER HELD THAT THE SCOPE READ WITH THE PROVISIONS OF TECHNICAL KNOW-HOW CLEARLY INDICATE T HAT THE ACQUISITION OF TECHNICAL KNOW-HOW SEEKS TO IMPROVE EACH AND EVERY ASPECT OF THE ENTIRE BUSINESS. THE AGREEMEN T BETWEEN THE ASSESSEE AND THE HCA SHOWS THAT THE ACQUISITION OF TECHNICAL KNOW-HOW HAS BROUGHT IN A COMPLETE AND COMPREHENSIV E OVERHAULING OF THE ENTIRE BUSINESS OF THE ASSESSEE. THEREFORE, THE AGREEMENT CLEARLY INDICATES THAT THE TECHNICAL KNOW LEDGE THE ASSESSEE OBTAINED FROM THIS AGREEMENT WITH HCA SECU RED TO THE ASSESSEE AN ENDURING ADVANTAGE AND THOUGH BENEFIT W HICH WAS AVAILABLE TO THE ASSESSEE FOR ITS MANUFACTURING AND INDUSTRIAL PROCESS EVEN AFTER THE TERMINATION OF AGREEMENT CEA SES, BUT, WHEN THE AGREEMENT NEVER TERMINATES ON ACCOUNT OF REVISION/AUTOMATIC RENEWAL THE BENEFIT GOES ON AND ON. FURTHER, CONTINUOUS USE OF IMPROVED PRACTICES OVER SEVERAL Y EARS LEADS TO CREATION OF INSTITUTIONAL MEMORY OF ADVANCED PROCED URES AND 10 ITA NO.939/DEL/2017 HEIDELBERG CEMENT INDIA LIMITED VS . DCIT TECHNIQUES. THE ASSESSING OFFICER FURTHER NOTED TH AT DUE TO LATENT LEARNING OF SYSTEMATIC PROCEDURES AND TECHNI QUES THROUGH PERIODIC TRAINING OF PERSONNEL IN THE FORM OF WORKS HOPS AND ON THE JOB TRAININGS CONTINUES TO REAP BENEFITS TO THE ASSESSEE WAY BEYOND PERIODS CONFINED WITH THE AGREEMENT. ACCORD ING TO HIM, THE TRAINED MANPOWER CONTINUES TO PERFORM AT HIGHER LEVELS OF EFFICIENCY WITH BETTER TECHNIQUES EVEN IF THE TECHN ICAL KNOW-HOW AGREEMENT WAS TO TERMINATE. WE FIND THE LD.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 WOULD NOT GET TERMINATED WITH THE EXPIRY OF THE AGREEMENT. ACCORDING TO HIM, WHEN THE ASSES SEE COMPANY IS INTO MANUFACTURING OF CEMENT AND ALL THE TECHNOL OGIES GIVEN TO IT FOR MANUFACTURING OF CEMENT WOULD GET MERGED INT O ITS BUSINESS PROCESS. THE BUSINESS LINE OF THE ASSESSEE IS OF A PARTICULAR NATURE WHICH WOULD REQUIRE UPDATING EVERYDAY LIKE S OFTWARE INDUSTRY OR MANUFACTURING OF HIGHLY SOPHISTICATED I NSTRUMENTS. THE ARGUMENT OF THE ASSESSEE THAT IT WOULD RETURN A LL THE DESIGNS ACCORDING TO HIM APPEARS WORTH PAPER ARGUMENT ONLY BECAUSE IN A CEMENT MANUFACTURING PLANT, IF THE DESIGNS HAVE B EEN USED FOR MAKING THE BUSINESS PROCESS THE CHANGES ARE IRREVER SIBLE. IT IS THE SUBMISSION OF THE LD. COUNSEL THAT THE ASSESSEE HAS TO CONTINUOUSLY UPGRADE PLANT EFFICIENCY BY EMPLOYING MODERN AND LATEST TECHNIQUES TO REDUCE COSTS AND IMPROVE ITS P RODUCTIVITY AND QUALITY. THE EXPENDITURE ON TECHNICAL KNOW-HOW WAS INCURRED BY 11 ITA NO.939/DEL/2017 HEIDELBERG CEMENT INDIA LIMITED VS . DCIT THE ASSESSEE FOR TECHNICAL INFORMATION AND ASSISTAN CE PROVIDED BY HCA FOR THE VARIOUS SERVICES THAT WERE TO BE REN DERED BY HCA TO THE ASSESSEE. IT IS ALSO HIS SUBMISSION THAT TH E BENEFIT OF THE TECHNICAL KNOW-HOW DOES VEST ONCE AND FOR ALL THERE BY RESULTING IN AN ENDURING BENEFIT OR FOR THE PURPOSES OF BRING ING INTO EXISTENCE ANY ASSET OR ADVANTAGE OF AN ENDURING NA TURE, RATHER, THE OBJECT OF THE TECHNICAL ASSISTANCE WAS FOR RUNN ING THE BUSINESS EFFECTIVELY AND PROFITABLY. FURTHER, IT I S ALSO HIS SUBMISSION THAT THE PAYMENT COMPRISING 2% OF SALES AS FEE FOR TECHNICAL KNOW-HOW IS RECURRENT DEPENDING ON SALES AND PERTAINS ONLY TO THE PERIOD OF AGREEMENT. WE FIND SOME FORC E IN THE ABOVE ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSEE. WE F IND, 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) MENTIO N IN PARA 2.1 ABOVE FOR USE BY MCL AND ALL COPIES OF THE TECHN ICAL INFORMATION (OR ANY OF IT) MADE BY THE MCL SHALL BE AND REMAIN THE PROPERTY OF HCA AND MCL ACKNOWLEDGES 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 TECHNI CAL INFORMATION (OR ANY PART THEREOF) AS THE MCL MAY REASONABLY REQUIRE FOR THE PURPOSES OF AGREEMENT.' 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 PRIC E OF THE 12 ITA NO.939/DEL/2017 HEIDELBERG CEMENT INDIA LIMITED VS . DCIT PRODUCE EXCLUSIVE OF EXCISE DUTIES MINUS THE COST OF STANDARD BOUGHT-OUT COMPONENTS AND LANDED COST OF IMPORTED COMPONENTS, IRRESPECTIVE OF THE SOURCE OF PROCUREME NT, INCLUDING OCEAN FREIGHT, INSURANCE, CUSTOM DUTIES AN D NET OF DISTRIBUTION COSTS (FRIGHT AND FORWARDING) ETC. AND A S SHOWN IN THE UNAUDITED/AUDITED 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 TECHN ICAL DOCUMENTATION AND ALL OTHER DOCUMENTATION AND PAPERS SUPPLIED BY MCL BY HCA AND ALL COPIES THEREOF AND NO TES AND EXTRACTS TAKEN THERE FROM BY MCL, AND 13.1.2 DESTROY ALL CATALOGUES, ADVERTISING AND PROMOT IONAL MATERIAL, STATIONERY AND MATERIALS OF ANY SORT RELA TING TO THE PRODUCTS.' 23. WE FIND SOMEWHAT SIMILAR ISSUE HAD COME U P BEFORE THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. HER O HONDA MOTORS LTD. (SUPRA). IN THAT CASE: THE ASSESSEE WA S A JOINT VENTURE BETWEEN THE HERO GROUP AND HONDA, JAPAN, FO R MANUFACTURE AND SALE OF MOTORCYCLE USING TECHNOLOGY LICENCED BY HONDA; THE ASSESSEE AND HONDA THEREUPON ENTERED INT O AN 13 ITA NO.939/DEL/2017 HEIDELBERG CEMENT INDIA LIMITED VS . DCIT AGREEMENT CALLED 'LICENCE AND TECHNICAL ASSISTANCE AGREEMENT' IN TERMS WHICH ASSESSEE PAID ROYALTY TO THE HONDA; THE ASSESSEE CLAIMED DEDUCTION OF SAID PAYMENT UNDER SECTION 37( 1). THE ASSESSING OFFICER REJECTED ASSESSEE'S CLAIM HOLDING THAT IT WAS IN THE NATURE OF CAPITAL EXPENDITURE; AND THE TRIBUNAL , HOWEVER, ALLOWED ASSESSEE'S CLAIM ON REVENUE'S APPEAL. 24. ON APPEAL FILED BY THE REVENUE, THE HON'B LE HIGH COURT HELD AS UNDER:- 14. WHAT IS PLACED BEFORE US IS THE 'LICENCE AND TEC HNICAL ASSISTANCE AGREEMENT' DATED 2ND JUNE, 1995 FOR THE TE RRITORY OF INDIA. THE TERM 'INTELLECTUAL PROPERTY RIGHT' ST OOD DEFINED TO MEAN THOSE PATENTS, UTILITY MODELS, DESIGN PATENTS A ND OTHER INTELLECTUAL PROPERTY RIGHTS RELATING DIRECTLY TO T HE PRODUCTS OR THE LICENSED PARTS THEREOF OR TO MANUFACTURING OF TH E PRODUCTS AND THEIR LICENSED PARTS, BUT EXCLUDED TRADEMARKS, PAT ENTS, UTILITY MODELS, DESIGN PATENTS AND INTELLECTUAL PROP ERTY RIGHTS RELATING TO THE MANUFACTURING FACILITIES AND THE MAN UFACTURE THEREOF. THE TERM 'KNOW-HOW' WAS DEFINED AS ANY OR AL L SECRET, TECHNICAL INFORMATION EXCEPT FOR INTELLECTU AL PROPERTY RIGHTS, WHETHER IN WRITING OR NOT, INCLUDING BUT NO T LIMITED TO DRAWINGS, STANDARDS, SPECIFICATIONS, MATERIAL LIST, P ROCESS MANUALS AND DIRECTION MAPS ETC. DIRECTLY RELATED TO P RODUCTS OR LICENSED PARTS THEREOF, OR NECESSARY FOR MANUFACT URE OF THE SAME. THE TERM 'TECHNICAL INFORMATION' WAS TO MEAN 'KNOW- HOW' AND ANY TECHNICAL INFORMATION NOT INCLUDED IN 'KN OW- HOW' WHICH RELATED TO THE PRODUCT OR LICENSED PART OR WAS 14 ITA NO.939/DEL/2017 HEIDELBERG CEMENT INDIA LIMITED VS . DCIT NECESSARY FOR MANUFACTURE OF PRODUCT OR LICENSED PART S WHICH THE HONDA OWNED AT THE TIME OF EXECUTION OF THE AGRE EMENT 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) AN D (B), IDENTIFIED BY LICENSOR'S DEVELOPMENT CODES, VIZ. 198S, KCCA, ETC. WHICH HAD ALREADY BEEN DEVELOPED AND WAS UNDER MANUFACTURE UNDER THE EARLIER AGREEMENT. UNDER CLAUS E (C), IT WOULD INCLUDE ADDITIONAL MODELS OR TYPES OF TWO/THREE WHEELERS PURSUANT TO 'MODEL CHANGE' AS SPECIFIED IN THE MODEL AGREEMENT. THE TERM 'NEW MODELS' WAS TO MEAN N EW MODELS DEVELOPED BY HONDA AT THE REQUEST OF THE RESPO NDENT 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 OR ENTIRETY OF THE PRODUCT, INCLUDING BUT NOT LIMITED T O APPEARANCE, STRUCTURE, CHARACTERISTICS OR SPECIFICA TIONS AND IN EACH CASE WAS SUBJECT TO A NEW MODEL AGREEMENT. THE AGREEMENT SPECIFICALLY RECORDED THAT THE RESPONDENT ASSESSEE WAS ALREADY ENGAGED IN THE BUSINESS OF MANUFACTURING, ASSEMBLING, SELLING AND OTHERWISE DEA LING WITH TWO/THREE WHEELERS AND THEIR PARTS AS A JOINT V ENTURE. IT REFERRED TO THE EARLIER COLLABORATION AGREEMENT DATE D 24TH JANUARY, 1984 AND THE SUBSEQUENT AMENDMENT THERETO WHICH CONFERRED AND HAD GRANTED TO THE RESPONDENT ASSES SEE 15 ITA NO.939/DEL/2017 HEIDELBERG CEMENT INDIA LIMITED VS . DCIT A RIGHT AND LICENCE TO MANUFACTURE, 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-TRANSFERRABLE, WITHOUT THE RIGHT TO GRANT SUB-LICENSES TO MANUFACTURE, ASSEMBLE, SELL AND DISTRIBUTE THE PRODUCT OR PARTS THEREOF. THE RIGHTS AND DUTIES UNDER THE AGREEMENT WERE NOT ASSIGNABLE OR DELEGATABLE, DIRECTLY OR INDIRECTLY. (2) THE AFORESAID LICENSE WAS FOR THE TERM OF THE AGREEMENT, I.E. 10 YEARS FROM THE EFFECTIVE DATE OF 21ST JUNE, 1994. (3) THE AGREEMENT COULD BE TERMINATED BY 60 DAYS' NOTICE TO THE DEFAULTING PARTY, IF IT FAILED TO CURE THE SAME WITHIN THE NOTICE PERIOD. THE AGREEMENT COULD ALSO BE TERMINATED FORTHWITH 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 TRANSFERRED TO THIRD PARTY; OR ON SIGNIFICANT CHANGE IN SHAREHOLDING OWNERSHIP. 16 ITA NO.939/DEL/2017 HEIDELBERG CEMENT INDIA LIMITED VS . DCIT (4) UPON EXPIRATION OF THE TERM OF THE AGREEMENT, I.E. AFTER 10 YEARS, OR TERMINATION DUE TO DEFAULT OF PERFORMANCE OF OBLIGATIONS, THE RESPONDENT ASSESSEE COULD CONTINUE TO MANUFACTURE, ASSEMBLE, SELL OR DELIVER SERVICES BUT SUBJECT TO DUE PERFORMANCE OF THEIR OBLIGATIONS, INCLUDING PAYMENT OF ROYALTY. (5) IN THE EVENT OF PRE-MATURE TERMINATION, I.E. WITHIN 10 YEARS, EXCEPT DUE TO DEFAULT OF PERFORMANCE OF OBLIGATIONS, THE RESPONDENT ASSESSEE WAS TO PROMPTLY DISCONTINUE MANUFACTURING ACTIVITIES, SALE AND OTHER DISPOSITIONS OF THE PRODUCTS AND THE 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 PROPERTIES IN CONNECTION WITH THE AGREEMENT INCLUDING COPIES AND TRANSLATIONS AND ALL INFORMATION RECEIVED UNDER THE SECRET AND CONFIDENTIALITY CLAUSES. (7) HONDA HAD RIGHT TO ACCESS THE RESPONDENT'S FACTORIES AND OTHER FACILITIES FOR INSPECTIONS TO 17 ITA NO.939/DEL/2017 HEIDELBERG CEMENT INDIA LIMITED VS . DCIT CHECK AND CONFIRM WHETHER CONDITIONS/OBLIGATIONS IMPOSED WERE BEING COMPLIED WITH. (8) KNOWHOW, TECHNICAL INFORMATION AND OTHER NON-PUBLIC TECHNICAL OR BUSINESS INFORMATION WAS TO REMAIN SOLELY AND EXCLUSIVELY THE PROPERTY OF HONDA AND WAS TO BE HELD IN TRUST AND IN CONFIDENCE FOR HONDA BY THE RESPONDENT ASSESSEE. THIS INFORMATION 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 RESTRICT ITS USE STRICTLY AS PER THE FIRST AS WELL AS THE PRESEN T AGREEMENT. THE RESPONDENT ASSESSEE WAS TO ESTABLISH AND MAINTAIN INTERNAL REGULATIONS AND PROCEDURES FOR PROTECTION OF SECRECY. THE INFORMATION COULD BE DISCLOSED TO EMPLOYEES, DIRECTORS OR APPROVED SUB-CONTRACTORS WHEN IT WAS REASONABLY NECESSARY FOR THE PURPOSE OF MANUFACTURE, ASSEMBLY, REPAIR AND SERVICING, SUBJECT TO OBTAINING A 'WRITTEN PROMISE' FROM THE APPROVED SUB-CONTRACTORS TO TREAT ALL INFORMATION AS SECRET AND CONFIDENTIAL. 18 ITA NO.939/DEL/2017 HEIDELBERG CEMENT INDIA LIMITED VS . DCIT (9) THE AFORESAID RIGHTS AND OBLIGATIONS WERE TO PERSIST 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 TECHNICAL INFORMATION PROVIDED UNDER THE AGREEMENT. (11) THE RESPONDENT ASSESSEE WAS NOT TO CLAIM ANY TITLE OR PROPERTY RIGHT WHATSOEVER DURING THE EXISTENCE OF THE AGREEMENT. UPON TERMINATION AS A RESULT OF DEFAULT OF THE RESPONDENT 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 ILLEGAL USE OF INTELLECTUAL PROPERT Y RIGHT OF HONDA IN INDIA BY A THIRD PARTY. (13) THE RESPONDENT WAS TO SUBMIT MONTHLY WRITTEN REPORT IN THE DESIGNATED FORM TO HONDA REGARDING MANUFACTURE, SALE AND INVENTORY AND/OR SALE OF PARTS OR PRODUCTS. HONDA WAS ENTITLED TO HAVE ACCESS TO BOOKS OF ACCOUNTS, FINANCIAL STATEMENTS AND RECORDS, TO THE EXTENT THEY RELATE TO 19 ITA NO.939/DEL/2017 HEIDELBERG CEMENT INDIA LIMITED VS . DCIT TRANSACTIONS AS CONTEMPLATED UNDER THE AGREEMENT. (14) THE RESPONDENT COULD NOT, WITHOUT HONDA'S PRIOR WRITTEN CONSENT, DIRECTLY OR INDIRECTLY OR THROUGH ITS SUBSIDIARY, AFFILIATE, DISTRIBUTOR OR AGENT OR ANY OTHER PARTY, CARRY ON OR PARTICIPATE IN THE BUSINESS OF MANUFACTURING, ASSEMBLING, DISTRIBUTING OR OTHERWISE DEALING IN TWO/THREE WHEELERS OF OTHER PARTIES. (15) ON THE QUESTION OF CONSIDERATION PAYABLE, ARTICLE 25 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 STIPULATED 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 ON RECORD BY THE GOVERNMENT AUTHORITIES IN INDIA; (II) WITHIN 60 DAYS OF HONDA DELIVERING TO THE RESPONDENT THE TECHNICAL INFORMATION NECESSARY FOR MANUFACTURE 20 ITA NO.939/DEL/2017 HEIDELBERG CEMENT INDIA LIMITED VS . DCIT AND ASSEMBLY; AND, (III) WITHIN 60 DAYS AFTER THE PARTIES CONFIRMED IN WRITING THAT THE MANUFACTURE OF THE MODEL HAD COMMENCED ON COMMERCIAL BASIS, OR 4 YEARS AFTER THE AGREEMENT, WHICHEVER WAS EARLIER. B. ROYALTY WAS RUNNING AND PERIODICAL PAYMENT AS SPECIFIED IN EXHIBIT 1 OR THE AMOUNTS CALCULATED BY MULTIPLYING THE RATE SPECIFIED IN EXHIBIT 1 WITH REFERENCE TO THE EX-FACTORY/EX- WAREHOUSE SALES PRICE. 16. READING THE AFORESAID TERMS AND CONDITIONS AND APP LYING THE TESTS EXPOUNDED, IT HAS TO BE HELD THAT THE PAYMEN TS IN QUESTION WERE FOR RIGHT TO USE OR RATHER FOR ACCESS TO TECHNICAL KNOWHOW AND INFORMATION. THE OWNERSHIP AND THE INTELLECTUAL PROPERTY RIGHTS IN THE KNOWHOW OR TECH NICAL INFORMATION WERE NEVER TRANSFERRED OR BECAME AN ASSE T OF THE RESPONDENT ASSESSEE. THE OWNERSHIP RIGHTS WERE ARDE NTLY AND VIGOROUSLY PROTECTED BY HONDA. THE PROPRIETORSH IP IN THE INTELLECTUAL PROPERTY WAS NOT CONVEYED TO THE RESPON DENT ASSESSEE BUT ONLY A LIMITED AND RESTRICTED RIGHT TO U SE ON STRICT AND STRINGENT TERMS WERE GRANTED. THE OWNERSHI P IN THE INTANGIBLE CONTINUED TO REMAIN THE EXCLUSIVE AND SOLE PROPERTY OF HONDA. THE INFORMATION, ETC. WERE MADE AVAILABLE TO THE RESPONDENT ASSESSEE FOR DAY TO DAY RUNNING A ND OPERATION, I.E. TO CARRY ON BUSINESS. IN FACT, THE BUSINESS WAS 21 ITA NO.939/DEL/2017 HEIDELBERG CEMENT INDIA LIMITED VS . DCIT NOT EXACTLY NEW. MANUFACTURE AND SALES HAD ALREADY COMMENCED UNDER THE AGREEMENT DATED 24TH JANUARY, 198 4. AFTER EXPIRY OF THE FIRST AGREEMENT, THE SECOND AGRE EMENT DATED 2ND JUNE, 1995, ENSURED CONTINUITY IN MANUFACTUR E, DEVELOPMENT, PRODUCTION AND SALE. THE PERIOD OF AGREEM ENT, 10 YEARS IN THE PRESENT CASE, WOULD BE INCONSEQUENTI AL FOR THE AGREEMENT MERELY PERMITTED AND ALLOWED USE OF TECHNOLOGY SUBJECT TO PAYMENT OF ROYALTY AND COMPLIA NCES AND THE PROPRIETORSHIP AND OWNERSHIP RIGHT WAS NEVER GRANTED OR TRANSFERRED. THE FACTUM THAT AFTER 10 YEA RS AND AFTER RETURNING THE TANGIBLE PROPERTIES, THE RESPON DENT ASSESSEE COULD STILL HAVE CONTINUED TO USE TECHNICAL KNOWHOW AND INFORMATION WOULD BE A TRIVIAL AND INCONSEQUENTIAL FACTUM AS IN THE AUTOMOBILE INDUSTRY , TECHNOLOGY UPGRADATION IS CONSTANT AND RAPID. GONE AR E THE DAYS 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 INJECTE D EVERY YEAR IN THE AUTOMOBILE INDUSTRY. FAILURE TO KEEP UP AND UPGRADE WOULD RESULT IN PRODUCT REJECTION AND FALL IN SALES. PERSISTENT UPGRADATION AND CUTTING EDGE TECHNOLOGY IS MANDATE AND BUSINESS REQUIREMENT IN THE COMPETITIVE MARKET OF TWO/THREE WHEELERS. 22 ITA NO.939/DEL/2017 HEIDELBERG CEMENT INDIA LIMITED VS . DCIT 25. WE FIND THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. G4S SECURITIES SYSTEM (INDIA) P. LTD. (SUPRA), HAS OBSERVED AS UNDER:- 9. FROM THE TERMS OF THE AGREEMENT IT IS NOTIC ED THAT THIS ARRANGEMENT WAS FOR A PERIOD OF 5 YEARS, WHICH MAY B E EXTENDED BY ANOTHER PERIOD OF 5 YEARS UNLESS EITHER PA RTY GIVES 6 MONTHS NOTICE TO THE OTHER PARTY PRIOR TO T HE END OF SUCH 5 YEARS PERIOD. THE PAYMENT OF COMMISSION @ 1% WAS BASED ON THE NET SALES AND NOT LUMPSUM. ON THE TERMIN ATION OF EXPIRATION OF THE SUB LICENSE AGREEMENT, THE ASS ESSEE WAS TO RETURN ALL G4F KNOWHOW 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 A ND WAS FORTHWITH TO CHANGE ITS' CORPORATE AND/OR TRADE NAMES. ALL RIGHTS AND KNOWHOW, THEREFORE, CONTINUED TO VEST IN G4F AND IT WAS ONLY THE RIGHT TO USE THE KNOWHOW THAT W AS MADE AVAILABLE TO THE ASSESSEE AND THAT TOO BASED ON ITS N ET SALES. THAT MEANS ALL THE ROYALTY PAID IN THE SHAPE OF 1 % OF NET SALES FOR THE USE OF TRADE MARK AND RIGHT TO USE KNO WHOW COULD NOT BE CONSIDERED TO BE OF ENDURING NATURE AND TH US CAPITAL EXPENDITURE. THE EXPENDITURE WAS TO BE OF R EVENUE NATURE. IN THE CASE OF JONAS WOOD HEAD AND SONS VS. CI T, 117 ITR 55, IT WAS HELD THAT THE QUESTION REGARDING CAPITAL OR REVENUE EXPENDITURE DEPENDS ON THE TERMS OF AGREEMEN T IN EACH CASE. IN THE CASE OF CIT VS. GUJARAT CARBON LT D., 254 ITR 294, IT WAS HELD THAT THE PAYMENT OF REVENUE UND ER THE AGREEMENT WAS DIRECTLY RELATABLE TO SERVICES WHICH WERE IN 23 ITA NO.939/DEL/2017 HEIDELBERG CEMENT INDIA LIMITED VS . DCIT THE REVENUE FIELD AND WERE ALLOWABLE AS REVENUE EXPENDITURE. IN THE CASE OF GOODYEAR (I) LTD. VS. ITO 73 ITD 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 REVENUE EXPENDITURE. IN THE CASE OF TRAVA NCORE SUGAR AND CHEMICALS LTD. 62 ITR 566 (SC) IT WAS HELD T HAT WHENEVER A PAYMENT IS BASED ON A PERCENTAGE OF TURNO VER OR PROFITS, IT NECESSARILY HAS NO RELATION TO THE CAPI TAL VALUE OF THE ASSET, BECAUSE IT CANNOT BE KNOWN AT THE TIME O F THE AGREEMENT WHAT THE TURNOVER OR PROFITS WILL BE OVER A PERIOD OF YEARS. IN ANOTHER CASE REPORTED AS DCIT VS. SWAR AJ ENGINES LTD. (2002) 124 TAXMAN 188, THE TRIBUNAL HEL D, REVENUE PAYMENT IS ALLOWABLE AS REVENUE EXPENDITURE , SINCE IT IS RELATED TO SALES 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 OF 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 ABOVE, THE OWNERSHIP RIGHTS OF THE TRADE MARK AND KNOWHOW THROUGHOUT VESTED WITH G4F AND ON THE EXPIRAT ION 24 ITA NO.939/DEL/2017 HEIDELBERG CEMENT INDIA LIMITED VS . DCIT OR TERMINATION OF THE AGREEMENT THE ASSESSEE WAS TO RETURN ALL G4F KNOWHOW OBTAINED BY IT UNDER THE AGREEMENT. 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 TIM E THE ASSESSEE WAS ENTITLED TO BECOME THE EXCLUSIVE OWNER OF THE TECHNICAL KNOWHOW AND THE TRADE MARK. HENCE, THE EXPENDITURE INCURRED BY THE ASSESSEE AS ROYALTY IS R EVENUE EXPENDITURE AND IS THEREFORE, RELATABLE UNDER SECTIO N 37(1) OF THE ACT. WE THUS, ANSWER THE QUESTION IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE AND CONSEQUENTLY DISMISS ALL THE THREE APPEALS. 26. WE FIND THE HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. UPCOM CABLES LTD. (SUPRA) HAS OBSERVED AS U NDER:- 35. THE QUESTION AS TO WHETHER A PARTICULAR PAYME NT MADE TOWARDS TECHNICAL KNOW-HOW FEE OR ROYALTY TO A FOREIGN COMPANY IN LIEU OF AN AGREEMENT WILL BE A 'CAPITAL EXPENDITURE' OR 'REVENUE EXPENDITURE' WOULD DEPEND UPO N FACTS OF INDIVIDUAL CASE, AND, IN PARTICULAR, VARIOU S TERMS OF AGREEMENT INVOLVED THEREIN. 36. IN THE PRESENT CASE, A CONCURRENT FINDING HAS BEEN RECORDED BY CIT(A) AND TRIBUNAL BOTH THAT ON TERMINAT ION OF AGREEMENT, WHICH WAS FOR A PERIOD OF FIVE YEARS, ASS ESSEE WOULD RETURN ALL RELEVANT MATERIAL RELATING TO KNOW- HOW ACQUIRED THROUGH AGREEMENT. THIS IS ONE OF THE RELEV ANT CONSIDERATION OBSERVED IN ALEMBIC CHEMICAL WORKS LTD. 25 ITA NO.939/DEL/2017 HEIDELBERG CEMENT INDIA LIMITED VS . DCIT (SUPRA) TO HOLD THAT IN SUCH A CASE, PAYMENT TOWARDS 'ROYALTY' WOULD BE 'REVENUE EXPENDITURE AND NOT 'CAP ITAL'. THE AGREEMENT ALSO SHOWS THAT IT WAS NOT AN EXCLUSI VE RIGHT AVAILABLE TO THE ASSESSEE, INASMUCH IN PARA 13 OF A NNEXURE, OF FOREIGN COLLABORATION, APPROVAL ACCORDED BY GOVERN MENT OF INDIA PROVIDES THAT IN CASE ITEM OF MANUFACTURE IS O NE WHICH IS PATENTED IN INDIA, PAYMENT OF 'ROYALTY'/LUMP SUM MADE BY INDIAN COMPANY TO FOREIGN COLLABORATOR, DURING PE RIOD OF AGREEMENT SHALL CONSTITUTE FULL COMPENSATION FOR US E OF PATENT RIGHT TILL EXPIRY OF LIFE OF PATENT AND INDIA N COMPANY SHALL BE FREE TO MANUFACTURE THAT ITEM EVEN AFTER E XPIRY OF THE COLLABORATION AGREEMENT WITHOUT MAKING ANY ADDITION AL PAYMENTS. ASSESSEE CLAIMED THAT ROYALTY PAYMENT IS P ART OF PERCENTAGE OF SELLING PRICE OF PRODUCT AND NOT FOR A CQUIRING TECHNICAL KNOW-HOW OF MANUFACTURED LICENSED PRODUCT HAVING ENDURING BENEFIT. THESE FACTS AVAILABLE ON R ECORD HAVE NOT BEEN DISPUTED AND WE HAVE NOT BEEN SHOWN ANY AUTHORITY SO 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 VIEW TAKEN BY TRIBUNAL ON ALL THESE ASP ECTS. 27. RESPECTFULLY FOLLOWING THE DECISIONS CITE D, SUPRA, WE HOLD THAT THE LD.CIT(A) IS NOT JUSTIFIED IN UPHOLDING TH E ACTION OF THE ASSESSING OFFICER IN TREATING 25% OF THE TECHNICAL KNOW-HOW FEES 26 ITA NO.939/DEL/2017 HEIDELBERG CEMENT INDIA LIMITED VS . DCIT AS CAPITAL IN NATURE. WE, THEREFORE, SET ASIDE THE ORDER OF THE CIT(A) ON THIS ISSUE AND DIRECT THE ASSESSING OFFIC ER TO TREAT THE ENTIRE AMOUNT AS REVENUE IN NATURE. THE GROUNDS RA ISED BY THE ASSESSEE ON THIS ISSUE ARE ACCORDINGLY ALLOWED. 5.6 RESPECTFULLY FOLLOWING THE ORDER OF THE T RIBUNAL IN ASSESSEES OWN CASE AS AFORESAID, WE ALLOW GROUND NOS. 3 & 3. 6.0 IN THE FINAL RESULT, THE APPEAL OF THE AS SESSEE STANDS PARTLY ALLOWED. ABOVE DECISION WAS ANNOUNCED ON CO NCLUSION OF VIRTUAL HEARING ON 7 TH JULY, 2021 SD/- SD/- (SUDHANSHU SRIVASTAVA) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 07/07/2021 PK/PS COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT DEHRADUN