DCIT, New Delhi V. M/s. Honda Siel Power Products Pvt. Ltd., Uttar Pradesh

ITA 962/DEL/2015

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 2741 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 1 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-03-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Assessment Year: 2010-2011
• Appeal Filed On: 16-02-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJAY I BARA
• Keywords: Transfer pricing; International transaction; Revenue expenditure; Capital expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I - 1 , NEW DELHI BEFORE SH. N. K. SAINI, AM AND SMT. BEENA A. PILLAI , JM ITA NO. 962 /DEL/2015 : ASSTT. YEAR : 2010 - 11 DEPUTY COMMISSIONER OF INCOME TAX, CIRC LE - 10(1), NEW DELHI VS M/S HONDA SIEL POWER PRODUCTS PVT. LTD., 5, SECTOR - 41, KASNA GREATER NOIDA INDUSTRIAL DEVELOPMENT AREA, DISTT. GUATAM BUDHHA NAGAR - 201306 (APPELLANT) (RESPONDENT) PAN NO. AA ACH8464L ASSESSEE BY : SH. NEER AJ JAIN, ADV. SH. PRATHAM AGGARWAL, CA REVENUE BY : SH. SANJAY I. BARA , CIT DR DATE OF HEARING : 22 .03 .201 8 DATE OF PRONOUNCE MENT : 28 .03 .201 8 ORDER PER N. K. SAINI, AM : THIS IS AN APPEAL BY THE DEPARTME NT AGAINST THE ORDER DATED 16.12.2014 PASSED BY THE AO U/S 143(3) R.W.S. 144C OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT). 2. FOLLOWING GROUNDS HAVE BEEN RAISED IN THIS APPEAL: 1. WHETHER ON THE FACTS & CIRCUMSTANCES OF THE CASE AN D IN LAW, THE HON'BLE DRP WAS RIGHT IN DELETING THE ADDITION OF RS. 6,89,28,750/ - MADE BY THE AO/TPO BY TREATING THE ROYALTY INCLUSIVE OF TECHNICAL NOW FEEL AS REVENUE EXPENDITURE BY COMPLETELY IGNORING THE FACTS THAT THIS ADDITION WAS RIGHTLY MADE BY TREA TING THIS EXPENDITURE AS CAPITAL EXPENDITURE? 2. WHETHER ON THE FACTS & CIRCUMSTANCES OF THE CASE AND IN LAW, THE HON'BLE DRP WAS RIGHT IN DELETING THE ADDITION OF RS. 50,21,750/ - MADE BY THE AO/TPO ON ACCOUNT OF TECHNICAL GUIDANCE FEES PAID TO ITS HOLD ING ITA NO . 962 /DE L/201 5 HONDA SIEL POWER PRODUCTS PVT. LTD . 2 COMPANY AS REVENUE EXPENDITURE BY COMPLETELY IGNORING THE FACTS THAT THIS ADDITION WAS RIGHTLY MADE BY TREATING THIS EXPENDITURE AS CAPITAL EXPENDITURE? 3. THE APPELLANT CRAVES LEAVE/ TO ADD, ALTER OR AMEND ANY GROUND OF APPEAL RAISED A BOVE AT THE TIM E OF THE HEARING. 3 . FROM THE ABOVE GROUNDS, IT IS GATHERED THAT THE GRIEVANCE OF THE DEPARTMENT RELATES TO THE DELETION OF ADDITION OF RS.6,89,28,750/ - MADE BY THE AO BY TREATING THE ROYALTY INCLUSIVE OF TECHNICAL KNOW - HOW FEE AS REVENUE EXPENDITURE AND THE ADDITION OF RS.50,21,750/ - MADE BY THE AO ON ACCOUNT OF TECHNICAL GUIDANCE FEES. 4 . FACTS RELATED TO THIS ISSUE IN BRIEF ARE THAT THE ASSESSEE FILED THE RETURN OF INCOME ON 29.09.2010 DECLARING AN INCOME OF RS.31,80,76,601/ - . LATER ON, THE CASE WAS S ELECTED FOR SCRUTINY. THE AO MADE THE REFERENCE U/S 92CA(3) OF THE ACT TO THE TPO IN RESPECT OF INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE . THE TPO ALSO NOTICED THAT THE ASSESSEE ENTERED INTO TECHNICAL COLLABORATION CONTRACT WITH M/S HONDA MOT OR COMPANY LTD. (HONDA JAPAN). UNDER THIS AGREEMENT HONDA JAPAN AGREED TO GIVE TECHNICAL ASSISTANCE IN RELATION TO ASSEMBLY, MANUFACTURE, DISTRIBUTION AND SALE OF PRODUCTS TO THE ASSESSEE. THE TPO PROPOSED AN ADJUSTMENT OF RS.11,36,67,464/ - . 5. IN THE PR ESENT CASE, T HE AO NOTICED THAT THE ASSESSEE HAD PAID ROYALTY OF RS.9,19,05,000/ - AND THE EXPENSES INCURRED ON ITA NO . 962 /DE L/201 5 HONDA SIEL POWER PRODUCTS PVT. LTD . 3 ACCOUNT OF ROYALTY WERE NOT CAPITALIZED. HE ASKED THE ASSESSEE TO EXPLAIN THE NATURE OF ROYALTY PAID TO THE HOLDING COMPANY AND AS TO WHY THE SAM E MAY NOT BE TREATED AS CAPITAL IN NATURE. THE AO ALSO NOTICED THAT THE SIMILAR ROYALTY WAS DISALLOWED IN THE PRECEDING YEAR AND SIMILAR SUBMISSIONS WERE FURNISHED BY THE ASSESSEE AS WERE IN THE EARLIER YEAR. HE, THEREFORE, PROPOSED THE DISALLOWANCE. AS RE GARDS TO THE ADDITION ON ACCOUNT OF TECHNICAL GUIDANCE FEES, T HE AO NOTICED THAT THE ASSESSEE HAD PAID RS.2,00,87,000/ - TO ITS HOLDING COMPANY ON ACCOUNT OF TECHNICAL GUIDANCE FEES. HE FURTHER OBSERVED THAT TECHNICAL ASSISTANCE CONTEMPLATED IN THE AGREEMEN T COVERS THE ESTABLISHMENT OF THE FACTORY AND THE OPERATION THEREOF FOR MANUFACTURE OF VARIOUS PRODUCTS. HE CONSIDERED THE TECHNICAL GUIDANCE FEES AS CAPITAL EXPENDITURE. 6 . THE ASSESSEE RAISED THE OBJECTION BEFORE THE LD. DRP AND SUBMITTED THAT THE IS SUE RELATING TO THE ROYALTY AND TECHNICAL GUIDANCE FEES WERE COVERED IN FAVOUR OF THE ASSESSEE VIDE DECISION DATED 25.07.2014 OF THE ITAT IN ASSESSEE S OWN CASE FOR THE ASSESSMENT YEAR 2007 - 08 IN ITA NO. 5713/DEL/2011. THE LD. DRP AFTER CONSIDERING THE SUB MISSIONS OF THE ASSESSEE DELETED THE ADDITIONS MADE BY THE AO BY FOLLOWING THE AFORESAID DECISION OF THE ITAT. 7 . NOW THE DEPARTMENT IS IN APPEAL. THE LD. CIT DR SUPPORTED THE ORDER OF THE AO. IN HIS RIVAL SUBMISSIONS, THE LD. COUNSEL FOR ITA NO . 962 /DE L/201 5 HONDA SIEL POWER PRODUCTS PVT. LTD . 4 THE ASSESSEE SUB MITTED THAT THESE ISSUES HAVE BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE ITAT DELHI BENCH I , NEW DELHI IN ITA NO. 5713/DEL/2011 FOR THE ASSESSMENT YEAR 2007 - 08 VIDE ORDER DATED 25.07.2014 IN ASSESSEE S OWN CASE WHEREIN THE RELEVANT FINDINGS HAVE BEEN GIVEN IN PARAS 7.4 TO 7.8. IT WAS FURTHER SUBMITTED THAT THE SAID ORDER PASSED BY THE ITAT HAD BEEN FOLLOWED IN THE SUBSEQUENT YEARS I. E. ASSESSMENT YEARS 2008 - 09, 2009 - 10 AND 2010 - 11 IN ITA NOS. 6023/DEL/2012 , 551/DEL/2014 AND 636/DEL/2015 VIDE ORDER DATE D 12.12.2014 , 13. 04.2016 AND 13.04.2016 RESPECTIVELY. IT WAS ALSO STATED THAT THE ORDER OF THE TRIBUNAL FOR THE ASSESSMENT YEAR 2008 - 09 HAD BEEN AFFIRMED BY THE HON BLE JURISDICTIONAL HIGH COURT VIDE ORDER DATED 14.01.2016 IN ITA NO. 538 OF 2015. 8 . WE H AVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON THE RECORD. IN THE PRESENT CASE, IT IS AN ADMITTED FACT THAT THE LD. CIT(A) FOLLOWED TH E EARLIER ORDER DATED 25.07.201 4 OF THE ITAT FOR THE ASSESSMENT Y EAR 2007 - 08 IN ASSESSEE S OWN CASE. THE SAID ORDER HAS BEEN FOLLOWED FOR THE ASSESSMENT YEARS 2008 - 09 TO 2010 - 11 VIDE ORDER DATED 12.12.2014 AND 13.04.2016. THE RELEVANT FINDINGS FOR THE ASSESSMENT YEAR 2007 - 08 VIDE ORDER DATED 25.07.2014 HAD BEEN GIVEN IN PARAS 7.4 TO 7.8 WHICH READ AS UNDER: 7.4. GROUND NOS. 3 TO 3.5 AND GROUND NO.4 ARE ON THE ISSUE WHETHER THE ROYALTY PAID AND THE TECHNICAL GUIDANCE FEE PAID IN TERMS OF THE TECHNICAL ITA NO . 962 /DE L/201 5 HONDA SIEL POWER PRODUCTS PVT. LTD . 5 COLLABORATION AGREEMENT ARE IN THE CAPITAL FIELD OR IN THE REVENUE FI ELD. BOTH PARTIES ARGUED AT LENGTH. THE SUM AND SUBSTANCE OF THE ARGUMENT OF THE LD.COUNSEL FOR THE ASSESSEE IS THAT THE ISSUE IS COVERED BY THE DECISION OF THE TRIBUNAL IN THE CASE OF M/S HERO MOTOR CORP. LTD. VS. ACIT IN ITA 5130/DEL/10, DELHI C BENC H OF THE TRIBUNAL FOR THE ASSESSMENT YEAR 2006 - 07 VIDE ORDER DT. 23.11.2012. MR.AJAY VOHRA, THE LD.COUNSEL FOR THE ASSESSEE SUBMITS THAT THE TERMS AND CONDITIONS IN THE AGREEMENTS ARE PARA MATERIA. MR.PEEYUSH JAIN, THE LD.D.R. OPPOSES THESE CONTENTIONS AND SUBMITS THAT THE TERMS AND CONDITIONS IN THE TECHNICAL COLLABORATION AGREEMENT CONSIDERED IN HERO MOTOR CORP. LTD. AND ARE DIFFERENT AND HENCE THE REASONING GIVEN THEREIN CANNOT BE ACCEPTED. HE SUPPORTS THE ORDER OF THE ASSESSING OFFICER AS UPHELD BY THE DRP. 7.5. WE HAVE CONSIDERED THE COVENANTS OF (I) LICENSE AND TECHNICAL ASSISTANCE AGREEMENT DT. 2.6.2004 BETWEEN HONDA MOTOR CO.LTD., JA PAN AND HERO HONDA MOTORS LTD. BASED ON WHICH THE DELHI C BENCH OF THE TRIBUNAL IN ITA NO.5130/DEL/2010 ADJUD ICATED THE CASE OF M/S HERO MOTOR CORP LTD. FOR THE A.Y. 2006 - 07; AND (II) TECHNICAL COLLABORATION CONTRACT, DT. 18.10.1985, BETWEEN HONDA MOTOR CO.LTD. JAPAN AND SHRIRAM HONDA POWER EQUIPMENT LTD. (PRESENTLY KNOWN AS HONDA SIEL POWER PRODUCTS LTD.). THE COMPARATIVE CLAUSES AS FURNISHED BY THE ASSESSEE ARE EXTRACTED BELOW. SL.NO. FACTS OF HONDA SIEL POWER PRODUCTS LTD. FACTS OF HERO MOTO CORP LTD. 1. 2.1 HONDA HEREBY GRANTS LICENSEE, SUBJECT TO THE PAYMENT BY LICENSEE OF THE CONSIDERATION SET FORT H IN ARTICLE 21 HEREOF, AN SUBJECT TO THE TERMS AND CONDITIONS HEREIN CONTAINED, LICENSOR HEREBY ITA NO . 962 /DE L/201 5 HONDA SIEL POWER PRODUCTS PVT. LTD . 6 INDIVISIBLE, NON - TRANSFERABLE AND EXCLUSIVE LICENSE (WITHOUT THE RIGHT TO GRANT SUBLICENSES EXCEPT AS PROVIDED IN ARTICLE 2.2 BELOW) TO MANUFACTURE AND ASSEMBLE THE PRODUCTS AND THE PARTS IN THE TERRITORY, AND TO SELL AND DISTRIB UTE IN THE TERRITORY THE PRODUCTS AND THE PARTS SO. MANUFACTURED OR ASSEMBLED OR (IN THE CASE OF THE PARTS) PROCURED BY LICENSEE, DURING THE TERM OF THIS CONTRACT (BUT SUBJECT TO THE PROVISIONS OF ARTICLE 32.1 HEREOF) IN ACCORDANCE WITH THE PROVISIONS OF THIS CONTRACT. 2.2 LICENSEE MAY GRANT INDIVISIBLE AND NON - TRANSFERABLE SUBLICENSES TO USE THE KNOW - HOW TO INDIAN PERSONS, COMPANIES OR THE LEGAL ENTITIES TO THE EXTENT DEEMED NECESSARY AND APPROPRIATE BY HONDA AND LICENSEE BY MUTUAL AGREEMENT; PROVIDE D, THAT THE TERMS OF SUCH SUBLICENSE ARRANGEMENTS SHALL BE FIRST APPROVED BY HONDA IN WRITING AND SHALL BE SUBJECT TO THE APPROVAL OF THE GOVERNMENT OF INDIA. 2.3 LICENSEE MAY EXPORT THE PRODUCTS AND THE PARTS GRANTS TO LICENSEE AN INDIVISIBLE, NON - TRANSFERABLE AND EXCLUSIVE RIGHT AND LICENSE, WITHOUT THE RIG HT TO GRANT SUBLICENSES, TO MANUFACTURE, ASSEMBLE, SELL AND DISTRIBUTE THE PRODUCTS AND THE PARTS DURING THE TERM OF THIS AGREEMENT WITHIN THE TERRITORY UNDER THE INTELLECTUAL I PROPERTY RIGHTS AND BY USING THE TECHNICAL INFORMATION. PROVIDED,IT IS ACKNOWL EDGED BY'' LICENSEE, (I) THE EXCLUSIVITY GRANTED HEREIN IS AGAINST THE THIRD PARTIES BUT NOT HMSI, AND (II) THE - EXCLUSIVITY AGAINST HMSI IS ONLY WITH RESPECT TO THE EXTERIOR OF THE PRODUCTS. IT IS AGREED BETWEEN THE PARTIES THAT SUBJECT TO THE TERMS HERE OF, THE LICENSOR SHALL MAKE NECESSARY ENDEAVORS SO THAT ITA NO . 962 /DE L/201 5 HONDA SIEL POWER PRODUCTS PVT. LTD . 7 TO COUNTRIES OUTSIDE THE TERRITORY IN COMPLI ANCE WITH, AND WITHIN THE LIMITS STIPULATED BY, THE PROVISIONS OF THIS CONTRACT. NEW MODEL(S) FOR THE LICENSEE ARE INTRODUCED IN A PHASED AND TIMELY MANNER IN ORDER TO MEET THE REQUEST FROM THE LICENSEE AND SUCH INTRODUCTION WOULD BE ON REASONABLE RITERIA. 2. ARTICLE 27 MAINTEN ANCE OF SECRECY 27.1 LICENSEE SHALL USE OR CAUSE TO BE USED THE KNOW - HOW FURNISHED BY HONDA UNDER THIS CONTRACT ONLY FOR THE PURPOSES OF THIS CONTRACT. WHETHER DURING THE TERM OF THIS CONTRACT OR AFTER THE EXPIRATION OR TERMINATION OF THIS CONTRACT, LICE NSEE SHALL NEITHER USE ANY OF THE KNOW - HOW FOR ANY PURPOSE OTHER THAN THOSE SPECIFICALLY AUTHORIZED UNDER THIS CONTRACT NOR MAKE KNOWN, DIVULGE OR COMMUNICATE ANY OF THE KNOW - HOW IN ANY WAY OR MANNER WHATSOEVER TO ANY PERSON, COMPANY OR OTHER LEGAL ENTITY TO WHOM DISCLOSURE IS NOT AUTHORIZED BY THIS CONTRACT. 27.2 LICENSEE SHALL TAKE ALL NECESSARY PRECAUTIONS TO. KEEP THE KNOW - HOW ARTICLE 17 (MAINTENANCE OF SECRECY) 17.1 THE KNOW - HOW, TECHNICAL INFORMATION AND ANY OTHER NON - PUBLIC TECHNICAL OR BUSINESS INFORMATION OF LICENSOR (SUCH INFORMATIO N BEING COLLECTIVELY HEREINAFTER REFERRED TO AS THE 'INFORMATION') SHALL REMAIN THE SOLE AND EXCLUSIVE PROPERTY OF LICENSOR AND SHALL BE HELD IN TRUST AND CONFIDENCE FOR LICENSOR BY LICENSEE, INTER ALIA, IN ACCORDANCE WITH THIS ARTICLE 17. 17.2 LICENSEE ITA NO . 962 /DE L/201 5 HONDA SIEL POWER PRODUCTS PVT. LTD . 8 SECRET AND CONFIDENTIAL AND TO RESTRICT ITS USE AS PROVIDED IN ARTICLE 27.1 ABOVE. FOR THIS PURPOSE LLCENSEE AGREES TO ESTABLIS H AND MAINTAIN SUCH PROCEDURES FOR PROTECTION OF THE KNOW - HOW AS RECOMMENDED BY HONDA. A GREES THAT IT SHALL NOT, EITHER DURING THE TERM OF THIS AGREEMENT OR THEREAFTER, MAKE KNOW, DIVULGE OR COMMUNICATE ANY INFORMATION IN ANY WAY OR MANNER WHATSOEVER TO ANY PERSON, LEGAL PERSON OR ANY OTHER ENTITY EXCEPT OTHERWISE PROVIDED HEREIN. 17.3 . LIC ENSEE FURTHER AGR - EES THAT IT SHALL TAKE ALL NECESSARY PRECAUTIONS TO KEEP THE INFORMATION SECRET AND CONFIDENTIAL, AND TO RESTRICT ITS USE AS PROVIDED FOR IN THE FORMER AGREEMENT OR IN ARTICLE 18 HEREOF, AS THE CASE MAY BE, AND, FOR THAT PURPOSE, SHALL ES TABLISH AND MAINTAIN INTERNAL REGULATIONS AND PROCEDURES FOR PROTECTION OF THE SECRECY, AS APPROVED BY LICENSOR, RECOGNIZING THAT LICENSEE SHALL USE AT LEAST THE ITA NO . 962 /DE L/201 5 HONDA SIEL POWER PRODUCTS PVT. LTD . 9 SAME DEGREE OF PRECAUTIONS AS IT TAKES TO PROTECT ITS OWN CONFIDENTIAL INFORMATION, AND ALL RE PRODUCED COPIES SHALL BE NUMBERED IN NUMERICAL SEQUENCE AND SUCH REPRODUCED COPIES SHALL ALSO REMAIN IN THE PROPERTY OF LICENSOR. 17.4. LICENSEE MAY DISCLOSE THE INFORMATION TO ITS DIRECTORS, EMPLOYEES AND/OR APPROVED SUBCONTRACTORS REFERRED TO IN ARTICLE 6 HEREOF, TO WHOM DISCLOSURE IS REASONABLY NECESSARY FOR THE PURPOSE OF MANUFACTURE, ASSEMBLY, REPAIR AND SERVICING OF THE PRODUCTS AND/OR THE LICENSED PARTS PURSUANT TO THIS AGREEMENT; PROVIDED, HOWEVER, THAT LICENSEE SHALL OBTAIN FROM EACH OF SUCH APPRO VED SUBCONTRACTORS A WRITTEN PROMISE TO ITA NO . 962 /DE L/201 5 HONDA SIEL POWER PRODUCTS PVT. LTD . 10 TREAT ALL THE INFORMATION AS SECRET AND CONFIDENTIAL AND TO RESTRICT THE USE THEREOF, IN THE MANNER AND FASHION PROVIDED FOR IN THIS ARTICLE 17 AND SHALL, IF SO REQUESTED BY LICENSOR, SUBMIT A COPY OF THE WRITTEN PRO MISE TO LICENSOR. 3. ARTICLE 12 (RESTRICTIONS ON USE OF PARTS) WITHOUT THE PRIOR WRITTEN CONSENT OF HONDA OR EXCEPT AS OTHERWISE SPECIFICALLY AUTHORIZED IN THIS CONTRACT, LICENSEE SHALL NOT SELL, DISTRIBUTE, USE OR OTHERWISE DISPOSE OF, DIRECTLY OR INDIR ECTLY, THE PARTS FOR ANY PURPOSE OTHER THAN THE MANUFACTURE OR ASSEMBLY OF THE PRODUCTS AT LICENSEE S PLANT IN THE TERRITORY OR THE SERVICE OF THE PRODUCTS IN ACCORDANCE WITH THIS CONTRACT, REGARDLESS OF WHETHER SUCH APRTS ARE PURCHASED FROM HONDA, MANUFAC TURED BY LICENSEE, MANUFACTURED BY THE SUBCONTRACTORS OR OTHERWISE PROCURED BY LICENSEE AND ARTICLE 18 (LIMITATION OF USE, AND OTHER PROHIBITION) 18.1. LICENSEE SHALL NOT USE OR CAUSE OR PERMIT TO BE USED BY ANY THIRD PARTY THE INTELLECTUAL PROPERTY RIGHTS AND THE TECHNICAL INFORMATION LICENSED OR PROVIDED HEREUNDER, AND THE LICENSED PARTS MANUFACTURED BY LICENSEE AND/OR ITS SUB CONTRACTORS HEREUNDER AND THE SUPPLY PARTS SUPPLIED TO LICENSEE AN D/OR ITS PURCHASING ITA NO . 962 /DE L/201 5 HONDA SIEL POWER PRODUCTS PVT. LTD . 11 SUBCONTRACTORS COMPLY WITH THE PROVISIONS OF THIS ARTICLE 12. AGENCIES DESIGNATED BY LICENSEE HEREUNDER, IN THE MANUFACTURE, ASSEMBLY, SERVICING, SALE OR OTHER DISPOSITION OF ANY GOODS OTHER THAN THE PRODUCTS, OR FOR ANY PURPOSE OTHER THAN AS EXPRESSLY PROVIDED IN THIS AGREEMENT. 18.2. LICENSEE SHALL NEITHER FILE NOR CAUSE TO BE FILED IN ANY COUNTRY ANY PATENT OR OTHER INTELLECTUAL PROPERTY RIGHT APPLICATION WHICH INCORPORATES OR IS DIRECTED TO THE INTELLECTUAL PROPERTY RIGHTS, THE TECHNICAL INFORMATION, THE KNOW - HOW OR THE TRADEMARKS DISCLOSED T O LICENSEE HEREUNDER. IF APPLICATION FOR ANY PATENT OR OTHER INTELLECTUAL PROPERTY RIGHTS IN THE COUNTRY, IT SHALL BE DEEMED A BREACH OF THIS AGREEMENT, ITA NO . 962 /DE L/201 5 HONDA SIEL POWER PRODUCTS PVT. LTD . 12 AND FURTHER, THE RIGHT TO SUCH APPLICATION AND ANY INTELLECTUAL PROPERTY RIGHTS RESULTING FROM SUCH APP LICATION SHALL BE AUTOMATICALLY GRATUITOUSLY ASSIGNED AND TRANSFERRED BY LICENSEE TO LICENSOR. 18.3 IN THE EVENT ANY INVENTIONS AND IMPROVEMENTS WHICH RELATE TO THE PRODUCTS, THE PARTS, THE KNOW - HOW OR THE INTELLECTUAL PROPERTY RIGHTS WAS MADE BY LICENS EE OR ITS DIRECTORS, OFFICERS, EMPLOYEES AND SUBCONTRACTORS IN THE COURSE OF OR AS THE RESULT OF THE CHANGE AS SET FORTH IN ARTICLE 19.3 HEREOF, LICENSEE SHALL PROMPTLY DISCLOSE IN WRITING TO LICENSOR ALL SUCH INVENTIONS AND IMPROVEMENTS, AND LICENSEE, INS OFAR AS LAWFULLY MAY, HEREBY GRANTS OR ITA NO . 962 /DE L/201 5 HONDA SIEL POWER PRODUCTS PVT. LTD . 13 CAUSES TO BE GRANTED TO LICENSOR A TRANSFERABLE RIGHT AND LICENSE TO USE SUCH INVENTIONS AND IMPROVEMENTS IN ANY COUNTRY WITH RIGHT TO SUBLICENSE. THE TERMS OF ANY SUBLICENSE WITH RESPECT TO PATENTED INVENTIONS OR IM PROVEMENTS SHALL BE APPROVED BY LICENSEE PRIOR TO THE GRANTING OF SUCH SUBLICENSE. UPON REQUEST BY LICENSOR, LICENSOR AND LICENSEE SHALL JOINTLY FILE APPLICATIONS FOR APPROPRIATE PATENT OR OTHER STATUTORY INTELLECTUAL PROPERTY RIGHTS WITH - RESPECT TO SUCH INVENTIONS OR IMPROVEMENTS IN ANY COUNTRY. THE RIGHT AND LICENSE GRANTED TO LICENSOR HEREUNDER SHALL BE ROYALTY - FREE DURING THE TERMS OF THIS AGREEMENT AND SHALL, AFTER ANY ITA NO . 962 /DE L/201 5 HONDA SIEL POWER PRODUCTS PVT. LTD . 14 TERMINATION OR EXPIRATION OF THIS AGREEMENT, CONTINUE FOR SUCH PERIOD AND ON SUCH TERMS AS MAY BE MUTUALLY AGREED UPON. 18.4. LINCENSEE SHALL CLAIM NO TITLE OR PROPERTY RIGHT WHATSOEVER DURING THE EXISTENCE OF THIS AGREEMENT AND IF THIS AGREEMENT IS TERMINATED AS A RESULT OF THE DEFAULT OF LICENSEE, THEN LICENSEE SHALL CLAIM NO RIGHT, TITLE, PROPERTY, INTEREST OR USE WHATSOEVER AT ALL TIMES AFTER THE LIFE OF THIS AGREEMENT AS REGARDS THE INTELLECTUAL PROPERTY RIGHTS, KNOW - HOW, TECHNICAL INFORMATION OR OTHER INFORMATION RECEIVED UNDER THIS AGREEMENT. (EMPHASIS SUPPLIED) 4. ARTICLE 21 C ONSIDERATION 21.1. IN CONSIDERATION OF THE LICENSE AND TECHNICAL ASSISTANCE TO BE GRANTED OR ARTICLE 25 CONSIDERATION 25.1. IN CONSIDERATION OF ITA NO . 962 /DE L/201 5 HONDA SIEL POWER PRODUCTS PVT. LTD . 15 PROVIDED BY HONDA HEREUNDER, LICENSEE SHALL PAY TO HONDA AN INITIAL FEE AND A ROYALTY IN THE AMOUNT AND IN THE MANNER SET FORTH IN THIS ARTICLE 21. 21.3. LI CENSEE SHALL PAY A ROYALTY ON ANY AND ALL PRODUCTS CARRIED OUT OF THE MANUFACTURING FACILITY OF LICENSEE FOR DELIVERY TO ANY AND ALL PURCHASERS, RENTERS OR OTHER TRANSFEREES WHETHER IN THE TERRITORY OR NOT. SUCH ROYALTY SHALL BE IN THE AMOUNT EQUIVALENT TO FOUR PERCENT (4%) OF THE EX FACTORY SALES PRICE (OR EX WAREHOUSE SALES PRICE IN CASE OF THE PRODUCTS KEPT IN A WAREHOUSE IMMEDIATELY BEFORE SUCH DELIVERY) OF SUCH PRODUCTS INVOICED BY LICENSEE TO THE PURCHASERS, RENTERS OR OTHER TRANSFEREES OF SUCH PROD UCTS, LESS: (I) THE LANDED COST (INCLUDING OCEAN FREIGHTS, INSURANCE PREMIUMS, CUSTOMS DUTIES AND INLAND TRANSPORTATION COSTS) OF THE PARTS IMPORTED IRRESPECTIVE OF SOURCE OF PROCUREMENT; (II) THE COST TO LICENSEE OF THE STANDARD BOUGHT OUT THE RIGHT AND LICENSE GRANTED TO LICENSEE UNDER ARTICLE 2 HEREOF AND OF THE FU RNISHING OF THE TECHNICAL INFORMATION HEREOF, LICENSEE SHALL PAY TO LICENSOR THE FOLLOWING MODEL FEE AND RUNNING ROYALTY: (A) MODEL FEE . (2) RUNNING ROYALTY LICENSEE SHALL PAY THE RUNNING ROYALTY TO LICENSOR DURING THE ROYALTY PERIOD ON ANY AND ALL PRODUC TS CARRIED OUT OF THE MANUFACTURING FACILITY OF LICENSEE FOR DELIVERY TO ANY AND ALL PURCHASERS, RENTERS OR OTHER TRANSFEREES WHETHER IN THE TERRITORY OR NOT. SUCH RUNNING ROYALTY SHALL BE (A) THE AMOUNT SPECIFIED IN EXHIBIT 1 ATTACHED HERETO OR (B) THE A MOUNT CALCULATED BY MULTIPLYING BY THE RATE SPECIFIED IN EXHIBIT 1 ATTACHED ITA NO . 962 /DE L/201 5 HONDA SIEL POWER PRODUCTS PVT. LTD . 16 COMPONENT PARTS LISTED IN ANNEX 3 ATTACHED HERETO; (II) THE COST TO LICENSEE OF THE STANDARD BOUGHT - OUT COMPONENT PARTS LISTED IN ANNEX 3 ATTACHED HERETO; (III) EXCISE DUTIES IMPOSED ON LICENSEE BY THE GOVERNMENT OF INDIA AND INCLUDED IN SAID EX - FACTORY SALES PRICE OR EX - WAREHOUSE SALES PRICE. THE ROYALTY SHALL BE PAID ON THE PRODUCTS CARRIED OUT OF THE MANUFACTURING FACILITY OF LICENSEE DURING THE PERIOD OF FIVE (5) YEARS (THE ROYALTY PERIOD'), WITHIN THE TERMS OF THIS CONTRACT, FROM THE DAY TO BE DESIGNATED BY HONDA IN WRITING, WHICH DAY SHALL FALL WITHIN THE PERIOD COMMENCING ON THE DAY ON WHICH THE MANUFACTURE OF ANYONE MODEL OF THE PRODUCTS BY LICENSEE ON A COMMERCIAL BASIS STARTS AND ENDING ON THE THIRD ANNIVERSARY OF THE EFFECTIVE DATE. LICENSEE HEREBY AGREES TO USE ITS BEST EFFORTS THE MANUFACTURER OF THE PRODUCTS ON A COMMERCIAL BASIS WITHIN ONE (1) YEAR AFTER THE EFFECTIVE DATE. HERETO (INCLUDING ANY REVISION THERETO) WITH THE EX FACTORY SALES PRICE (OR EX WAREHOUSE SALES PRICE IN CASE OF THE PRODUCTS KEPT IN A WAREHOUSE IMMEDIATELY BEFORE SUCH DELIVERY) O F SUCH PRODUCTS INVOICED BY LICENSEE TO PURCHASER, RENTERS OR TIER TRANSFEREES OF SUCH PRODUCTS, LESS, IN CASE OF (B) HEREIN: (I)THE LANDED COST INCLUDING OCEAN FREIGHT, INSURANCE PREMIUMS, CUSTOMS DUTIES AND OTHER INLAND EXPENSES) OR THE SUPPLY PARTS IRRE SPECTIVE OF SOURCE OF IMPORT; (II) THE COST TO LICENSEE OF THE STANDARD BOUGHT OUT COMPONENT PARTS LISTED IN EXHIBIT IV ATTACHED HERETO; AND (III) EXCISE DUTIES IMPOSED ON LICENSEE BY THE GOVERNMENT OF INDIA AND INCLUDED IN SAID EX FACTORY ITA NO . 962 /DE L/201 5 HONDA SIEL POWER PRODUCTS PVT. LTD . 17 SALES PRICE OR E X WAREHOUSE SALES PRICE. IT BEING UNDERSTOOD BY THE PARTIES THAT THE AFORESAID DEDUCTION IN RESPECT OF CALCULATION OF RUNNING ROYALTIES SHALL BE IN ACCORDANCE WITH THE PREVAILING POLICY OF THE GOVERNMENT OF INDIA. 5. ARTICLE 32(EFFECT OF EXPIRATION OR TER MINATION) 32.1. IN THE EVENT OF EXPIRATION OF THIS CONTRACT, BUT SUBJECT TO THE DUE PERFORMANCE BY LICENSEE OF ITS OBLIGATIONS (INCLUDING THE PAYMENTS OF ROYALTIES) HEREUNDER IN FULL, LICENSEE MAY CONTINUE TO USE THE KNOW - HOW AND THE INDUSTRIAL PROPERTY R IGHTS FOR THE PURPOSES OF MANUFACTURE, ASSEMBLY, PROCUREMENT, SALE, DELIVERY AND SERVICE OF THE PRODUCTS AND THE PARTS. 32.2 IN THE EVENT OF THE TERMINATION OF THIS CONTRACT: (I) LICENSEE SHALL AT ITS EXPENSE PROMPTLY RETURN TO ARTICLE 33 (EFFECT OF EXPIRY AND TERMINATION) 33.1. IN THE EVENT OF ANY TERMINATION PURSUANT TO ARTICLE 32.1 ON ACCOUNT OF MATERIAL BREACH BY LICENSOR OF ITS OBLIGATIONS UNDER THIS AGREEMENT, AND SUBJECT TO THE DUE PERFORMANCE BY OF ITS MATERIAL OBLIGATIONS, LICENSEE MAY CONTINUE TO MANUFACTURE, ASSEMBLE, SELL, DELIVER AND SERVICE THE PRODUCTS AND THE APRTS UNTIL THE DUE EXPIR ATION DATE OF THIS AGREEMENT ITA NO . 962 /DE L/201 5 HONDA SIEL POWER PRODUCTS PVT. LTD . 18 HONDA ALL DOCUMENTS AND M ATERIALS EMBODYING THE KNOW - HOW OR ANY PART THEREOF SUPPLIED BY HONDA UNDER OR IN CONNECTION WITH THIS CONTRACT TOGETHER WITH ANY AND ALL REPRODUCED COPIES OF SUCH DOCUMENTS AND MATERIALS; (II) EXCEPT AS OTHERWISE EXPRESSLY STIPULATED HEREIN OR AGREED UPO N BY THE PARTIES HERETO, LICENSEE SHALL IMMEDIATELY CEASE TO USE, AND CAUSE ITS DISTRIBUTORS, DEALERS AND SUBCONTRACTORS TO CEASE TO USE, THE INDUSTRIAL PROPERTY RIGHTS AND THE KNOW - HOW AUTHORIZED BY HONDNA TO BE USED IN ACCORDANCE WITH THIS CONTRACT; (II I) LICENSEE SHALL IMMEDIATELY PAY TO HONDA ALL SUMS OWING TO HONDA; (IV) EXCEPT AS OTHERWISE SPECIFICALLY REQUIRED HEREUNDER, LICENSEE SHALL FORTHWITH DISCONTINUE, AND CAUSE ITS DISTRIBUTORS, DEALERS AND SUB - CONTRACTORS TO DISCONTINUE, ALL ACTIVITI ES UNDER THIS CONTRACT; (V) HONDA MAY AT ITS OPTION REPURCHASE OR CAUSE TO BE REPURCHASED AS SPECIFIED IN ARTICLE 31 33.2. IN THE EVENT OF ANY TERMINATION PURSUANT TO ARTICLE 32.1 ON ACCOUNT OF MATERIAL BREACH BY LICENSEE ITS MATERIAL OBLIGATIONS UNDER THIS AGREEMENT, LICENSEE SHALL DISCONTINUE (I) THE MANUFACTUR E, SALE AND TOHER DISPOSITION OF THE PRODUCTS AND THE PARTS, AND (II) THE USE OF THE INTELLECTUAL PROPERTY RIGHT AND THE TECHNICAL INFORMATION LICENSED OR FURNISHED BY LICENSOR UNDER THIS AGREEMENT WITHOUT INCURRING ANY OBLIGATION OF LICENSOR S CONTINUATIO N OF THE GRANT OF THE RIGHT AND LICENSE PROVIDED HEREUNDER. 33.3. NOTWITHSTANDING ANYTHING TO CONTRARY CONTAINED ITA NO . 962 /DE L/201 5 HONDA SIEL POWER PRODUCTS PVT. LTD . 19 AT A FAIR AND REASONABLE PRICE ALL OR ANY PORTION OF THE PRODUCTS AND THE PARTS THEN HELD BY LICENSEE OR ANY - OF ITS DISTRIBUTORS, DEALERS OR SUBCONTRACTORS, WH ICH REMAIN UNSOLD AND UN USED AT THE TIME OF THE TERMINATION OF THIS CONTRACT; (VI) HONDA MAY AT ITS OPTION SELL, DIRECTLY OR INDIRECTLY, THE PRODUCTS AND THE PARTS REPURCHASED UNDER PARAGRAPH (V) ABOVE IN THE TERRITORY OR ANY OTHER COUNTRY, WITHOUT AN Y LIABILITY ON THE PART OF HONDA TO ACCOUNT TO LICENSEE FOR ANY PART OF THE PROCEEDS OF SUCH SALE OR ANY OTHER SUBS WHATSOEVER. IN THIS AGREEMENT, IN THE EVENT THIS AGREEMENT EXPIRES ON ITS OWN TERMS LICENSOR AND LICENSEE AGREE AS FOLLOWS: 33.3.1. SUBJECT TO THE PROV ISION OF ARTICLE 33.3.2 HEREIN BELOW, THE LICENSEE SHALL CONTINUE MANUFACTURE, SALE, DISTRIBUTION AND SERVICE AND THE PRODUCTS AND THE APRTS AND THE RIGHT TO USE THE TECHNICAL INFORMATION IN RESPECT OF THE MANUFACTURE, SALE, DISTRIBUTION AND SERVICE OF PRO DUCTS AND THE PARTS. 33.3.2. THE CONTINUED RIGHT OF USE BY LICENSEE AS ENVISAGED UNDER ARTICLE 33.3.1 ABOVE IS SINTER ALIA UPON THE FOLLOWING MUTUAL UNDERSTANDING: (I) LICENSEE SHALL PAY THE LICENSOR (A) ANY OUTSTANDING AMOUNT UNDER THE APPLICABLE MODEL ITA NO . 962 /DE L/201 5 HONDA SIEL POWER PRODUCTS PVT. LTD . 20 AGREEMENT TO LICENSOR AS ON THE DATE OF EXPIRY OR TERMINATION OF THIS AGREEMENT TOWARDS THE COST OF RIGHT OF USE BY LICENSEE OF TECHNICAL INFORMATION FOR THE MANUFACTURE, SALE, DISTRIBUTION AND DISPOSITION OF PRODUCTS; AND (B) THE RELEVANT CONSIDERATION F OR A TERM OF OR ANY THREE YEARS FROM THE DATE OF EXPIRY/TERMINATION, WHICH SHALL BE HALF OF THE CURRENT ROYALTY RATE(S) AS SPECIFIED UNDER THIS AGREEMENT (II) FOR THE AVOIDANCE OF ANY DOUBT, LICENSEE SHALL NOT MAKE ANY FURTHER PAYMENT BEYOND THE PERIOD ME NTIONED IN 33.3.2(I)(B) ABOVE IN RESPECT OF SUCH CONTINUED RIGHT TO MANUFACTURE, SALE, DISTRIBUTION AND SERVICE OF THE PRODUCT(S) AND PART(S) AS ENVISAGED IN ITA NO . 962 /DE L/201 5 HONDA SIEL POWER PRODUCTS PVT. LTD . 21 ARTICLE 33.3.1 ABOVE. 33.4 LICENSEE SHALL PROMPTLY DISCONTINUE THE USE OF THE TRADEMARKS LICENSE D BY LICENSOR HEREUNDER AND SHALL NOT CLAIM ANY RIGHT, TITLE AND INTEREST WHATSOEVER IN THE SAID TRADEMARKS. 33.5 THE EXPIRATION OR ANY OTHER TERMINATION OF THIS AGREEMENT HEREUNDER SHALL BE WITHOUT PREJUDICE TO ANY RIGHT WHICH SHALL HAVE ACCRUED TO EIT HER PARTY HEREUNDER PRIOR TO SUCH EXPIRATION OR TERMINATION. 33.6 LICENSEE SHALL, TO THE EXTENT IT IS REASONABLE, AND FEASIBLE, RETURN TO LICENSOR ALL PARTICULAR DOCUMENTS AND TANGIBLE PROPERTY SUPPLIED BY LICENSOR IN CONNECTION WITH THIS AGREEMENT AND BELONGING TO ITA NO . 962 /DE L/201 5 HONDA SIEL POWER PRODUCTS PVT. LTD . 22 LICENSOR AND AIL COPIES AND TRANSLATIONS THEREOF EXCEPT IN THE EVENT OF TERMINATION IN ACCORDANCE WITH ARTICLE 33.1, AND SHALL KEEP ALL INFORMATION RECEIVED BY LICENSEE HEREUNDER SECRET AND CONFIDENTIAL IN ACCORDANCE WITH ARTICLE 17 HEREOF. 33.7 LICENSEE SHALL NOT BE ENTITLED TO DEMAND FROM LICENSOR, FOR THE EXPIRATION OR TERMINATION OF THIS AGREEMENT OF THE FAILURE TO RENEW OR EXTEND IT, ANY DAMAGES, REIMBURSEMENTS OR OTHER PAYMENTS ON ACCOUNT OF THE CURRENT OR PROSPECTIVE PROFITS ON LI CENSEE'S SALE OR ANTICIPATED SALE OF THE PRODUCTS AND THE PARTS, OR ON ACCOUNT OF LICENSEE'S EXPENDITURES, INVESTMENTS OR ITA NO . 962 /DE L/201 5 HONDA SIEL POWER PRODUCTS PVT. LTD . 23 COMMITMENT MADE IN CONNECTION WITH THE MANUFACTURE OF THE PRODUCTS AND THE PARTS, OR ON ACCOUNT OF THE ESTABLISHMENT, DEVELOPMENT OR M AINTENANCE OF THING GOODWILL OR OTHER BUSINESS OF LICENSEE, OR ON ACCOUNT OF ANY OTHER CAUSE OR THING WHATSOEVER, EXCEPT IN CASE WHERE THIS AGREEMENT IS TERMINATED FOR ANY REASON DIRECTLY IMPUTABLE TO LICENSOR. 33.8 THE LICENSEE SHALL PROMPTLY DISCONTINU E THE USE OF; (I) THE TRADEMARKS LICENSED BY LICENSOR HEREUNDER SHALL NOT CLAIM ANY RIGHT, TITLE AND INTEREST WHATSOEVER IN THE SAID TRADEMARKS. FURTHER, LICENSEE AGREES TO TERMINATE THE UTILIZATION OF THE PRODUCT ITA NO . 962 /DE L/201 5 HONDA SIEL POWER PRODUCTS PVT. LTD . 24 IDENTIFICATIONS USED FOR THE PRODUCTS UN DER THIS AGREEMENT AND 1995 LTAA WHICH BEING; (I) INTRODUCED BY LICENSOR, (II) OR ORIGINATED FROM ANY OF OTHER LICENSOR'S PRODUCTS NAMES, CODE OR IDENTIFICATIONS AND, REGARDLESS OF THEIR REGISTRATION STATUS OR OWNERSHIP OF SUCH NAMES, CODE OR IDENTIFICATI ONS. FOR THE AVOIDANCE OF DOUBT, THE NAMES OF THE PRODUCTS INTRODUCED BY LICENSOR OR ORIGINATED FROM LICENSOR S PRODUCTS NAMES, CODE OR IDENTIFICATIONS SHALL INCLUDE, WITHOUT LIMITATIONS; CB , CBZ , CD AND CD 100 . FOR THE PURPOSES OF THIS ARTICLE 33 .8, LICENSEE S OBLIGATIONS TO DISCONTINUE UNDER PARA (I) AND (II) ABOVE SHALL NOT ITA NO . 962 /DE L/201 5 HONDA SIEL POWER PRODUCTS PVT. LTD . 25 INCLUDE, WITHOUT LIMITATIONS AMBITION , AMBITION 135 , DAWN , SPLENDOR , SPLENDOR + PASSION , PASSION PLUS , JOY , SLEEK , STREET SMART , AND KARIZMA . COMPAR ATIVE CHART OF COVENANTS OF (I) EXPORT AGREEMENT, DATED 21.6.2004, BETWEEN HONDA MOTOR CO. LTD. JAPAN AND HERO HONDA MOTORS LTD. AND (II) EXPORT AGREEMENT DT. 1.4.1998, BETWEEN HONDA MOTOR CO. LTD. JAPAN AND SHRIRAM HONDA POWER EQUIPMENT LTD. (NOW KNOWN AS HONDA SIEL POWER PRODUCTS LTD.) SL.NO. FACTS OF HONDA SIEL POWER PRODUCTS LTD. FACTS OF HERO MOTO CORP LTD. 1. 1. ARTICLE 1.1 DEFINES THE TERM 'PRODUCTS' SHALL MEAN ALL OF PORTABLE GENERATORS, GENERAL PURPOSE ENGINES, WATER PUMPS AND PARTS THEREOF, WHIC H HAVE BEEN MANUFACTURED OR ASSEMBLED BY SHPEL IN THE UNION OF INDIA UNDER THE TIC CONTRACT, AND SHALL ALSO INCLUDE SUCH OTHER MODELS OF PORTABLE GENERATORS 1. ARTICLE 1.1 DEFINES THE TERM 'PRODUCTS TO MEAN TWO/THREE WHEELERS INCLUDING SCOOTERS SPECIFICALLY LISTED IN EXHIBIT 1. ITA NO . 962 /DE L/201 5 HONDA SIEL POWER PRODUCTS PVT. LTD . 26 AND OTHER PRODUCTS SUCH AS GENERAL PURPOSE ENGINES AND WATER PUMPS AS MAY BE DECIDED FROM TIME TO T IME BY MUTUAL WRITTEN CONSENT BETWEEN HONDA AND SHPEL, WHICH SHALL CONSTITUTE AN INTEGRAL PART OF THIS AGREEMENT. 2. ARTICLE 1.2 DE FINES THE TERM 'PERMITTED COUNTRIES' SHALL MEAN A COUNTRY OR COUNTRIES, OTHER THAN USA, CANADA, ISLAMIC REPUBLIC OF IRAN, REPUBLIC OF IRAQ, SOCIALIST PEOPLE'S LIBYAN, ARAB JAMAHIRIYA, KOREA, ANGOLA, MYANMA R, KINGDOME OF LESOTHO, KINGDOM OF SWAZILAND, RE PUBLIC OF BOTSWANA & REPUBLIC OF NAMIBIA. ARTICLE 1(4) DEFINES THE DESIGNATED COUNTRIES AND ARTICLE 1(5) DEFINES NOMINATED COUNTRIES AS THOSE LISTED IN EXHIBIT 11(1) AND 11(2). 3. ARTICLE 3.1. (CONSENT TO EXPORT) 3.1 SUBJECT TO THE TERMS AND CONDIT IONS HEREIN CONTAINED, HONDA HEREBY GIVES CONSENT TO THE EXPORT AND SALE BY SHPEL OF THE PRODUCTS TO THE DISTRIBUTORS IN THE PERMITTED COUNTRIES. IN THIS CONNECTION, IT ARTICLE 2 SUBJECT TO THE T ERMS AND CONDITIONS CONTAINED HEREIN, LICENSOR HEREBY GIVES CONSENT TO THE EXPORT TO THE DESIGNATED COUNTRY BY LICENSEE WITHOUT A RIGHT TO RE - EXPORT; (I)OF THE PRODUCTS ITA NO . 962 /DE L/201 5 HONDA SIEL POWER PRODUCTS PVT. LTD . 27 IS AGREED TO BY SHPEL THAT HONDA MAY ALSO EXPORT THE PRODUCTS AND THE SPARE PARTS TO AND SELL THEM IN THE PERMITTED COUNTRIES. 3.2 SHPEL SHALL ENSURE THAT EACH DISTRIBUTORS SHALL SELL AND DISTRIBUTE ONLY IN SUCH DISTRIBUTOR'S COUNTRY ALL THE PRODUCTS SUPPLIED BY SHPEL TO IT, AND SHALL NEITHER PERMIT NOR CAUSE EACH DISTRIBUTOR TO SE LL SUCH PRODUCTS OUTSIDE SUCH DISTRIBUTOR'S COUNTRY. 3.3 IT IS SPECIFICALLY UNDERSTOOD AND AGREED TO BY BOTH PARTIES THAT THE ENTIRE PROVISION OF ARTICLE 4 (EXPORTS OF THE TIC CONTRACT SHALL MUTATIS MUTANDIS BE APPLICABLE TO THE EXPORT BY SHPEL HEREUNDER WITH THE DELETION OF THE WORDINGS, 'BUT ONLY THROUGH HONDA' APPEARING IN (I), (II) AND (III) OF ARTICLE 4.2 THEREOF TO THE EXTENT THAT THERE IS NO PROVISION TO THE CONTRARY HEREIN OR FOR THE SALE THEREOF WITHIN THE DESIGNATED COUNTRY ONLY. (II) OF THE COMPONENT PA RTS FOR THE ASSEMBLY OF THE PRODUCTS THEREIN AND FOR THE SALE THEREOF WITHIN THE SPECIFIC DESIGNATED COUNTRY ONLY, AND (III) OF THE SERVICE APRTS ONLY FOR THE PURPOSE OF REPAIR OR REPLACEMENT OF THE PRODUCTS EXPORTED TO AND SOLD IN THE DESIGNATED COUNTRY B Y LICENSEE HEREUNDER. IN THIS CONNECTION, IT IS AGREED TO BY LICENSEE THAT LICENSOR AND THIRD PARTIES MAY ALSO EXPORT THE PRODUCTS AND THE SERVICE PARTS TO AND SELL THEM IN THE DESIGNATED COUNTRY. ITA NO . 962 /DE L/201 5 HONDA SIEL POWER PRODUCTS PVT. LTD . 28 PROVIDED THAT SUCH APPLICATION DOES NOT CONTRADICT THE INTENTION OF THIS AGREEMENT. NOTWITHSTANDING THE FOREGOING, NO PROVISIONS OF ARTICLE 4.4 OF THE TIC CONTRACT SHALL BE APPLICABLE AND HONDA SHALL BE EXEMPTED FROM PERFORMING ITS OBLIGATIONS HEREUNDER WITH REGARD TO THE EXPORT BY SHPEL HEREUNDER. 4. ARTICLE 4 (TRADEMARKS AND COUNTRY OF ORIGIN) 4.1 SUBJ ECT TO THE TERMS AND CONDITIONS HEREINAFTER CONTAINED, HONDA HEREBY GIVES CONSENT THAT THE TRADEMARKS TO BE USED FOR OR IN CONNECTION WITH THE PRODUCTS EXPORTED BY SHPEL HEREUNDER SHALL BE 'HONDA AND SHRIRAM HONDA , AND THE PROVISIONS OF ARTICLES 24.2 TH ROUGH 24.4 OF THE T/C CONTRACT SHALL MUTATIS MUTANDIS APPLY TO SUCH TRADE MARKS HONDA AND SHRIRAM HODNA . ARTI CLE 3 (TRADE MARKS AND COUNTRY OF ORIGIN) 3.1.THE PRODUCTS, AND WHEREVER DESIGNATED BY LICENSOR, THE SERVICE PARTS TO BE EXPORTED BY LICENSEE EREUNDER SHALL BEAR THE TRADE MARK HERO HONDA OR TRADE MARKS AS MAY BE DESIGNATED BY LICENSOR (THE TRADE MARK H ERO HONDA AND SUCH DESIGNATED TRADE MARKS BEING HEREINAFTER COLLECTIVELY REFERRED TO AS TRADE ITA NO . 962 /DE L/201 5 HONDA SIEL POWER PRODUCTS PVT. LTD . 29 4.2. THE COUNTRY OF ORIGIN SHALL BE CLEARLY INDICATED ON ALL PRODUCTS TO BE EXPORT BY SHPEL HEREUNDER, IF SO REQUESTED BY THE DISTRIBUTOR. MARK .. 3.2. THE COUNTRY OF ORIGIN SHALL BE CLEARLY INDICATED ON ALL PRODUCTS AND SERVICE PARTS TO BE EXPORTED BY LICENSEE HEREUNDER AND/OR ON ALL PACKAG ES OF SUCH PRODUCTS AND SERVICE PARTS. 5. ARTICLE 5.1 (CONSIDERATION) IN CONSIDERATION OF THE CONSENT FOR EXPORT AND USE OF TRADE MARKS AND COOPERATION AND ASSISTANCE GRANTED OR PROVIDED BY HONDA HEREUNDER, SHPEL SHALL PAY TO HONDA A CONSIDERATION IN THE AMOUNT EQUAL TO 8% OF THE EXPORT PRICE, F.O.B. PORT OF INDIA OF THE PRODUCTS SHIPPED BY OR ON BEHALF OF SHPEL FOR EXPORT HEREUNDER. THIS CONSIDERATION SHALL BE PAYABLE ONLY IF RELEVANT DISTRIBUTOR IS ANY OF THE HONDA S DISTRIBUTORS AND SHPEL S DISTRIBUTOR S APPOINTED WITH HONDA S REFERENCE OR ASSISTANCE. ARTICLE 5.1. IN CONSIDERATION OF THE CONSENT AND THE ASSISTANCE GIVEN BY LICENSOR HEREUNDER, LICENSEE SHALL PAY TO LICENSOR A COMMISSION IN AN AMOUNT EQUIVALENT TO FIVE (5) PER CE NT OF THE EXPORT PRICE, F.O.B. PORT OF THE TERRITORY, OF EACH OF THE PRODUCTS SHIPPED BY OR ON BEHALF OF LICENSEE FOR EXPORT HEREUNDER; PROVIDED THAT SUCH CONSIDERATION BECOMES PAYABLE ONLY WHEN THE RELEVANT DISTRIBUTOR IS A DISTRIBUTOR OF THE LICENSOR. C OMMISSION AGAINST EXPORT TO NEPAL AND BHUTAN SHALL BE ITA NO . 962 /DE L/201 5 HONDA SIEL POWER PRODUCTS PVT. LTD . 30 XXXX XXXXXX XXXX PAID SUBJECT TO THE LOCAL REGULATIONS/APPROVA LS IN INDIA. 6. ARTICLE 6 HONDA AND SHPEL MUTUALLY CONFIRM THAT IT IS MOST PREFERABLE TO UTILIZE FOR THE PURPOSE OF DISTRIBUTION OF THE PRODUCTS EXPORTED BY SHPEL HEREUNDER THE EXISTING DISTRIBUTION AND SERVICE NET WORK IF ANY. ARTICLE 4.2. LICENSOR AGREES THAT LICENSEE WILL UTILIZE THE DISTRIBUTION AND SERVICE NET WORK ESTABLISHED BY DISTRIBUTORS OF LICENSOR GOODS, AND LICENSEE HEREBY AGREES TO SHIP AND MAK E ALL ITS EXPORTS OF THE PRODUCTS AND THE SERVICE PARTS FOR THE DESIGNATED COUNTRY TO (IF THE DISTRIBUTOR IN THE DESIGNATED COUNTRY IS THE EXCLUSIVE ISTRIBUTOR OR, EVEN IF A NON EXCLUSIVE ISTRIBUTOR, THE ONLY DISTRIBUTOR IN THE DESIGNATED COUNTRY) THE DIST RIBUTOR FOR THE LICENSOR GOODS OR (IF THERE ARE MORE THAN ONE DISTRIBUTOR)THE ISTRIBUTOR THAT LICENSOR WILL DESIGNATED AFTER MUTUAL CONSULTATION WITH LICENSEE, IN THE DESIGNATED COUNTRY). ITA NO . 962 /DE L/201 5 HONDA SIEL POWER PRODUCTS PVT. LTD . 31 7.6. THE LD. D.R. COULD NOT SPEC IFICALLY POINT OUT SUBSTANTIVE DIF FERENCE/VARIATION IN THE CLAUSES BETWEEN BOTH THE AGREEMENTS. IN OUR VIEW THE CLAUSES IN THESE AGREEMENT ARE PARA MATERIA. HENCE WE ARE OF THE CONSIDERED OPINION THAT THE ISSUE STANDS COVERED BY THE DECISION OF THE TRIBUNAL IN THE CASE OF M/S HERO MOTOR CORP. LTD. (SUPRA), WHEREIN THE ISSUE WAS CONSIDERED AS FOLLOWS. 25. FROM THE READING OF THE AGREEMENT, IT IS EVIDENT THAT VARIOUS CLAUSES OF THE AGREEMENT DO NOT SUPPORT THE FINDING OF THE ASSESSING OFFICER. THE INFERENCE OF THE ASSESSING OFFICER IS TH AT THE PAYMENT UNDER THIS AGREEMENT IS FOR ACQUISITION OF TECHNICAL KNOW - HOW AND TECHNICAL INFORMATION FOR MANUFACTURING OF TWO WHEELERS AND, THEREFORE, HE HELD THE PAYMENT TO BE CAPITAL IN NATURE FOR ACQUISITION OF INTANGIBLE ASSET AND ALLOWED DEPRECIATIO N AT THE RATE OF 25% THEREON. WHILE ARRIVING AT THE CONCLUSION, HE HAS OBSERVED THAT THE ASSESSEE HAS AN EXCLUSIVE RIGHT OF MANUFACTURE, SALE AND DISTRIBUTION. HOWEVER, FROM ARTICLE 2 OF THE AGREEMENT, IT IS EVIDENT THAT THE EXCLUSIVE RIGHT IS ONLY AGAIN ST THE THIRD PARTIES AND NOT AGAINST HMSI. ARTICLE 17 OF THE AGREEMENT CLEARLY PROVIDES THAT THE KNOW - HOW, TECHNICAL INFORMATION AND ANY OTHER BUSINESS INFORMATION OF LICENSOR SHALL REMAIN THE SOLE AND EXCLUSIVE PROPERTY OF THE LICENSOR AND SHALL BE HELD I N TRUST AND CONFIDENCE BY THE LICENSEE. ARTICLE 18 OF THE AGREEMENT PROVIDES THAT THE LICENSEE (I.E. THE ASSESSEE) SHALL NOT PERMIT ANY THIRD PARTY TO USE THE INTELLECTUAL PROPERTY RIGHT OR THE TECHNICAL INFORMATION PROVIDED UNDER THIS LICENSE. PARAGRAPH 1 8.3 OF THE AGREEMENT PROVIDES THAT EVEN IN RESPECT OF ANY INVENTIONS AND IMPROVEMENTS MADE BY THE LICENSEE I.E. THE ASSESSEE, THE LICENSEE IS REQUIRED TO DISCLOSE IT TO THE LICENSOR I.E. HMSI AND IT IS THE HMSI WHO WILL ITA NO . 962 /DE L/201 5 HONDA SIEL POWER PRODUCTS PVT. LTD . 32 HAVE A TRANSFERABLE RIGHT TO USE SUC H INVENTIONS AND IMPROVEMENTS WITH RIGHT TO SUB - LICENSE. THEREFORE, NOT ONLY THE ORIGINAL INFORMATION AND KNOW - HOW PROVIDED BY THE LICENSOR IS THE PROPERTY OF THE LICENSOR AND NOT THE ASSESSEE BUT EVEN ANY INVENTIONS AND IMPROVEMENTS MADE BY THE ASSESSEE W OULD BE TRANSFERRED TO THE LICENSOR BY THE LICENSEE. PARAGRAPH 18.4 CLEARLY PROVIDES THAT THE ASSESSEE SHALL NOT CLAIM ANY TITLE OR PROPERTY RIGHT IN RESPECT OF ANY INTELLECTUAL PROPERTY RIGHTS, KNOW - HOW, TECHNICAL INFORMATION ETC. PROVIDED UNDER THIS AGRE EMENT. ARTICLE 25 PROVIDES THE CONSIDERATION TO BE PAID BY THE ASSESSEE FOR THE USE OF TECHNICAL INFORMATION PROVIDED TO THE ASSESSEE UNDER THIS LICENSE. THE CONSIDERATION IS IN THE FORM OF MODEL FEE AS WELL AS THE RUNNING ROYALTY. PARAGRAPH 33.6 OF THE AG REEMENT PROVIDES THAT THE LICENSEE I.E. THE ASSESSEE SHALL RETURN TO THE LICENSOR ALL DOCUMENTS AND TANGIBLE PROPERTY SUPPLIED BY LICENSOR IN CONNECTION WITH THIS AGREEMENT. THIS PROVES BE YOND DOUBT THAT THE INTANGIBLE PROPERTY CONTINUES TO BE OWNED OF THE LICENSOR AND THE ASSESSEE HAS NOT ACQUIRED ANY KNOW - HOW OR LICENSE BY VIRTUE OF THIS AGREEMENT WHICH CAN BE SAID TO BE INTANGIBLE ASSET OF THE ASSESSEE. 26 . IN THE LIGHT OF THESE FACTS LET US EXAMINE THE VARIOUS DECISIONS DISCUSSED ABOVE SO AS TO ARRI VE AT THE FINDING WHICH OF THE DECISIONS IS APPLICABLE IN THE CASE OF THE ASSESSEE. 27. IN OUR OPINION, THE FACTS OF THE ASSESSEE'S CASE ARE IDENTICAL TO THE FACTS IN THE CASE OF CLIMATE SYSTEMS INDIA LTD. (SUPRA). IN THE CASE OF CLIMATE SYSTEMS INDIA LT D. (SUPRA), THE ASSESSEE COMPANY MADE THE LUMP SUM PAYMENT AND ALSO THE RUNNING ROYALTY. THE RUNNING ROYALTY WAS CALCULATED AS A PERCENTAGE OF SALES. THE LUMP SUM PAYMENT WAS ITA NO . 962 /DE L/201 5 HONDA SIEL POWER PRODUCTS PVT. LTD . 33 TREATED AS CAPITAL EXPENDITURE BY THE ASSESSEE COMPANY AND THE RUNNING ROYALTY WA S TREATED AS REVENUE EXPENDITURE. THE ASSESSING OFFICER DISALLOWED THE RUNNING ROYALTY HOLDING IT TO BE CAPITAL EXPENDITURE WHICH WAS CONFIRMED BY THE LEARNED CIT(A) AS WELL AS THE ITAT. THE HON'BLE JURISDICTIONAL HIGH COURT ALLOWED THE APPEAL. THE FACTS O F THE ASSESSEE'S CASE ARE IDENTICAL BECAUSE THE ASSESSEE ALSO IN THE YEAR 1984 ENTERED INTO AN AGREEMENT BY WHICH THE ASSESSEE WAS PROVIDED WITH TECHNICAL ASSISTANCE FOR SETTING UP OF THE PLANT AND ALSO FOR MANUFACTURE, ASSEMBLY AND SERVICE OF THE MOTORCYC LES. THE ASSESSEE MADE LUMP SUM PAYMENT OF $5,00,000 FOR THE TECHNICAL ASSISTANCE FOR CONSTRUCTION OF PLANT AND PAID A RUNNING ROYALTY AS A PERCENTAGE OF SALES IN RESPECT OF TECHNICAL ASSISTANCE FOR MANUFACTURE, ASSEMBLY AND SERVICE OF THE MOTORCYCLES. THE RUNNING ROYALTY WHICH WAS PAID ANNUALLY WAS CLAIMED AS REVENUE EXPENDITURE AND WAS DISALLOWED BY THE ASSESSING OFFICER TREATING THE SAME AS CAPITAL EXPENDITURE. THUS, THE FACTS OF THE ASSESSEE'S CASE ARE IDENTICAL TO THE FACTS BEFORE THE HON'BLE JURISDICT IONAL HIGH COURT IN THE CASE OF CLIMATE SYSTEMS INDIA LTD. (SUPRA). 28. SIMILAR WERE THE FACTS BEFORE THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF SHARDA MOTOR INDUSTRIAL LTD. (SUPRA). IN THAT CASE ALSO, SMIL MADE A LUMP SUM PAYMENT AND ALSO RUNN ING ROYALTY AT A SPECIFIED PERCENTAGE BASED UPON THE PRODUCTION. THE LUMP SUM PAYMENT WAS TREATED AS CAPITAL EXPENDITURE AND RUNNING ROYALTY WAS CLAIMED AS REVENUE EXPENDITURE. THE ASSESSING OFFICER TREATED THE ROYALTY AS CAPITAL EXPENDITURE AND THE HON' BLE JURISDICTIONAL HIGH COURT AFFIRMED THE VIEWS OF THE TRIBUNAL THAT THE PAYMENT OF RUNNING ROYALTY WAS REVENUE EXPENDITURE. IN THIS CASE, THE HON'BLE JURISDICTIONAL HIGH COURT HAS ITA NO . 962 /DE L/201 5 HONDA SIEL POWER PRODUCTS PVT. LTD . 34 CONSIDERED THE DECISION OF HON'BLE APEX COURT IN THE CASE OF SOUTHERN SWI TCHGEARS LTD. (SUPRA) RELIED UPON BY THE REVENUE. 29. IN THE CASE OF LUMAX INDUSTRIES LTD. (SUPRA) THE ASSESSEE WAS PAYING LICENSE FEE ON YEAR TO YEAR BASIS FOR ACQUISITION OF TECHNICAL KNOWLEDGE. THE L1L CLAIMED THE SAID PAYMENT AS REVENUE EXPENDITURE W HICH WAS DISALLOWED BY THE ASSESSING OFFICER HOLDING THAT BY VIRTUE OF THE AGREEMENT, THE L1L HAD DERIVED AN ASSET OF ENDURING NATURE. ON APPEAL, THE CIT(A) ALLOWED THE ASSESSEE'S CLAIM AND THE TRIBUNAL UPHELD THE ORDER OF THE CIT(A). ON FURTHER APPEAL, TH E HON'BLE JURISDICTIONAL HIGH COURT UPHELD THE ORDER OF THE ITAT AND HAS ALSO OBSERVED THAT EVEN IF THE ASSESSEE HAD OBTAINED THE LONG TERM ADVANTAGE OF ENDURING BENEFIT, THAT BY ITSELF WOULD NOT CONVERT ANY EXPENDITURE INCURRED BY THE ASSESSEE INTO CAPITA L EXPENDITURE. THIS DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IS AFTER CONSIDERING THE DECISION OF HON'BLE APEX COURT IN THE CASE OF JONAS WOODHEAD AND SONS (INDIA) LTD. (SUPRA) RELIED UPON BY THE REVENUE. THE DECISIONS OF HON'BLE APEX COURT IN THE CA SE OF SOUTHERN SWITCH GEAR LTD. (SUPRA) AND JONAS WOODHEAD AND SONS (INDIA) LTD. (SUPRA) HAVE SLIGHTLY DIFFERENT FACTS BECAUSE IN BOTH THE CASES, THERE WAS A COLLABORATION AGREEMENT BY WHICH TECHNICAL ASSISTANCE WAS PROVIDED FOR SETTING UP OF THE FACTORY A ND ALSO MANUFACTURE AND SALE OF PRODUCT. THE PAYMENT OF ROYALTY WAS LUMP - SUM PAYMENT AND, THEREFORE, THE HON'BLE APEX COURT UPHELD THE VIEW OF THE REVENUE THAT 25% OF THE PAYMENT IS CAPITAL IN NATURE. IN THE CASE OF THE ASSESSEE ALSO, THE COLLABORATION 'A GREEMENT WAS FOR GRANT OF TECHNICAL ASSISTANCE FOR SETTING UP OF THE FACTORY AND ALSO FOR THE MANUFACTURE AND SALE OF THE PRODUCT. BUT THE ASSESSEE MADE SEPARATE PAYMENT ITA NO . 962 /DE L/201 5 HONDA SIEL POWER PRODUCTS PVT. LTD . 35 FOR THE TECHNICAL ASSISTANCE FOR SETTING UP OF THE FACTORY WHICH WAS $5,00,000. THIS S UM WAS TREATED AS CAPITAL EXPENDITURE BY THE ASSESSEE ITSELF. THE ANNUAL PAYMENT FOR THE ROYALTY WAS BASED UPON THE PERCENTAGE OF SALE OF THE MOTORCYCLES. THUS, THE FACTS IN THE CASE OF THE ASSESSEE ARE DISTINGUISHABLE THAN THE FACTS BEFORE THE HON'BLE APEX COURT. ON THE OTHER HAND, THE FACTS OF THE ASSESSEE'S CASE ARE IDENTICAL TO THE FACTS BEFORE THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CLIMATE SYSTEMS INDIA LTD. (SUPRA) AND SHARDA MOTOR INDUSTRIAL LTD. (SUPRA) AND ALSO THE DECISION OF ITAT IN ASSESSEE'S OWN CASE CITED SUPRA. WE, THEREFORE, RESPECTFULLY FOLLOWING THE ABOVE DECISIONS OF HON'BLE JURISDICTIONAL HIGH COURT, HOLD THAT THE ANNUAL PAYMENT OF ROYALTY WAS A REVENUE EXPENDITURE. ACCORDINGLY, GROUND NO.6 OF THE ASSESSEE'S APPEAL IS ALL OWED. 7.7. THOUGH THE ASSESSEE HAS RE LIED ON A NUMBER OF DECISIONS, IN VIEW OF THE FINDING OF THE COORDINATE BENCH, WE DO NOT DEEM IT NECESSARY TO DEAL WITH THE SAME. IN THE RESULT GROUND NO. 3 TO 3.5 AND GROUND NO.4 ARE ALLOWED. 7.8. GROUND NOS. 5 T O 5.7 ARE ON THE DISALLOWANCE MADE ON PAYMENT OF EXPORT COMMISSION U/S 40(A)(I). AFTER HEARING RIVAL CONTENTIONS WE FIND THAT THE ISSUE I N QUESTION HAS BEEN CONSIDERED BY THE DELHI C BENCH OF THE TRIBU NAL IN THE ASSESSEE S OWN CASE IN ITA NO.5130/DEL/20 10 (SUPRA). 9. SO, RESPECTFULLY FOLLOWING THE AFORESAID ORDER IN ITA NO. 5713/DEL/2011 FOR THE ASSESSMENT YEAR 2007 - 08 IN ASSESSEE S OWN CASE. WE DO NOT SEE ANY MERIT IN THIS APPEAL OF THE DEPARTMENT. ITA NO . 962 /DE L/201 5 HONDA SIEL POWER PRODUCTS PVT. LTD . 36 10 . IN THE RESULT, THE APPEAL OF THE DEPARTMENT IS DISMISSED. (ORDER P RONOUNCED IN THE OPEN COURT ON 28 /03 /2018 ) SD/ - SD/ - ( BEENA A. PILLAI ) (N. K. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 28 /03 /2018 *SUBODH* COPY FORWARDED TO : 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT(APPEALS) 5 . DR: ITAT ASSISTANT REGISTRAR