Royalty is revenue expense if no right after License termination to Assessee

Royalty and fee for technical assistance are revenue in nature if upon license  termination rights created in favour of assessee gets extinguished.

Expenditure incurred by the assessee towards royalty and fee for technical assistance in pursuance of the licence agreement entered between the assessee and the company M/s Hongo Japan were revenue expenditure and not capital in nature in view of the fact, upon termination of the licence agreement, all rights created in favour of the assessee under the licence agreement stood extinguished and no benefit was passed on to or retained with the assessee.

Issue before Consideration

Whether on the facts and circumstances of the case, the ITAT was legally justified in holding that the payment of royalty paid to M/s Hongo Japan is an allowable business expenditure in the hands of the assessee company and cannot be held to be capital in nature.

Brief Facts

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