Brief of the case:
Revenue challenged the order passed by ITAT which confirmed the order of CIT (A) that expenditure incurred i.e. payment of royalty for technical knowhow in terms of Technical Collaboration Agreement (TCA Agreement) is an allowable expenditure as no benefit was obtained by the Assessee for the period beyond the relevant assessment years. In an another issue High court confirmed the action of ITAT that assessee can claim depreciation UPS and computer peripheral used more than 180 days in previous year in absence of any explanation by revenue.
Facts of the case:
- Assessee entered into a Technical Collaboration Agreement (TCA) with SMCL, Japan in 1997.
- The TCA notes that there are three broad kinds of services in which the Licensor and the Licensee are engaged, i.e. provision of construction management services, turnkey contract service and the consultancy services including project management.
- Under the various clauses of agreement licensor was agreed to provide various services and technical assistance from time to time and it was agreed to pay a lump sum amount of One Million $ over a period of 10 years.
- It was further agreed to be given exclusive selling/servicing rights to licensee for which the Licensee was to pay royalty @ 5% for the contract services provided by the Licensee for the domestic market and 8% for export markets.
- AO disallowed the amount paid by assessee to SMCL on account of royalty and fee for technical assistance by holding capital in nature.
Contention of the revenue:
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