Honda Motorcycle and Scooter India Pvt. Ltd. Vs ACIT (ITAT Delhi)
Conclusion: Payment of royalty by assessee in lieu of granting license under the royalty and technical knowhow agreement was to be treated as revenue in nature as assessee was already engaged in the manufacturing of motorcycle and Scooter and payment of royalty expenses was not with respect to setting up of manufacturing facility.
Held: Assessee had entered into certain international transactions with its associated enterprise and therefore reference was made to TPO to determine the arm’s-length price in respect of international transactions undertaken by assessee. TPO/DRP had made adjustment of royalty paid by assessee to Honda Motors Japan (HMJ) for exports to AEs. Assessee had raised the issue in respect of capitalization of the royalty expenses wherein assessee had paid a royalty expenditure of Rs 8,488,135,369/– in lieu of granting license under the royalty and technical knowhow agreement and INR Rs 2,331,540,470/– in lieu of granting technical guidance. It was held that assessee was already engaged in the manufacturing of motorcycle and Scooter and payment of royalty expenses was not with respect to setting up of manufacturing facility. Therefore, AO was directed to delete the addition of ₹ 1,591,781,250/– on account of capitalisation of royalty expenses holding it to be revenue in nature.
