Royalty expenditure towards license right to use the know-how is revenue in nature

Mercedes-Benz India Pvt. Ltd. Vs Dy. C.I.T. (ITAT Pune)

Held that the assessee has secured the license right to use the know-how for the period of the agreement and the royalty expenditure in this regard is therefore revenue in nature.

Facts-

The assessee, Mercedes Benz India Pvt. Ltd., is a company incorporated under the provisions of the Companies Act, 1956 and is mainly engaged in the manufacture and sale of Mercedes Benz passenger cars in the Indian market MB India currently manufacturing E.C.S. GL class and CLA class of passenger cars in India. Pursuant to a ‘Technology License Agreement’ entered by the Appellant with Daimler AG, it has paid an amount of Rs. 12,51,11,877/- as royalty to Daimler AG. AO disallowed the royalty expenses by considering it to be a capital expenditure.

Conclusion-

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