Case Law Details
Telco Construction Co. Ltd. Vs ACIT (Karnataka High Court)
Thus, from perusal of the relevant clauses of the agreement, it is clear that the assessee is a joint venture company and under the agreement has been granted non transferable licence to manufacture / assemble the Hitachi licence products within the territory using technical know-how furnished by Hitachi and to sell otherwise dispose of the Hitachi licence products. The products shall be sold only under the trade / brand name of Tata Hitachi. It is also pertinent to note that even expiry of the 11 years from the date of commercial production, the assessee is entitled to continue the manufacture and sale of Hitachi licence products for the aforesaid term of the agreement. Under the agreement, the assessee has incurred an expenditure which gives him enduring benefit, therefore, the same has to be treated as capital expenditure. The Assessing Officer as well as the tribunal rightly held that payment of royalty made by the assessee is a capital expenditure and is not a permissible deduction under Section 37(1) of the Act. The findings recorded by the tribunal in this regard are based on meticulous appreciation of evidence on record and by no stretch of imagination can said to be perverse.
FULL TEXT OF THE HIGH COURT ORDER /JUDGEMENT
This appeal under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the Act for short) has been preferred by the assessee. The subject matter of the appeal pertains to the Assessment year 2008-09. The appeal was admitted by a bench of this Court vide order dated 10.08.2016 on the following substantial question of law:
(i) Whether the royalty payment for user of technical know-how and intellectual property rights along with the right to manufacture for a temporary period was required to be considered as revenue expenditure and to be allowed under Section 37(1) of the Act.
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