2015 (7) TMI 740 - HC - Income Tax

Excessive depreciation for the UPS and Inverters - Held that - As it is sought to be urged by the Revenue that under Section 32(1) unless the assessee was able to show that the concerned UPS and computer peripherals have been used for more than 180 days in the previous year, it could not have claimed higher rate of depreciation @ 60%. The Court finds that the above ground urged by the Revenue ought to have been based on the factual determination as to whether with reference to the actual dates of purchase of the concerned UPS and computer peripherals, it could be demonstrated that the assessee could not have used such UPS and computer peripherals for more than 180 days in the relevant previous year. However, no such factual determination appears to have been undertaken either by the Assessing Officer (AO) or, at the instance of Revenue, at any of the subsequent stages. Consequently, the Court finds no merit in the contention of the Appellant as regards the issue of depreciation. - Decided against revenue. Fees and royalties for technical knowhow - whether be treated as revenue/business expenditure? - Held that - A perusal of the TCA shows that the payment by the Assessee to SMCL is for the technical knowhow given to the Assessee as a Licensee. Although the payment is spread over a period of 10 years, it does not make the Assessee the owner of the technical knowhow. The very nature of the license agreement is that it is not of a permanent nature. The view taken by the CIT (Appeals), and concurred with by the ITAT, cannot in the circumstances be said to be improbable or contrary to the settled legal position. The Court, therefore, concurs with the view of the CIT (A) and the ITAT that the benefit to the Assessee as a result of payment of royalty for technical knowhow was not of an enduring nature, and therefore cannot be construed to be a capital expenditure.

Summary

Issues:
Challenge to ITAT orders on depreciation and revenue expenditure for technical knowhow.

Depreciation Issue:
The Revenue challenged the higher rate of depreciation claimed by the Assessee for UPS and computer peripherals under Section 32(1) of the Income Tax Act. The Court noted the lack of factual determination by the Assessing Officer regarding the actual usage of the assets for more than 180 days in the previous year. As no such determination was made, the Court found no merit in the Revenue's contention, dismissing the challenge on depreciation.

Revenue Expenditure for Technical Knowhow Issue:
The dispute revolved around whether the fees and royalties paid by the Assessee for technical knowhow under the Technical Collaboration Agreement (TCA) were capital or revenue expenditure. The AO initially considered it as capital expenditure, but the CIT (Appeals) ruled in favor of the Assessee, stating that the payments did not provide an enduring benefit beyond the assessment years. The ITAT upheld this decision, emphasizing that the Assessee did not become the owner of the technical knowhow, and the benefit was not of an enduring nature. The Court concurred with the lower authorities, concluding that the expenditure on technical knowhow did not amount to capital expenditure. The appeals by the Revenue were subsequently dismissed.

This judgment addressed challenges related to depreciation and revenue expenditure for technical knowhow, emphasizing the need for factual determinations in assessing depreciation claims and distinguishing between capital and revenue expenditures based on the enduring nature of benefits obtained.