2018 (6) TMI 1598 - AT - Income Tax

Addition on account of expenditure incurred for acquiring an intangible asset in the form of technical know-how - AO treated the same as capital expenditure and the first appellate authority treated them as revenue expenditure - HELD THAT - The assessee obtained a technical know-how in respect of manufacturing of paper maker felts and other industrial fabrics. According to the agreement entered into by the assessee the remuneration was paid for at the rate of 5% on the sale price of the product. CIT (A) has considered the various clauses of the agreement and held that the know-how was to remain the sole and exclusive property of the provider and the appellant company is required to fully exploit the same. The technical know-how was also in relation to the sales affected by the assessee company. It is also required to be noted that assessee is engaged in the same business for which technical know-how is by the assessee and it is not at its an altogether a new line of business which is developed. DR could not point out any infirmity in the order of the CIT (A). No reason to disturb the finding of the CIT (A) in allowing the claim of the assessee of technical know-how fees paid to its parent company as revenue in nature. - Decided against revenue.

Summary

Issues:
Appeals by Revenue against CIT(A) orders for A.Ys 2010-11 and 2011-12 regarding expenditure on acquiring intangible asset - technical know-how treated as capital or revenue expenditure.

Analysis:
The Tribunal heard two appeals by the Revenue against CIT(A) orders concerning the treatment of expenditure on acquiring technical know-how as either capital or revenue expenditure for A.Ys 2010-11 and 2011-12. The common grievance of the Revenue was the deletion of the addition made by the Assessing Officer. The Assessing Officer treated the expenditure as capital, while the CIT(A) considered it as revenue expenditure. The counsel for the assessee argued that the issue was in favor of the assessee based on a previous Tribunal order for A.Y. 2009-10, which was acknowledged by the ld. DR representing the Revenue.

Upon careful consideration of the authorities' orders, the Tribunal found merit in the assessee's argument. The Tribunal referred to a previous decision for A.Y. 2009-10 where technical know-how fees were treated as revenue expenditure. The Tribunal noted the contentions of both parties regarding the nature of the expenditure and the purpose for which the technical know-how was acquired. The Tribunal highlighted that the technical know-how was related to the assessee's existing business activities and not a new line of business. The Tribunal upheld the CIT(A)'s decision based on the agreement between the parties, which indicated that the technical know-how was to be utilized for the assessee's sales and production activities. Consequently, the Tribunal dismissed the Revenue's appeals, following the precedent set by the co-ordinate bench in a similar case for A.Y. 2009-10.

In conclusion, the Tribunal declined to interfere with the CIT(A)'s finding and dismissed the Revenue's appeals for A.Ys 2010-11 and 2011-12. The orders were pronounced on 07.06.2018, and the appeals of the Revenue were consequently dismissed.