2021 (3) TMI 54 - AT - Income Tax

Nature of expenditure - expenses of Technical Know How Fees paid to its parent company - capital or revenue expediture - HELD THAT - As decided in asseessee' own case 2018 (6) TMI 399 - ITAT DELHI assessee is already engaged in the business of manufacturing paper machine fabrics and other industrial fabrics and related products. 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 The Ld. 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. 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 Ld. CIT(A). In view of above facts we do not find any reason to disturb the finding of the Ld. CIT(A) in allowing the claim of the assessee of technical know-how fees paid to its parent company as revenue in nature - Decided in favour of assessee.

Summary

Issues:
Appeal against order of CIT(A) relating to Assessment Year 2014-15 - Disallowance of Technical Know How Fees/Royalty as capital expenditure.

Analysis:
The case involved an appeal by Revenue against the order of CIT(A) regarding the disallowance of Technical Know How Fees/Royalty as capital expenditure for Assessment Year 2014-15. The assessee, a manufacturing company, filed its return declaring total income. The AO framed the assessment, determining the total income higher than declared. The issue revolved around the disallowance of expenses related to Technical Know How Fees paid to the parent company, considered capital expenditure by the AO. The AO based this decision on the enduring benefits derived by the assessee from acquiring the know-how, increasing functional capacity and production. The AO disallowed a portion of the expenses, allowing depreciation on the rest.

The CIT(A) allowed the appeal of the assessee, citing identical issues in previous years where the claim was allowed. The Revenue challenged this decision, arguing that the matter was pending in the High Court. The assessee relied on previous Tribunal orders favoring their claim and argued for consistency in decision-making. The Tribunal noted the previous decisions in favor of the assessee, emphasizing the revenue nature of the expenses based on the agreement terms and the business context. No distinguishing features were presented by the Revenue, and no errors in the CIT(A)'s findings were highlighted. As a result, the Tribunal dismissed the Revenue's appeal, upholding the order of the CIT(A) and allowing the claim of the assessee.

In conclusion, the Tribunal upheld the decision of the CIT(A) to allow the claim of the assessee regarding the disallowance of Technical Know How Fees/Royalty as revenue expenditure, based on consistent findings in previous years and the absence of new evidence or legal challenges. The appeal of the Revenue was dismissed, maintaining the order pronounced on the matter.