2023 (3) TMI 1520 - AT - Income Tax

Nature of expenses - deduction of expenses in respect of Technical know-how duly claimed - assessee is a resident corporate entity and is a subsidiary of Honda Motorcycle Co. Ltd., Japan - AO observed that the claim cannot be allowed as the assessee should have claimed it in the return of income filed for the impugned assessment year. HELD THAT - We find, the issue, whether, technical know-how fee paid is in the nature of capital or revenue expenditure is a legacy issue and is continuing from preceding assessment years. While, deciding the issue in the immediately preceding assessment year i.e. assessment year 2015-16 2021 (5) TMI 949 - ITAT DELHI the Tribunal, in the order referred to above, followed its earlier decision and allowed assessee s claim as held because the amount expended is in relation to the running royalty and not for the purpose of setting up of plant. As decided in in the case of Honda Siel Cars 2017 (6) TMI 524 - SUPREME COURT observed that the Supreme Court has carved out the distinction between the payments at the time of setting up of the manufacturing facility and the payments made once the manufacturing process has already began. In the former case, royalty expenditure for setting up the manufacturing facility is capital in nature while in the latter case, the royalty expense is revenue in nature. Applying the said ratio, we are of the view that the assessee was entitled to claim the aforesaid expenditure as revenue expenditure in the hands of the assessee. Decided in favour of assessee.

Summary

Issues:
Challenge to final assessment order under Section 143(3) read with section 144C(13) of the Income-Tax Act, 1961 for assessment year 2016-17.

Detailed Analysis:

1. The appeal was filed challenging the final assessment order dated 30.03.2016 passed under Section 143(3) read with section 144C(13) of the Income-Tax Act, 1961 for assessment year 2016-17. The appeal was filed by the assessee against the directions of the Dispute Resolution Panel (DRP).

2. The Tribunal had earlier disposed of the appeal on 09.11.2021 but inadvertently left out ground no. 10 raised by the assessee. The Tribunal recalled the appellate order for the limited purpose of deciding ground no.10 upon the miscellaneous application filed by the assessee in MA No. 214/Del/2021.

3. Ground no. 10 pertained to the deduction of expenses of INR 250,17,14,636/- in respect of Technical know-how claimed by the assessee before the Assessing Officer and DRP. The Assessing Officer and DRP had initially disallowed the deduction.

4. The assessee, a resident corporate entity engaged in manufacturing and distribution of motorcycles, had paid Rs.250,17,14,636 towards technical know-how fee in the impugned assessment year but did not claim it as a deduction initially.

5. The Assessing Officer rejected the claim stating it should have been claimed in the return of income for the relevant assessment year. The DRP upheld this decision based on its direction in the assessee's own case for the preceding assessment year.

6. The Tribunal, after considering the submissions of both parties, referred to its earlier decision in the assessee's own case for the assessment year 2015-16 where a similar issue was decided in favor of the assessee. The Tribunal allowed the deduction of technical know-how payment as a revenue expenditure.

7. The Tribunal noted that the issue of whether the technical know-how fee is capital or revenue expenditure was a legacy issue continuing from preceding assessment years. Given the consistent view of the Tribunal in the assessee's own case, the Tribunal directed the Assessing Officer to allow the deduction claimed by the assessee in respect of technical know-how payment for the impugned assessment year.

8. The Tribunal pronounced the order on 15th March 2023, allowing the assessee's appeal and directing the Assessing Officer to allow the deduction claimed by the assessee for the technical know-how payment.

This detailed analysis covers the key aspects of the judgment, including the issues raised, the arguments presented by both parties, and the final decision rendered by the Tribunal.