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TMI Blog2012 (4) TMI 239X X X X Extracts X X X X X X X X Extracts X X X X ..... account indicates that the expense/question of payment of royalty was examined before the assessment order u/s 143(3) was passed - there was no failure or omission on the part of the respondent assessee to disclose the head and the quantum thereof - Even TDS certificates and other details were filed -the Revenue has not been able to indicate and state, the specific failure or omission on the part of the respondent assessee to disclose fully and truly the material facts - that the present case falls in the category of change of opinion as at the time of original proceedings the AO examined and gone into the question of royalty - Appeal or revenue dismissed. - ITA 149/2011, ITA 150/2011 - - - Dated:- 3-2-2012 - MR. JUSTICE SANJIV KHANNA, MR. JUSTICE R.V. EASWAR, JJ. For Appellant : Mr.N.P.Sahni, Advocate For Respondent : Ms.Kavita Jha, Mr.Somnath Shukla and Mr.Vijay Kumar Punna, Advocates. SANJIV KHANNA, J: (ORAL) 1. The Revenue has preferred these appeals for the assessment years 2000-01 and 2001-02 against the order dated 16.02.2010 of the Income Tax Appellate Tribunal ( tribunal‟, for short) in ITA No.4461/Del/2009 and 1704/Del/2007 in the case of Mun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of M/s Munjal Showa Ltd. for A.Y. 2000-01 u/s 147 of the I.T. Act, 1961. 1. The assessee filed its return of income on 28.11.2000 declaring an income of Rs. 12,99,85,610/-. 2. The assessment u/s 143(1) in this case was made on 31.01.2003 at Rs. 12,99,85,610/-. 3. the assessee has debited a sum of Rs. 2,86,74,323/- under the head of royalty and Rs. 10,73,766/- under the head technicians fee in the P L a/c ending 31.3.2000. 25% of the royalty expenses should be considered as capital expenditure in view of the Supreme Court judgment in Southern Switchgear Ltd. 232 ITR 359 (SC) as it gives rise to enduring benefit which can be enjoyed by the assessee over a number of years. Under the terms of the technical collaboration, the royalty is payable at 3% of the ex-factory sales price of the products carried out by the manufacturing facility invoiced by the licensee less certain other cost for a period of ten years from the date of the agreement or period of seven years from the start of the commercial production whichever is earlier. The assessee has paid a royalty for acquisition of an exclusive and indivisible privilege of manufacturing and selling the products. The assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the licensee less certain other cost for a period of five years. 4. The assessee has paid a royalty for the acquisition of an exclusive privilege of manufacturing and selling the products. The acquisition of such a right may be treated partly towards capital and partly towards revenue as it gives rise to enduring benefit to the assessee. The Hon‟ble Supreme Court in the case of Southern Switch Gear Ltd. vs. CIT reported in 232 ITR 359 and Hon‟ble Madras High Court in the same case reported in 148 ITR 272 held that 25% of such royalty expenses constitutes capital expenditure as it gives rise to the assessee a benefit which is of enduring nature and thereby constituting a capital asset. 5. Following the above judgment, 25% of the total royalty expenses of Rs. 3,32,45,117 which comes to Rs. 83,11,279/- should have been shown as capital expenditure being spent towards acquisition of capital asset. The assessee has shown this expenditure as revenue expenditure instead of capital expenditure and thereby claiming excess deduction of Rs. 83,11,279/- and consequently under showing the income to the extent of Rs. 83,11, 279/-. 6. Therefore, I have reason to believe that o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es and other details were filed. The Revenue has not been able to indicate and state, the specific failure or omission on the part of the respondent assessee to disclose fully and truly the material facts. Once material facts were disclosed, it was for the Assessing Officer to infer whether or not legally and as per law, the amount was capital expenditure or revenue expenditure. It is not the requirement and mandate of the statue that the assessee should disclose the law to the Assessing Officer. The legal position and the law have to be applied by the Assessing Officer. As noticed below, the question of royalty payment in earlier years was made subject matter of addition on the ground that it was capital in nature and subsequently, the Revenue had accepted the stand of the respondent assessee that the royalty paid to the joint venture partner was revenue in nature. 11. For the assessment year 2001-02, the Assessing Officer had raised a specific query vide letter dated 02.09.2003, which reads as under:- Royalty: Description of royalty received; Name, address and amount, period for which royalty is payable copy of contract. 12. In response to the said query the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that the royalty paid was, in fact, revenue and not capital expenditure. It has been stated that this decision has been accepted by the Revenue. We fail to understand why, despite this matter being settled in the previous assessment years, the Revenue feels compelled to stir up the same dispute in subsequent assessment years. 15. In view of the aforesaid discussion, we are clearly of the view that the present case falls in the category of change of opinion as at the time of original proceedings the Assessing Officer examined and gone into the question of royalty. Even if there was any legal error or illegality the same cannot be rectified and be made the subject matter of reassessment proceedings u/s 147/148 of the Act. The Supreme Court in the case of CIT vs. Kelvinator of India Ltd. (2010) 2 SCC 723 has observed as under:- 5. On going through the changes, quoted above, made to Section 147 of the Act, we find that, prior to the Direct Tax Laws (Amendment) Act, 1987, reopening could be done under the above two conditions and fulfilment of the said conditions alone conferred jurisdiction on the assessing officer to make a back assessment, but in Section 147 of the Act (wit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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