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TMI Blog2013 (1) TMI 488X X X X Extracts X X X X X X X X Extracts X X X X ..... termining whether non-compete fees was revenue or capital expenditure - in favour of revenue for statistical purposes. Disallowance of marketing know how - CIT(A) deleted the addition and confirmed by ITAT - Held that:- On an examination of marketing knowhow agreement it is very clear that this agreement would lead to an improvement in its existing business resulting in higher sales and consequently higher profitability. This is so as the amounts spent on marketing knowhow would result in improving the profits of the business on the acquired brands as this knowledge would assist in improving the marketing strategy. The expenses incurred for acquiring this marketing knowhow if incurred by the respondent would be revenue and merely because ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the Assessment Year 2001-2002. 2 Being aggrieved by the order dated 09.07.2008, the revenue has formulated the following questions of law for consideration by this court. a) Whether on the facts and in the circumstances of the case, the ITAT is correct in law in upholding the CIT(A) order of deleting the addition of Rs.17,26,124/u/ s. 14A of the I.T. Act, 1961? b) Whether on the facts and in the circumstances of the case, the ITAT is correct in law in upholding the CIT(A) order in deleting the addition of Rs. 2,25,00,000/- on account of the non-compete fees paid by the Assessee by treating the same as Revenue Expenditure? c) Whether on the facts and in the circumstances of the case, the ITAT is correct in law in uphold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e investment were made from its own funds and not borrowed funds. The revenue has not been able to show how the finding of fact arrived at by the Tribunal that no expenses were incurred to earn the dividend income is either arbitrary or perverse. In view of the finding of fact, question (a) does not raise any question of law and is therefore dismissed. The appeal is admitted on questions (b) to (e). At the instance of the Advocates of the parties to the appeal, the appeal is itself taken up for final disposal. 4. Brief Facts: a) The respondent-assessee is pharmaceutical company engaged in manufacturing and marketing of pharmaceutical products. For the Assessment Year 2001-2002, the respondent-assessee had filed its return of incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the alternative claim of the respondent that they be allowed depreciation at 25% on Rs.10 crores expended on acquiring marketing knowhow as applicable to plant was granted. So far as charging of interest on book profit is concerned the order of the Assessing Officer holding that interest is payable under Section 234B 234C of the Act is concerned, was left undisturbed. c) Being aggrieved by the order of the CIT(A) dated 22.07.2004 both the appellant as well as respondent-assessee preferred appeals to the Tribunal. The Tribunal, in its order dated 09.07.2008 held that the expenditure of Rs.2.25 crores on non-compete fees was dictated by business necessity and commercial expediency and it related to enhancement of its profitability. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order of the CIT(A) that non-compete fees are not revenue expenditure. However, it has upheld the finding of the CIT(A) that non-compete fees would be classified as revenue expenditure. At paragraph 12 of the impugned order the Tribunal while dealing with marketing knowhow expenses has also observed that non-compete fee was also dictated by business and commercial expediency and was not an expenses incurred for acquisition of capital assets but only enhanced its profitability. However, there is no discussion on the issue before coming to the above conclusion. Therefore, the issue with regard to the nature of non-compete fees whether revenue or capital has to be remanded to the Tribunal so as to enable it to pass an order with reasons while ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iture as correctly held by the Tribunal. Therefore, the question would have to be answered in favour of the respondent-assessee and against the appellant-revenue. 7. Regarding Question (d) So far as Royalty payment is concerned both the CIT(A) as well as the Tribunal has reached a finding of fact that the royalty payment as paid by the respondent-assessee to M/s. Lyka Labs Ltd was a part of the cost of the acquisition of the brand and therefore, would form a part of the cost of the assets namely the brand. In the result, respondent-assessee was entitled to depreciation on the amount of royalty fees as the same is a part of the consideration paid for acquiring the brand and would be entitled to depreciation under Section 32 of the said A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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