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TMI Blog2013 (7) TMI 256X X X X Extracts X X X X X X X X Extracts X X X X ..... clause 9.6 of the agreement and the authorities below, were not justified in disallowing 50% of the traveling expenses of the assessee relying on clause 9.3 of the agreement which covered only expenses and risks incurred by the licensee. Traveling expenses claimed by the assessee were inclusive of foreign travel expenses which as stated specifically by the assessee in the written submissions filed before the CIT(A) were incurred for the purpose of visits of its employees to Hercules Inc.'s offices and plants situated in USA, Korea, Singapore, Thailand etc. for obtaining on site training in order to enable them in assisting M/s Connell Bros. Co. (India) Pvt. Ltd. with regard to technology and marketing of its products. CIT(A) presumed that the said expenses were incurred for the purposes of training to the employees of M/s Connell Bros. Co. (India) Pvt. Ltd. and proceeded on this wrong presumption to confirm the disallowance made by the A.O. on account of traveling expenses. Moreover vide letter dtd. 13-12-2010 filed by the assessee before the CIT(A) as additional evidence, M/s Connell Bros. Co. (India) Pvt. Ltd. had clarified that traveling expenses incurred by the assessee we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessee for the purpose of its own business were to be borne by it as per clause 9.6 of the agreement and were not covered by clause 9.3 of the agreement. This explanation of the assessee was not found acceptable by the A.O. According to him, clause 9.3 of the agreement covered all the expenses related to sale, distribution and other expenses and since the same were to be borne by M/s Connell Bros. Co. (India) Pvt. Ltd., he held that the claim of the assessee for deduction for traveling expenses of Rs. 30,31,107/- which was almost 22% of royalty received was not justified. He therefore disallowed the traveling expenses claimed by the assessee to the extent of Rs. 15,15,554/-, being 50% of the total expenses of Rs. 30,31,107/- claimed by the assessee. 3. The disallowance made by the A.O. on account of traveling expenses was disputed by the assessee in an appeal filed before the ld. CIT(A) and the following submission was made on behalf of the assessee before the ld. CIT(A) in support of its case on this issue:- "That as per article 9.6 of the agreement with M/s. Connell Bros Co. (I) Pvt Ltd, the appellant, for the purposes of development of its business, was to assist the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b) With regard to domestic travelling, it has been submitted, that the travelling under article 9.6, is in exclusion to expenses specified under article 9.3. Now, under article 9.3, manufacturing, distribution and sale expenses are to be met by the licensee. In article 9.6, the appellant is required to travel, to promote the licensee's business. Clearly, the nature of expenses in article 9.6 and article 9.3, are the same. Even the clarification letter, dated 13.12.2010, cited supra, clearly states:- "This is to clarify that clause nos. 9.3 and 9.6 of the transfer of technology, know how, manufacture and distribution agreement dated 13.1.2003 does not apply to the travelling cost incurred by Hercules Industrial Chemical Pvt. Ltd. The respective parties will bear such costs individually." The wordings of this clarification, are in contradiction with the appellant's submissions, that its travelling has been incurred in pursuance to 9.6 of the agreement. In fact, the clarification in no way contradicts the assumption made by the AO, that all expenses mentioned in clause 9.6 are covered by clause 9.3, and are to be met by the Iicensee." For the reasons given above, the ld. CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al charges, however designated, imposed in the Territory". Clause 9.6 "In an effort to assist the Licensee with development of its business for the Products, the Licensor may from time to time send its own representatives to visit with customers and promote the Licenseee's business with these customers. The Licensee shall cooperate fully with such representatives." As is clearly evident from the aforesaid clauses of the relevant agreement, all the expenses and risks incurred by the licensee namely M/s Connell Bros. Co. (India) Pvt. Ltd. in connection with the manufacture, distribution and sale of the products were to be borne and paid for by M/s Connell Bros. Co. (India) Pvt. Ltd. The expenses in question on traveling however were incurred by the assessee as licensor and not by M/s Connell Bros. Co. (India) Pvt. Ltd. as licensee and the same, in our opinion, therefore were covered by clause 9.6 of the agreement which required the assessee as licensor to send from time to time its own representatives to visit the customers and promote the licensee's business with the said customers in an effort to assist the licensee with development of its business for the products. The said ..... X X X X Extracts X X X X X X X X Extracts X X X X
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