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TMI Blog2015 (5) TMI 584X X X X Extracts X X X X X X X X Extracts X X X X ..... ter "PPME") for acquiring necessary technology. As per the agreement, the assessee was required to pay a lump sum for technology transfer and further a royalty of 5% of the gross revenue received from the contract. The assessee capitalised the technology transfer fee, but claimed the royalty amount as revenue expenditure. However, both the AO as well as Ld DRP took the view that the royalty payment represents payment made for transfer of marketing and commercial support, experience and skill by PPME to the assessee and it represents payment made for acquisition of an exclusive right for providing services in the form of insulation of pipes to Jindal Saw Ltd. Accordingly, the AO/DRP took the view that the royalty payment also constitutes Capital expenditure in the hands of the assessee. The AO, in this regard, placed reliance on the decision of Hon'ble Supreme Court rendered in the case of Southern Switchgear Ltd Vs. CIT (1998)(232 ITR 359)(SC), wherein the Hon'ble Apex Court has upheld the decision of Hon'ble Madras High Court in the case of CIT Vs. Southern Switchgear Ltd (1984)(148 ITR 272). Accordingly, the AO/DRP disallowed the claim of royalty payment. Aggrieved, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ject but shall become due and payable only on the last day of the month in which the three quarter point of the project has been achieved" ............ ARTICLE 8: DURATION The agreement shall remain in force till December 31, 2009 from the date hereof. After this period, the agreement will automatically extend for a further period of 6 months unless decided otherwise by both the parties. ARTICLE 9: ARBITRATION All disputes, controversies, or differences arising out of or in relation to or in connection with this agreement, which cannot be settled by discussion and mutual accord shall be finally settled by Arbitration, The arbitration shall be held in India in accordance with The Indian Arbitration and Conciliation Act, 1996. The seat of the arbitration shall be in Mumbai. The Arbitration proceedings shall be conducted in English language. Demand for arbitration shall be made in writing and shall be served upon the party to whom the demand is addressed by registered post. Judgment upon the award rendered, be entered in Mumbai Court, having jurisdiction or application may be made to such court for a judicial acceptance of the award and an order of enforcement, as the case may be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for machinery testing * Review and evaluation of acceptance tests run at manufacturing facilities of the third party machinery supplier outside India prior to shipment. Commissioning * Providing off-site analysis support of the engineering design and fabrication design of all equipment to ensure compliance with drawings, specifications and standards. Formulation * Providing the require technical formulation and know-how required for carrying out the insulation process on the pipes. 2. PROCESS DEVELOPMENT ASSISTANCE * Conduct trial at PPME facilities as required by PPIL to design and test process suitable for applications of insulated piping systems for the Oil and Gas and District Cooling industries in India and to provide the results of such tests. * Utilize PPME QA Lab to conduct all required tests to ensure that process are fully conformed to specified standards. * Identify third party test agencies capable of doing special testing for insulated piping systems and co-ordinate with test agencies to obtain third party certification as required by PPIL. * To provide the result of any changes in the technical formation process for insulation of papers * To provide the resu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the royalty payment is made by the assessee towards plant operation, system and procedures development and the same is intended to ensure quality, i.e., it is for providing operational and commercial support. Accordingly he submitted the royalty payment is in the nature of plant maintenance after the installation of the technology and hence the same partakes the character of revenue expenditure. 5. On the contrary, the Ld D.R placed strong reliance on the order of the AO/DRP and also the decision rendered in the case of Southern Switchgear Ltd (supra). 6. We heard the rival contentions and perused the record. The department is placing reliance fully on the decision rendered in the case of Southern switchgear Ltd (supra). However, a perusal of the said order would show that the assessee therein was entitled to use the technology even after the termination of the contract. Further the licensor of the technical knowhow had agreed not to manufacture in India any of the scheduled products or to grant or make available to any other person, firm or company any manufacturing information, licenses, rights for anyone of the scheduled products. Thus, it was seen that the assessee therei ..... 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