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TMI Blog2016 (1) TMI 774X X X X Extracts X X X X X X X X Extracts X X X X ..... categorically held that the payment of royalty is revenue expenditure. - Decided against revenue. - I.T.A. No.677 /Del/2013 - - - Dated:- 30-10-2015 - SMT. DIVA SINGH, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER For The Appellant : Shri T. Vasanthan, Sr. DR For The Respondent : Shri Arun Bansal, CA ORDER PER INTURI RAMA RAO, AM: The Revenue has filed the present appeal against the order of Ld. CIT(A)-XV, New Delhi dated 29.11.2012 for the Assessment Year 2009-10, inter alia on the following ground: Whether Ld. CIT(A) was correct on facts and circumstance of the case and in law in treating the royalty payment of ₹ 79,61,325/- as revenue expenditure instead of capital expenditure. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. Keeping in view the circumstances of agreement, nature of terms, its essence and nature and usage of rights granted under the agreement, the royalty payment of ₹ 1,06,15,100/- is held to be towards acquisition of commercial rights being intangible in nature and accordingly, ₹ 1,06,15,100/- is held to be capital expenditure entitled to prescribed rate of depreciation @ 25% i.e. ₹ 26,53,775/-. Consequently, disallowance of ₹ 79,61,325/- was made. 4. The assessee has challenged the assessment order before Ld. CIT(A) who has accepted the appeal vided impugned order dated 29.11.2012. Feeling aggrieved, the Revenue has come up before the Tribunal by filing the present appeal. 5. Ld. D.R. by relying upon the or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment as revenue expenditure. Similarly in the case of another group company, M/s G4S Security services for the Assessment Year 2008-09 vide order dated 20.04.2011 in Appeal No. 229/10-11, the Ld. CIT(AL for the detailed reasons cited therein, has treated the royalty payment as revenue expenditure and also held that since royalty has been paid for a right to use trade mark and knowhow for a limited period under the term of agreement, therefore no assets of enduring nature has been acquired in consideration of royalty payment. The Hon'ble High Court in the case of another group company, i.e. M/s G-4S Securities Services, on identical facts, has already dismissed the departmental appeal in earlier years and allowed the royalty expenses as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly and following the decisions of the Hon'ble Delhi High Court in the case of MIs G4S Security Services, on identical facts, I also concur with the stand taken by my predecessor in group companies, hold that the payment of royalty in the present case is not a capital expenditure. Therefore the ground No.1 of the appellant is allowed. 9. A bare perusal of the terms and conditions of Royalty Agreement entered into between the assessee and NMESA WLL reproduced above in the order of Ld. CIT(A) goes to prove that the Royalty in the case in question was exclusively for the purpose of use of trademark, trading norms and know how without any acquisition of any capital research in the year under consideration, thus not of any enduring bene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nature. In the case of Jonas Wood Head and Sons Vs. CIT, 117 ITR 55, it was held that the question regarding capital or revenue expenditure depends on the terms of agreement in each case. In the case of CIT Vs. Gujarat Carbon Ltd., 254 ITR 294, it was held that the payment of revenue under the agreement was directly relatable to services which were in the revenue field and were allowable as revenue expenditure. In the case of Goodyear (I) Ltd. Vs. ITO 73 ITD 1 89(Delhi) , the assessee had not acquired ownership right of technical knowhow but transfer of use of licenses. There was no advantage of enduring nature and hence it was held to be a case of revenue expenditure. In the case of Travancore Sugar and Chemicals Ltd. 62 ITR 566 (SC) it w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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