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TMI Blog2016 (3) TMI 237X X X X Extracts X X X X X X X X Extracts X X X X ..... xpiry of original period of license and it was not technical know-how for setting up a new plant or for manufacturing a completely new product with aid and assistance of foreign company, payment made was purely revenue in nature, more so, when Department had for the nine earlier assessment years accepted the fact that the payment made towards royalty was revenue expenditure and had not raised dispute thereon.. Accordingly, in our opinion, the assessee’s claim has to be allowed and it is to be treated as revenue expenditure only. - Decided in favour of assessee Disallowance u/s 14A - CIT(A) made disallowance of 2% of the exempt income earned - Held that:- The assessment year under consideration is 2007- 08 and, therefore, the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /- under the head royalty paid to M/s Kokusan Denki Co. Ltd, Japan. The Assessing Officer, by relying on the decision of the Supreme Court in the case of Southern Switch Gear Ltd vs CIT, 232 ITR 359, considered 25% of the said payment as a capital expenditure and disallowed the same. However, the Assessing Officer allowed depreciation @ 25% on the payment. On appeal, the CIT(A) observed that the issue is squarely covered by the decision of the Madras High Court in the case of Southern Switch Gear Ltd (supra) wherein it was held that since the benefits are enduring in nature, the same are capital expenses. In fact, the High Court has held as under: Even without acquisition of an asset, a right of a permanent advantage could be acquired ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case, in our opinion, the judgment of the jurisdictional High Court in the case of CIT vs Hitech Arai Ltd, 368 ITR 577, is applicable. In that case, it was held that where the royalty payment made by the assessee under renewal agreements were for grant of license to an existing company for manufacture and sale of automobile parts and components for subsequent periods, after the expiry of original period of license and it was not technical know-how for setting up a new plant or for manufacturing a completely new product with aid and assistance of foreign company, payment made was purely revenue in nature, more so, when Department had for the nine earlier assessment years accepted the fact that the payment made towards royalty was revenue exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to such investments and earning of dividend income which is exempt from tax. Hence, the Assessing Officer invoked the provisions of sec. 14A of the Act r.w.rule 8D and determined the expenditure attributable for earning such exempt income at ` 40,73,850/- and disallowed the same. 9. We have heard both the parties and perused the material available on record. The assessment year under consideration is 2007- 08 and, therefore, the provisions of rule 8D cannot be applied. Rule 8D came into operation with effect from 24.3.2008 i.e from assessment year 2008-09. In our opinion, the Madras High Court in the cse of M/s Simpson Co. Ltd vs The Dy. CIT in TCA No.2621 of 2006 dated 15.10.2012, has held that disallowance 2% of the exempt income e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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