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TMI Blog2016 (5) TMI 1135X X X X Extracts X X X X X X X X Extracts X X X X ..... arned Commissioner of Income Tax (Appeals) has erred both on facts and in law in confirming the order of the learned Assessing Officer regarding disallowance of commission and ex-gratia amounting to Rs. 49,16,075/- paid to the Directors of the appellant company as part of their remuneration in terms of Section 309 r.w.s. 198, 349, 350 and Schedule XII of the Companies Act, 1956 claimed u/s 37(1) of the Act, by wrongly invoking the provisions of Section 36(1)(ii) of the Income Tax Act, 1961." 3. We have heard the arguments of both the sides and have perused the material placed before us. We find this issue to be squarely covered in favour of the assessee by the decision of ITAT in assessee's own case for assessment year 2004-05 & 2005-06 v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollows :- "Moreover, a Division Bench of this Court in Metaplast Pvt.Ltd. v. DCIT, (2012) 341 ITR 563, after referred to the judgment of the Bombay High Court in Loyal Motors Services Company Ltd. v. CIT, (1946) 14 ITR 647 opined that the commission, if found to be paid for services rendered by the director as per the terms of the appointment, cannot be said to be distribution of dividend or profits in the guise of commission. It was noticed while commission was paid as a form of remuneration for actual services rendered, dividend is a return of investment and is paid to all its shareholders equally. It was thus held that if the commission is paid for actual services rendered, section 36(1)(ii) will not apply." 13. The ld. Departmenta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid allegedly on the ground that the same constitutes benefit of enduring nature and therefore is capital expenditure." 6. At the time of hearing before us, it is submitted by the learned counsel that the assessee company is engaged in the business of manufacturing oil field drilling and production equipment. The assessee has entered into an agreement with M/s Chancellor Oil Took, Inc. for use of technical knowhow. That for use of such technical knowhow, the assessee made a lump sum payment of US$60,000 and also the royalty at the rate of 5% per annum of the net ex-factory sale price of the product. That the lump sum payment of US$60,000 was treated as capital expenditure by the assessee. But the recurring payment of royalty @ 5% of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e have carefully considered the submissions of both the sides and have perused the material placed before us. Admittedly, the agreement between the assessee and M/s Chancellor Oil Took, Inc. was for use of technology by the assessee. The technology was not transferred to the assessee and the ownership of such technology remained with M/s Chancellor Oil Took, Inc. The assessee was required to make the payment on year to year basis as a percentage of the sale. The payment was to be made continuously for the period for which the technical knowhow was to be used by the assessee. On these facts, the decision of Hon'ble Jurisdictional High Court in the case of Climate Systems India Ltd. (supra) would be squarely applicable wherein the facts w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld, allowing the appeal, that under the agreement, payments were to be made by the assessee in two parts : a lump sum fee for transfer of technology (which the assessee had admitted as being of capital nature) and royalty payment in consideration of providing technology services. The payment of royalty depended on the quantum of domestic as well as export sales which would decrease or increase every year depending upon the decrease or increase in the sales. This payment was not because of "transfer" of technology, but for providing "technical services". In such circumstance, the payment of royalty, which was a continuous process, should have been treated as revenue expenditure." 11. The decision of Hon'ble Apex Court in the case of Alembi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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