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TMI Blog2020 (8) TMI 277X X X X Extracts X X X X X X X X Extracts X X X X ..... details relating to the payment of royalty have been supplied by the assessee commencing from the disclosures in the annexures to its return of income Queries and responses specific to the aforesaid issue were exchanged between the petitioner on the one hand and the TPO and AO on the other. Supporting evidences for the petitioners claim that the royalty was running royalty and thus revenue in nature was also filed. This issue has engaged the attention of the respondents since the TPO has specifically raised a query with regard to the classification of royalty as capital vis-a-vis revenue and sought an explanation in this regard. Relevant details being on record and having engaged the attention of the officers of the Department, this is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tioner challenges an order dated 26.08.2019 rejecting the objections to assumption of jurisdiction to re-assess the income of the petitioner under the provisions of the Income Tax Act, 1961 (in short Act ) for the assessment year (A.Y.) 2013-14. 2. Heard Mr. Srinath Sridevan, learned counsel for the petitioner and Mrs. Hema Muralikrishnan, learned Senior Standing Counsel for the respondent. 3. The sequence of relevant dates and events is as follows: i) For A.Y.2013-14, the petitioner filed a return of income on 28.11.2013. The return was accompanied by necessary annexures, such as the Tax Audit Report in Form 3CB and 3CD, Form No.10CCB and Transfer Pricing Report in Form 3CEB. ii) The Transfer Pricing Report specifically detailed the royalt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntity providing for the payment of royalty and under reply dated 20.05.2016 further details regarding the payments made to Associated Enterprises were supplied. ix) On 24.06.2016, the details of royalty paid and the impact of the transaction on the profit and loss account was set out. x) Thereafter, the TPO, vide notice dated 05.10.2016 posted the assessment for completion and sought for various particulars needed for the same. xi) At point 7 of the aforesaid questionnaire, the details of royalty and management serve charges debited to the profit and loss account and the details of tax deducted on the same were sought. xii) The TPO also specifically sought an explanation as to why the royalty payment not be treated as capital expenditure an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ally notes the adjustment recommended by the TPO wherein reference had been made to payment of royalty as well. The proceedings for re-assessment challenged in this Writ Petition should be seen in the context of the narration above. 6. After completion of assessment on 13.02.2017, the petitioner received a notice under Section 148 on 28.03.2019, five years from the end of the assessment year in question. The assumption of jurisdiction by the Assessing Officer came to be questioned by the petitioner in line with the procedure set out by the Supreme Court in GKN Driveshafts (India) Ltd. V. Income Tax Officer (259 ITR 19) after it filed a return of income and sought reasons on the basis of which the re-assessment had been initiated. 7. The rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been conferred on the assessee for manufacturing and selling the products and the royalty payment was towards technical information provided by the licensor in respect of manufacturing methods of the products and the right was granted to the assessee company to manufacture and sell the products. Thus, an asset in the form of commercial right has been acquired by the Assessee which gives the assessee an enduring benefit and also exclusive advantage to assessee s business. Thus, royalty payments should be treated as capital expenditure and after allowing eligible depreciation (@ 25% on ₹ 1,35,14,620) ₹ 33,78,655 balance amount claimed as revenue expenditure to the tune of ₹ 1,01,35,965 needs to be disallowed. Excess deductio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claim that the royalty was running royalty and thus revenue in nature was also filed. This issue has engaged the attention of the respondents since the TPO has specifically raised a query with regard to the classification of royalty as capital vis-a-vis revenue and sought an explanation in this regard. 11. The relevant details being on record and having engaged the attention of the officers of the Department, this is not a case where the alleged escapement can be attributed to any failure on the part of the assessee/petitioner. 12. A perusal of the reasons extracted elsewhere in this order only referred to the issue of classification of royalty on merits and nowhere it is stated that there has been any failure by the petitioner in making a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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