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TMI Blog2017 (2) TMI 1484X X X X Extracts X X X X X X X X Extracts X X X X ..... ce to capital expenditure versus revenue expenditure and its allowability vis a vis quantum also. Therefore, it cannot be said that the view taken by the AO is erroneous. Furthermore, ld CIT has failed to establish what is the error committed by the Assessing Officer. He has merely stated that in the order of the ld Hon'ble High Court in Southern Switchgear [ 1983 (3) TMI 18 - MADRAS HIGH COURT] there are two other decisions of Hon'ble High Court were referred where 50% and 100% of the expenditure were held to be capital in nature. Therefore, it is clearly discernible that ld CIT is just questioning the estimate made by the Assessing Officer. Therefore, we are not inclined to uphold the order of ld CIT u/s 263 of the Act on this count. Disallowance of 25% model fee holding it as capital in nature - HELD THAT:- The issue of allowability of the model fee has also been examined by the Hon ble high court in case of the assessee wherein it has been held to be revenue in nature and fully liable to the assessee. During the course of assessment proceedings the Ld. assessing officer has raised the adequate queries on this point which was also replied by the assessee therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in favour of the assessee by dispute resolution panel in its own case for assessment year 2006 07 therefore it cannot be said that the claim allowed by the ld. assessing officer is erroneous at all. In view of this we cannot sustain the order of Ld. CIT in assuming jurisdiction under section 263 of the income tax act, as it cannot be said that the order of the Ld. assessing officer in allowing additional depreciation on computers is erroneous as well as prejudicial to the interest of the revenue. - Assessee appeal allowed. - ITA No. 2148/Del/2009 - - - Dated:- 2-2-2017 - SH C.M.GARG, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER For the Assessee : Sh. Ajay Vohra, Sr. Adv Sh. Gaurav Jain, Adv Ms. Bhavita Kumar, Adv For the Revenue : Sh. AK Saroha, CIT DR ORDER PER PRASHANT MAHARISHI, A. M. 1. This is an appeal filed by the assessee against the order of LD CIT, New Delhi passed u/s 263 of the Income Tax Act, 1961 dated 26.03.2009 for the Assessment Year 2004-05. 2. The assessee has raised the following grounds of appeal:- 1. That on the facts and circumstances of the case and in law the order dated 26.3.2009 passed by the Commis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... towards royalty/fee for technical services chargeable to tax in India, as the same was in consideration for (i) right to use trademark, (ii) permission to export and (iii) in lieu of managerial and technical services provided by Honda, and accordingly, the appellant was under the obligation to deduct at source therefrom as per section 195 of the Act. 4.2 That the CIT erred on facts and in law in not appreciating that the payment of export commission was made to Honda in consideration of ceding overseas territory to which export of motorcycles and spares could be made by the appellant, in lieu of such payment. 4.3 That the CIT erred on facts and in law in not appreciating that 'License and Technical Assistance Agreement' and/or 'Export Services Agreement did not provide right or payment for use of trademark of Honda. 4.4 Without prejudice that the CIT erred on facts and in law in not appreciating that the payment of export commission being for earning income from source outside India, could not be characterized as royalty or fee for technical services as per section 9(l)(vi)(b) or 9(l)(vii)(b) of the Act respectively. 4.5 That the CIT has erred on facts and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d machinery the additional depreciation should have been disallowed. 5. Before us, ld AR submitted a detailed chart that all the above issues raised were duly examined during the course of original assessment and thereafter ld Assessing Officer has taken a particular view. With respect to disallowance of royalty and technical fees he submitted that Assessing Officer has raised query during assessment proceedings that was replied on 23.11.2006 and thereafter the ld Assessing Officer has disallowed 25% of the expenditure holding it to be capital in nature applying the decision of Honourable High court and supreme court. He submitted that this issue is now squarely covered in favor of the assessee by the decision of the Hon'ble Delhi High Court reported at 372 ITR 481 in its own case. On the issue of disallowance of model fees he submitted that the issue was raised by the Assessing Officer during the course of assessment proceedings which was replied by the assessee vide letter dated 23.11.2006 and after discussion the ld Assessing Officer disallowed 25% of the above expenditure holding it to be capital in nature. He further submitted that on the identical question in earlier ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied upon the decision of the coordinate bench in case NIIT Vs. CIT 60 Taxmann. Com 313 (Delhi). ii. He further referred to point No. 7 and 10 of the letter dated 19.09.2006 of the Assessing Officer and submitted that these queries are general and in no case pointed towards the question as to how much percentage of royalty, technical fees and model fee is in nature of capital expenditure. He therefore, stated that there is no enquiry on the specific issue by the AO. iii. He further submitted that the for AY 2000-01, order u/s 263 has been upheld by the ITAT vide order dated 15.02.2007 which was also challenged before the Hon'ble High Court and subsequently not pressed. iv. On the issue of export commission, he submitted that the ld CIT has analysed export agreement and it shows that the ld Assessing Officer has not applied his mind and there is a lack of enquiry. With respect to point No. 8 of the query letter dated 19.09.2006 by AO he stated that these are general in nature. v. He submitted that ld Assessing Officer has made on all these issues pretence of enquiry by calling routine details on the issue of claim of depreciation and additional depreciation. vi. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t it cannot validate jurisdiction which was lacking originally. He further relied on the decision of the Hon'ble Supreme Court in case of Sedco Forex 279 ITR 310. He further stated that jurisdiction applied to the order u/s 263, therefore, if that order is passed prior to the amendment it cannot be made applicable. vi. He further submitted that on the merits of the case ld CIT has not given any finding and therefore, he referred para No. 14 of the order of the ld CIT. He therefore submitted that when revising authority feeling enquiry inadequate then it must be made by the revising authority to demonstrate that order was erroneous and it does not have any authority to remand and direct the Assessing Officer to conduct the enquiry, for this he relied upon the decision Hon'ble Delhi High Court in DIT Vs. Jyoti Foundation 357 ITR 388 which followed the decision of Hon'ble Delhi High Court in ITO Vs. DG Housing Project Ltd 343 ITR 329. In the end he submitted that the order passed by the ld CIT in revising the order of the ld Assessing Officer u/s 263 is not sustainable as there is no error in the order of ld Assessing Officer and it is not prejudicial to the interest of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Jap In Rs. P70(KRY A) model 400,000,000 157.386,262 CDNIOO(KSTA)model 150,000,000 63.492.016 Total 550,000,000 220,878,278 Further, the assessee has incurred royalty aggregating to ₹ 89.64,39,331/-on different models at ex factory sale price of the product in pursuance of Article 25.1(2) of the Technical Assistance. Agreement ( Agreement ) dated 2nd June, 1995 read with Fourth and Fifth Supplementary Amendment to the said Agreement entered into with Honda. Copies of all the three agreement; are attached herewith at Annexure IV. No part of the model fee and royally paid to Honda, it is respectfully submitted, can he disallowed or held as capital both, on facts and in law for reasons elaborated hereinunder: The assessee, pursuant to the agreement with Honda has been paying running royalty, on any and all products carried out of the manufacturing facility of the assessee for delivery to any purchasers, renters or other transferees for the right to use technology lice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rights and the Technical Information licensed in the agreement, in the manufacture, assembly, servicing, sale or other disposition of any goods other than the Products, or for any purpose other than as expressly provided in this Agreement. This Article also provides that the assesses shall not claim any title or property right in the Intellectual Property Rights, know-how. Technical Information or other information received under the agreement from Honda. Article 21 provides that the assessee shall notify Honda of any infringement, or i gal use in the Territory of the Intellectual Property Rights, or any imitation of the Products immediately after it comes to the knowledge of the assessee. Articles 21.3 further provides that the assessee shall, upon the request and at the expense of Honda take all such action as may be deemed necessary to ensure such protection. Article 25 provides that the assessee% in consideration of the rights and license granted under Article 2 and of the furnishing of the Technical Information and technical assistance provided to the assessee under Article 4. shall pay to Honda the model fee and running royalty as mentioned in said Article. Art ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... echnical knowledge and experience, in (he pharmaceutical field which the Swiss company commanded. The appellant was on that account a mere licensee for a limited period of (he technical knowledge of the Swiss company with the right to use the patents and trade marks of that company. The appellant acquired under the agreement merely V right -to draw, for the purpose of carrying on its business as a manufacturer and dealer of pharmaceutical products, upon the technical knowledge of the Swiss company for a limited period, by making that technical knowledge available (he Swiss company did no! pan with tiny asset of its business, nor did the appellant acquire any asset or advantage of an enduring nature for the benefit of its business. In the case of Empire Jute Co. Ltd Vs. CIT : 124 ITR 1. in which the Supreme Court laid down the teat for determining as to who! constitutes capital expenditure in the following terms: it is not every advantage of enduring nature acquired by an assessee that brings the case within the principle laid down in this test. What is material to consider is the nature of the advantage in a commercial sense and it is only where the advantage is in the capita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from disclosing (he information, processes and inventions (hiring the currency and also after determination of the agreement, the expenditure incurred was revenue in nature and was not for purposes of bringing into existence any asset or benefit of enduring nature. The Supreme Court in the case of CIT v. Wavin (India) Ltd. 236 ITR 314 affirmed the decision of the Madras High Court holding that where (here was no sale of technical know-how, but the appellant was merely given right to use the technical information the payment made for the use of such know how were allowable as revenue deduction. The jurisdictional High Court, too, has consistently taken the view that where the assessee merely obtained the right to use the know-how for a limited period in lieu of the lump sum payment, the same was of revenue nature deductible in the computation of business income. In the case of Shriram Refrigeration Industries Ltd. v, CIT: 127 ITR 746, the Delhi High Court while holding that the lump sum payment on the facts of that case was deductible revenue expenditure, their Lordships of the Delhi High Court laid down the proposition of taw that if the collaboration agreement results in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estion whether the expenditure the effect the expenditure and the impact of the expenditure in the business carried on by the assessee and for that purpose, it was necessary to bear in mind the business exigencies on the basis of which the agreement had been entered into. In a subsequent decision in the case of CIT vs. Southern Pressings (P) Ltd.; 242 ITR 67 flu. Court held that where the assessee had no proprietary interest over the know-how obtained in the collaboration agreement and tin- purpose of outlay wax the use of the technical know how during the period of the agreement, the payment made nuclei- the collaboration agreement had in he allowed as revenue deduction. The court observed that when the business realities and rapid technological changes in the automobile field were taken into account, the payment made by the assesses could not he regarded as capital expenditure. In CITvs. BN Elias Co. (F) Ltd 1198?! 168 ITR 190, it was emphasized at pages 204-205 by the Calcutta High Court that if under the agreement there was no out and out of out transfer of the foreign know-how to the assessee and the know-how supplied by the foreign company remains the property of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowable as revenue expenditure. In the assessee's own case in appeal for A.Y.1996-97 the Tribunal was pleased to allow model fee paid to Honda under section 37(1) of the Act pursuant to the agreement under dispute. The Bench held that since there was only rifiht to use the Technical know-how and there was no ownership of any property, expenses are alowable under section 37(1) of the Act. ( Hero Honda Motors Ltd. v. ^ CIT: 95 TTJ (Del) 782). Further, the Hon'ble Delhi High Court has rejected departmental appeal for admission of questions of law on model / know how fee. The status of various questions referred to the High court by the department is as under: Question referred Status of deptt appeal 1 Warranty provision Rejected 2 Deferred revenue expenses admitted 3 Technical know how fee Rejected 4 a. b. Ded. u/s80HHCon Custom duty benefit under advance license Excise Dty/Sales tax excluded f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... repair and service certain two/ three wheeler parts thereof designed and developed by Honda. HHML has since renewed the agreement with HONDA on 02-06-95 (effective date was 21/06/1994 as per Article 2(12)) for a period of 10 years again 011 the same terms and conditions of the former agreement. The model changes were incorporated vide separate Model Agreements supplementary to the main agreement 'License and Technical Assistance Agreement/ The earlier such Agreements were dated 10.6.1997, 3.4.2000, 25.09.2001, 11.11.2002 and now the fifth dated 13/11/2003. Besides these, die other Agreements are for Exchange of Technicians; Exports; etc. 2.3 From a reading of the 'License and Technical Assistant Agreement', it is clear that the Intellectual Property Rights developed by Honda has been transferred to the assessee. The Agreement states that Honda has acquired and possesses certain Intellectual Property Rights, manufacturing information and know-how, quality standards and marketing methods relating to such 2/3 wheelers. Thus, an asset of enduring benefit which was the exclusive property of Honda has been transferred for use by the assessee company. The above agreement ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, would also have to fall within the four walls of capital expenditure. 2.5 In view of the above and keeping into consideration the findings given in the order for AY 2003-04, the assessee was accordingly asked to justify why its claim of royalty payments (and model fee) should not be disallowed as capital expenditure. 2.6 The assessee has filed its submission vide letter dated 23/11/2006. In this submission the assessee has submitted that it has been paying 'running royalty for the right to use technology licensed by Honda to the assessee. The agreement granted the assessee an indivisible and non-transferable exclusive right and license to manufacture, assemble, sell and distribute the products and parts during the terms of agreement within the specified territory. It does not have the ownership/proprietary rights on the technical know-how and the incurring of the royalty expenditure did not result in acquisition of any capital assets or a benefit of enduring nature. The assessee has also relied upon some case laws in support of its case and submitted mat royalty expenses are revenue in nature and should be allowed. 2.7 The submissions made by the assessee are the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansferable exclusive right over the intellectual Property Right and Patent which has been developed by Honda after sustained research and development activities. In so far as ownership of model, within the specified territory of India and, in fact, assigned countries as per export agreement, the assessee has agreed upon and maintained an unequivocal right of using the property acquired by the agreement. 5) It is relevant to mention here that in case of expiry of the agreement the assessee may continue to manufacture, assemble, sell, delivery and service the products and the parts. Therefore, The assessee may continue to use the technical know how provided to it by HONDA even after expiry of the agreement for which royalty has been paid by it. 2.8 It is clear from the above, that the technical know-how, technical assistance and training and use of technical information and patents, as well as the exclusive and independent right to manufacture and sell; with Honda refraining from operations within the specified territories, have been bestowed solely on the assessee company. For these rights, royalty and technical know-how fees are paid by the assessee to He ida. Even on expiry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without any enquiry on nature of services offered and nature of activities had simply applied 25% as disallowable expenditure. He further stated that there is apparent lack of enquiry and finding of fact that balance 75% of revenue expenditure is allowable. Therefore, he held that full enquiries cannot be carried at this level and therefore, matter is to be restored to Assessing Officer for carrying out necessary enquiry and application of proper ratio of Hon'ble Supreme Court. e) On analysis of the identical issue in the earlier years and subsequent years it was submitted that this issue was decided in favour of the assessee for AY 2001-02 and 2002-03 in 372 ITR 481 by the Hon'ble Delhi High Court wherein the revenue challenged the order of the coordinate bench and it was held that as the total expenditure on account of technical and royalty fees is revenue in nature as under:- 2. The respondent-assessee Hero Motocorp Ltd. earlier known as Hero Honda Motors Ltd. was a joint venture between the Hero group and Honda Motorcycle Co. Ltd., Japan ( Honda , for short) for manufacture and sale of motorcycle using technology licenced by Honda. The respondent-assessee and Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l or conclusive test ; it cannot be applied impetuously and mechanically without regard to the particular and realistic terra firma. The conclusion must be practical, common sensical and down to earth and not prosaic, academic and theoretical. 4. In the facts of the present case, we have to consider whether the expenditure incurred on acquisition or right to technical information and know-how would satisfy the enduring benefit test in the capital field or the right acquired had enabled the assessee's trading and business apparatus, in practical and commercial sense. 5. Technical information and know-how are intangible and have unique characteristics as distinct from tangible assets. These are acquired by a person over a period of time or acquired from a third person, who may transfer ownership or grant a licence in the form of right to use, i.e., grant limited rights, while retaining ownership rights. In the latter case, technical information or know-how even when parted with, the proprietorship is retained by the original holder and in that sense what is granted to the user would be a mere right to use and not transfer of absolute or complete ownership. 6. The aforesa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... termination of the agreement. Absence of stipulation as to duration of time for use of know-how, etc., and whether it would be determinative and crucial, when we answer whether it is a case of outright transfer or mere access or right to use, was considered by the Delhi High Court in Shriram Refrigeration Industries Ltd. v. CIT [1981] 127 ITR 746 (Delhi). In the said case, the Indian assessee had been granted non-divisible, non-transferable and non-assignable licence in respect of technical knowledge and secret process for manufacture of sealed compressors, without right to sub-licence except with the consent of the grantor. The agreement, it was observed, contemplated that it would continue unless otherwise terminated at the end of 10 years and at the end of succeeding five-year period. This period of 5/10 years was considered to be not unduly long as to warrant an inference that some lasting advantage was obtained. Significantly, the Division Bench held that once the conclusion was reached on the difference in principle between a payment made for acquisition of assets and a payment made for only use of intellectual property rights, the period of use pales into insignificance. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that technical know-how and information become obsolete and useless unless updated. The aforesaid ratio and reasoning has been followed by the Delhi High Court in Addl. CIT v. Shama Engine Valves Ltd. [1982] 138 ITR 216 (Delhi), In the said case, the agreement was initially for 10 years, with right of automatic renewal and right to continue manufacture without payment on termination. The agreement had granted an exclusive right to manufacture in India and other specified countries. However, there was restriction in the form of a confidentiality clause on communication or disclosure of information to third parties. It was observed that the information and know- how granted was in respect of fast changing technological developments which become obsolete in a short span of time. The payment had a direct nexus with carrying on or conduct of the business and considered commercially, it would be an integral part of the profit-making process. The court, therefore, held that the expenditure must be treated as revenue. Similar reasoning is to be found in the case of CIT v. Bhai Sunder Dass and Sons P. Ltd. [1986] 158 ITR 195 (Delhi). Reference can also be made to the recent decision in C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enue in nature. A detailed discussion on the said aspect is to be found in the decision of this court in CIT v. J. K. Synthetics Ltd. [2009] 309 ITR 371 (Delhi) ; [2009] 176 Taxman 355 (Delhi), wherein the principles to distinguish the capital and revenue expenditure stand set out in paragraph 38. We would only like to refer to clauses 5 and 6 thereof, which reads as under (page 412 of 309 ITR) : (v) expenditure incurred for grant of licence which accords 'access' to technical knowledge, as against, 'absolute' transfer of tech nical knowledge and information would ordinarily be treated as revenue expenditure. In order to sift, in a manner of speaking, the grain from the chaff, one would have to closely look at the attendant circumstances, such as : (a) the tenure of the licence. (b) the right, if any, in the licensee to create further rights in favour of third parties, (c) the prohibition, if any, in parting with a confidential informa tion received under the license to third parties without the consent of the licensor, (d) whether the licence transfers the 'fruits of research' of the licensor, 'once for all', (e) whether on expiry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fined territory was granted. The expenditure was allowed under section 37(1) of the Act. This was in spite of the fact that the original licence was for the indefinite period and the supplementary agreement did not indicate a terminus quo. It was, however, observed that the agreement could be terminated and upon such expiration or termination, the Indian assessee would have no right to exploit or use the know-how. There was no vesting of know-how or goodwill in the Indian assessee. Learned counsel for the assessee has also referred to the decisions in CIT v. Oblum Electrical Industries P. Ltd. [1981] 127 ITR 409 (AP), CIT v. Gujarat Carbon Ltd. [2002] 254 ITR 294 (Guj), CIT v. Jyoti Electric Motors Ltd. [2002] 255 ITR 345 (Guj), S. R. P. Tools Ltd. v. CIT [1999] 237 ITR 684 (Mad), CIT v. Southern Pressings P. Ltd. [2000] 242 ITR 67 (Mad) and CIT v. B. N. Elias and Co. P. Ltd. [1987] 168 ITR 190 (Cal). We need not specifically dilate any more on the said aspect in view of the position of law as expounded above. However, we would like to refer to the decision in CIT v. Southern Switchgear Ltd. [1984] 148 ITR 272 (Mad) relied on by the Revenue. In the said case, the assessee had en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... related to products or licensed parts thereof, or necessary for manufacture of the same. The term technical information was to mean know-how and any technical information not included in know-how which related to the product or licensed part or was necessary for manufacture of product or licensed parts which the Honda owned at the time of execution of the agreement or would own from time to time during the subsistence of the agreement. The term products meant two- wheelers or three-wheelers as expressly specified under clauses (a) and (b), identified by the licensor's development codes, viz., 198s, KCCA, etc., which had already been developed and was under manufacture under the earlier agreement. Under clause (c), it would include additional models or types of two/three wheelers pursuant to model change as specified in the model agreement. The term new models was to mean new models developed by Honda at the request of the respondent-assessee with the new development code and subject to the new model agreement. Similarly, the term model change was defined as conduct through which a new model with a new development code was made by a change in any part or entirety o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e agreement including copies and translations and all information received under the secret and confidentiality clauses. Honda had right to access the respondent's factories and other facilities for inspections to check and confirm whether conditions/obliga tions imposed were being complied with. Know-how, technical information and other non-public technical or business information was to remain solely and exclusively the property of Honda and was to be held in trust and in confidence for Honda by the respondent-assessee. This information was not to be divulged, communi cated or made known to third persons in any manner whatsoever, except as expressly provided. The respondent was to take all necessary precau tions to keep the said information secret and confidential and restrict its use strictly as per the first as well as the present agreement. The respond ent-assessee was to establish and maintain internal regulations and pro cedures for protection of secrecy. The information could be disclosed to employees, directors or approved sub-contractors when it was reasonably necessary for the purpose of manufacture, assembly, repair and servicing, subject to obtaining a writt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and periodical payment as specified in exhibit 1 or the amounts calculated by multiplying the rate specified in exhibit 1 with reference to the ex-factory/ex-warehouse sales price. Reading the aforesaid terms and conditions and applying the tests expounded, it has to be held that the payments in question were for right to use or rather for access to technical know-how and information. The ownership and the intellectual property rights in the know-how or technical information were never transferred or became an asset of the respondent-assessee. The ownership rights were ardently and vigorously protected by Honda. The proprietorship in the intellectual property was not conveyed to the respondent-assessee but only a limited and restricted right to use on strict and stringent terms were granted. The ownership in the intangible continued to remain the exclusive and sole property of Honda. The information, etc., were made available to the respondent- assessee for day-to-day running and operation, i.e., to carry on business. In fact, the business was not exactly new. Manufacture and sales had already commenced under the agreement dated January 24, 1984. After the expiry of the first a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decide this issue in favour of the Revenue. The tax treatment given by the Tribunal is, therefore, not interfered. The respondent-assessee during the course of hearing had drawn our attention that the question whether the model fee paid was revenue or capital in nature had arisen for the first time in the assessment year 1996- 97. The Tribunal had held that the fee was revenue expenditure and, therefore, deductible under section 37(1) of the Act in their decision reported as [2005] 95 TTJ (Delhi) 782, titled Hero Honda Motors Ltd. v. Joint CIT, decided on May 13, 2005. The Delhi High Court did not entertain and frame any question of law on the said aspect in the appeal of the Revenue on the said issue. The Revenue had preferred a special leave petition but the same was also dismissed. For the assessment years 1997-98 and 1999- 2000, similar expenditure of model fee was allowed as revenue expenditure by the Tribunal. Appeals filed by the Revenue on the said issue were not entertained by the High Court. We would not like to decide the present appeal for this ground and reason, as the High Court orders do not set out and indicate any ground or reason. We do not comment or express a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of intangible asset. In fact the Hon ble high court has held that the whole expenditure is revenue in nature. In view of this the order of the Ld. assessing officer of disallowing 25% of the total expenditure as capital expenditure cannot be held to be prejudicial to the interest of revenue. g) Further for the subsequent years the coordinate bench has held that royalty and technical fees is revenue expenditure. h) On the issue of allowability of royalty, technical guidance fees and model fees the revenue has cited the decision of the coordinate bench in case of NIIT versus Commissioner of income tax (2015) 60 Taxmann.com 313 (Delhi tribunal ) wherein paragraph No. 28 has been extensively quoted by the Ld. that CIT DR which are as under:- 28. We have considered the detailed submissions of both the parties and have perused the record of the case keeping in view the various authoritative pronouncements in this regard. There cannot be any quarrel with the legal propositions, as advanced by both the parties. It has consistently been held that if the AO's conclusion is arrived at after due application of mind on a particular issue, then the order cannot be said to be err ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 263. Therefore, when specific issues will be considered, it will be examined whether the AO had reached the level of satisfaction by carrying out necessary inquiries qua that issue or not. Ground is disposed of accordingly. There cannot be any other view other than expressed by coordinate bench on the issue of when Ld. CIT can assume jurisdiction under section 263 of the income tax act and when it can be said to be Lack of inquiry or inadequate inquiry. However in the present issue the assessment order is required to be held to be erroneous. We are of the opinion that when the Hon ble high court on the same agreement has held that expenditure in question is revenue in nature we do not find fault in the order of the Ld. assessing officer when he allowed 75% of such expenditure as revenue expenditure and disallowed 25% of such expenditure holding it to be capital in nature. Therefore in our view on allowability of these expenditure the reliance placed by the revenue on the decision of the coordinate bench is not proper. i) Therefore, on this disallowance we do not agree with the order of ld CIT to hold that 75% of amount of expenditure allowed by the AO is erroneous and prejud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f ₹ 231880363/-. 3.2 In view of the facts of the case as discussed above, as well as in the assessment order for the AY 2003-04, it is clear that both royalty and technical know-how fee had an integral element or capital expenditure. In this case, there has been a grant of individual and non-transferable exclusive rights and licence within the specified territory under the Intellectual Property Rights and using the technical information furnished by Honda and for this right part consideration has been paid as model fee. Accordingly, in view of the facts discussed in preceding paragraphs as well as in the assessment order for AY 2003-04, it is hereby held that 25% of the model fee of ₹ 231880363/- amounting to ₹ 57970090/- is capital in nature. Therefore, an addition of ₹ 57970090/- is made to the income of the assessee on this account. Since the assessee has filed incorrect particulars of its income, penalty proceedings under section 271(l)(c) have been initiated separately. 11. The issue of allowability of the model fee has also been examined by the Hon ble high court in case of the assessee wherein it has been held to be revenue in nature and full ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT DR placed before us that the provisions of section 263 amended w.e.f. 01/06/2015 are also applicable retrospectively and therefore on this ground the exercise of powers of Ld. CIT under section 263 are valid. On the basis of above it is apparent that the revenue is arguing here that even if there is inadequate enquiry the provisions of section 263 would be applicable in this case. The Ld. CIT has not brought to our notice judicial precedent which says that the provisions of section 263 amended w.e.f. 01/06/2005 are applicable retrospectively. However the coordinate bench in Narayanan Tatu Rane versus income tax officer (2016) 70 Taxmann.com 227 (Mum) while analysing the amended provisions has held as under:- 19. The law interpreted by the High Courts makes it clear that the Ld Pr. CIT, before holding an order to be erroneous, should have conducted necessary enquiries or verification in order to show that the finding given by the assessing officer is erroneous, the Ld Pr. CIT should have shown that the view taken by the AO is unsustainable in law. In the instant case, the Ld Pr. CIT has failed to do so and has simply expressed the view that the assessing officer should have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies or verification, which a reasonable and prudent officer would have carried out or not. It does not authorise or give unfettered powers to the Ld Pr. CIT to revise each and every order, if in his opinion, the same has been passed without making enquiries or verification which should have been made. In our view, it is the responsibility of the Ld Pr. CIT to show that the enquiries or verification conducted by the AO was not in accordance with the enquries or verification that would have been carried out by a prudent officer. Hence, in our view, the question as to whether the amendment brought in by way of Explanation 2(a) shall have retrospective or prospective application shall not be relevant. 15. On this aspect we also note para No. 31 of the decision of the coordinate bench in case of ACIT versus Gitanjali exports Corporation Ltd ITA No. 7662/mum/2013 for assessment year 2008 09 wherein it has been held that:- 31. .. Take for example, the amendment to Section 263 by the Finance Act, 1961. In many judicial precedents, [such as in the case of CIT Vs Sunbeam Auto Limited (332 ITR 167) wherein it was held that Learned counsel for the assessee is right in his submission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner,- (a) the order is passed without making inquiries or verification which, should have been made; (b) the order is passed allowing any relief without inquiring into the claim; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision, prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person. This amendment will take effect from 1st day of June 2015. [Clause 65] {extracted from Indiabudget.nic.in} 17. In view of above decision of the coordinate bench as well as the memorandum explaining the finance bill 2015 16 we are of the considered view that the amendment is applicable prospectively. In any way we would like to also say that whether the order passed by the Ld. assessing officer is without making Inquiries or verification which should have been made. In the present case vide letter dated 23/11/2006 by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to any of the judicial precedents where the export commission has been held to be royalty or fees for technical services none has been brought to our notice by the learned CIT during the course of hearing. In view of this it is also not possible to hold that the order of the Ld. assessing officer was erroneous. Therefore we quash the order of the Ld. CIT in assuming jurisdiction under section 263 of the income tax act with respect to allowance of export commission. 19. On the issue of double disallowance of depreciation the Ld. assessing officer is allowed is related to the assessee in the consequential order dated 26/10/2009 passed under section 143 (3) read with section 263 of the income tax act therefore it is unfair for Ld. CIT to assume jurisdiction under section 263 of the income tax act. 20. With respect to the additional depreciation on the computers the query was raised during the course of the assessment proceedings which was replied on 01/12/2006 explaining the fulfillment of conditional for claim of additional depreciation with risk back to various assets. As claimed by the assessee that this issue has been decided in favour of the assessee by dispute resolution p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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