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TMI Blog2021 (7) TMI 717X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the godowns, warehouses and other buildings which are utilized in an ordinary manner even for housing plant or machinery would not become plant or machinery by itself. Further, he has also given a finding that the GI sheets are such material which are utilized for the plant and by its nature this cannot be characterized as plant or machinery. Under these circumstances, we uphold the order of the CIT(A) and dismiss the grounds raised by the assessee on this issue. Addition of net of depreciation on account of capitalization of 25% of Technical Know-how fee - HELD THAT:- We hold that the ld. CIT(A) is not justified in upholding the action of the Assessing Officer in treating 25% of the technical know-how fees as capital in nature. We, therefore, set aside the order of the CIT(A) on this issue and direct the Assessing Officer to treat the entire amount as revenue in nature. The grounds raised by the assessee on this issue are accordingly allowed. - I.T.A. No. 939/Del/2017 - - - Dated:- 7-7-2021 - Anil Chaturvedi , Member ( A ) And Sudhanshu Srivastava , Member ( J ) For the Appellant : Harpreet Singh Ajmani , Adv. and N. Narang , CA For the Respondents : Sunita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssary either before or during the hearing. 3. At the outset, the Ld. Authorized Representative (AR) submitted that all the three issues under challenge were covered by the order of this Tribunal in assessee's own case for Assessment Year 2011-12 in ITA No. 2054/Del/2016 vide order dated 31.10.2019. The Ld. Authorized Representative placed a copy of the said order on record. 4. Per contra, the Ld. CIT-DR fairly accepted that all the three issues under challenge in this appeal were covered in favour of either of the parties by the order of the ITAT in assessee's own case for Assessment Year 2011-12. 5. Having heard both the parties and after having gone through the records as well as order of this Tribunal in assessee's own case for Assessment Year 2011-12, we agree with the submission of the Ld. Authorized Representative that all the three issues under challenge are covered by the order of the Tribunal (ITAT) in ITA No. 2054/Del/2016 for Assessment Year 2011-12 vide order dated 31.10.2019. 5.1. Ground Nos. 1 1.1 challenge the disallowance of additional depreciation on new Plant and Machinery to the tune of ₹ 9,17,283/-. On this issue, it was the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ows that these are mainly replacement of various plant machinery earlier in use. We, therefore, do not find any infirmity in the order of the CIT(A) rejecting the claim of additional depreciation on the ground that the various items are not new machinery which has been purchased by the assessee, but, it is in the nature of repair and maintenance of the existing machinery. The grounds raised by the assessee on this issue are accordingly dismissed. 5.2. Therefore, respectfully following the order of the Coordinate Bench on this issue, we dismiss Ground Nos. 1 1.1 of the assessee's appeal. 5.3. Ground Nos. 2 2.1 challenge the disallowance of depreciation of ₹ 10,07,066/- on account of re-classification of assets as 'building other than residential', eligible for depreciation @ 10%, which was originally classified by the assessee as 'Plant and Machinery', eligible for depreciation at 15%. We note that this issue is also covered against the assessee by the order of the ITAT in Assessment Year 2011-12. The relevant observations of the Coordinate Bench are contained in Para-14 and the same are being reproduced herein under for a ready reference: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ves rise to enduring benefit which can be enjoyed by the assessee over a number of years. He accordingly allowed depreciation on this @ 25% amounting to ₹ 88,11,500/- and made an addition of ₹ 2,64,34,500/- to the total income of the assessee. While doing so, the Assessing Officer held that the scope read with the provisions of technical know-how clearly indicate that the acquisition of technical know-how seeks to improve each and every aspect of the entire business. The agreement between the assessee and the HCA shows that the acquisition of technical know-how has brought in a complete and comprehensive overhauling of the entire business of the assessee. Therefore, the agreement clearly indicates that the technical knowledge the assessee obtained from this agreement with HCA secured to the assessee an enduring advantage and though benefit which was available to the assessee for its manufacturing and industrial process even after the termination of agreement ceases, but, when the agreement never terminates on account of revision/automatic renewal the benefit goes on and on. Further, continuous use of improved practices over several years leads to creation of institution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... All the Technical Information supplied by HCA (whether in writing or orally or in any other manner) mention in para 2.1 above for use by MCL and all copies of the Technical Information (or any of it) made by the MCL shall be and remain the property of HCA and MCL acknowledges the copyright in the Technical Information shall belong to an remain vested with HCA. HCA hereby grants to MCL licence to make such number of copies of the Technical Information (or any part thereof) as the MCL may reasonably require for the purposes of Agreement. 22.1 We find clause 5 of the agreement reads as under:- Technical know-how fee in respect of each quarter of a year equal to 2% on the basis of the net ex-factory price of the produce exclusive of excise duties minus the cost of standard bought-out components and landed cost of imported components, irrespective of the source of procurement, including ocean freight, insurance, custom duties and net of distribution costs (fright and forwarding) etc. and as shown in the un-audited/audited financial accounts of MCI. 22.2 Similarly, clause 13 of the agreement reads as under:- 13.1 Upon the expiration of the term or earlier termina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 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 new development code and subject to new model agreement. Similarly, the term 'model change' was defined as conduct through which a new model with new development code was made by a change in any part or entirety of the product, including but not limited to appearance, structure, characteristics or specifications and in each case was subject to a new model agreement. The agreement specifically recorded that the respondent assessee was already e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lities for inspections to check and confirm whether conditions/obligations imposed were being complied with. (8) Knowhow, 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, communicated or made known to third persons in any manner whatsoever, except as expressly provided. Respondent was to take all necessary precautions to keep the said information secret and confidential and restrict its use strictly as per the first as well as the present agreement. The respondent assessee was to establish and maintain internal regulations and procedures 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 'written promise' from the approved sub-contractors to treat all information as secret and confidential. (9) The aforesaid rights and obligations were to persist even on expiration or terminat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... factory/ex-warehouse sales price. 16. 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 knowhow and information. The ownership and the intellectual property rights in the knowhow 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 24th January, 1984. After expiry of the first agreement, the second agreement dated 2nd June, 1995, ensured continuity in manufacture, development, production and sale. The period of agreement, 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 189 (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 was held that whenever a payment is based on a percentage of turnover or profits, it necessarily has no relation to the capital value of the asset, because it cannot be known at the time of the agreement what the turnover or profits will be over a period of years. In another case reported as DCIT Vs. Swaraj Engines Ltd. (2002) 124 Taxman 188, the Tribunal held, revenue payment is allowable as revenue expenditure, since it is related to sales and that it is paid for better conduct, efficiency and improvement of the existing business or product manufactured by the assessee. In the case of CIT Vs. Lumax Industries Ltd. (2008) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ight till expiry of life of patent and Indian Company shall be free to manufacture that item even after expiry of the collaboration agreement without making any additional payments. Assessee claimed that royalty payment is part of percentage of selling price of product and not for acquiring technical know-how of manufactured licensed product having enduring benefit. These facts available on record have not been disputed and we have not been shown any authority so as to justify to take a different view than what has been taken by Tribunal. 37. In view thereof, we answer both the aforesaid questions against Revenue and in favour of Assessee and confirm the view taken by Tribunal on all these aspects. 27. Respectfully following the decisions cited, supra, we hold that the ld. CIT(A) is not justified in upholding the action of the Assessing Officer in treating 25% of the technical know-how fees as capital in nature. We, therefore, set aside the order of the CIT(A) on this issue and direct the Assessing Officer to treat the entire amount as revenue in nature. The grounds raised by the assessee on this issue are accordingly allowed. 5.6. Respectfully following the order o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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