9911796707
TMI Blog2022 (4) TMI 612X X X X Extracts X X X X X X X X Extracts X X X X ..... ing nature for the benefit of its business. In the case in question, it cannot be said that the Sweden Company had relinquished its command over the impugned technical know-how information in favour of the assessee in any manner. In the absence of any vested advantage to assessee or any indefeasible right, it is farfetched to hypothetically presume any component of capital expenditure implicit in the outgo towards royalty. We find considerable merit in the plea of the assessee for claiming the entire royalty expenditure for use of technical know-how as revenue expenditure. We also find that the judgment rendered in the case of CIT vs. Southern Switchgear Ltd [ 1983 (3) TMI 18 - MADRAS HIGH COURT] as affirmed by SC [ 1997 (12) TMI 106 - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness of manufacture and sale of customized packaging solutions to various customers in India. For the assessment year under consideration, the assessee filed its return of income declaring loss of ₹ 4,80,43,901/-. The case of the assessee was selected for scrutiny. In the course of assessment, the Assessing Officer inter alia observed that the assessee has incurred expenditure towards royalty for use of technical know-how and technical process of the licensor amounting to ₹ 82,86,039/-. The Assessing Officer took note of certain clauses of the license agreement dated 01.01.2008 with its parent company Nefab AB, Sweden and came to conclusion that a part of the royalty expenses for use of technical know-how etc. requires to be tre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reveal or disclose the same to any third party. It was submitted that term/period of this agreement was three years subject to automatic renewal for additional period unless terminated by either party to the agreement. As per clause No. 7.5 of the license agreement, upon termination, the assessee was required to immediately cease the use of any and all technical process know-how together with patent rights and trademark rights etc. as provided by the licensor. It was thus submitted that the terms of license agreement clearly provides for use of technical know-how process only upto the subsistence of license agreement and the right to use comes to an end on termination of agreement. It was pointed out that the CIT(A) itself has admitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the Revenue, on the other hand, placed reliance upon the orders of the lower authorities and submitted in furtherance that text and tenor of license agreement would suggest that the assessee has acquired the right to use the technical process know-how for perpetual use and the benefit accruing to the assessee is of long term in nature giving rise to the creation of capital asset of considerable value. Ld. DR accordingly submitted that no interference with the order of the CIT(A) is thus called for in the light of the decision of the Hon'ble Supreme Court in the case of CIT vs. Southern Switchgear Ltd. (supra). 8. We have carefully considered the rival submissions and perused the orders of the lower authorities and material refer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reement. Further, there is a confidentiality clause which prevents the assessee from disclosing the licensed information to a third party. To reiterate, the assessee is not entitled to the use of licensed technical know-how on termination of agreement and is obliged under the contract, to relinquish the advantage accruing by virtue of license agreement. All the above features of the agreement make it unequivocal that what the assessee, in essence, has acquired under the agreement is a mere right to use the licensed technical know-how in question. A mere access to the technical knowledge by virtue of such license agreement, in our view, could not permit the revenue authorities to artificially assume certain part of the expenditure as advanta ..... X X X X Extracts X X X X X X X X Extracts X X X X
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