|COURT:||Delhi High Court|
|CORAM:||I. S. Mehta J, S. Muralidhar J|
|CATCH WORDS:||capital vs. revenue expenditure, technical knowhow|
|DATE:||July 3, 2015 (Date of pronouncement)|
|DATE:||July 15, 2015 (Date of publication)|
|AY:||2008-09, 2009-10, 2010-11|
|FILE:||Click here to download the file in pdf format|
|S. 37(1): The very nature of a license agreement is that it is not of a permanent nature. The fact that the payment is spread over a period of 10 yearst does not make the assessee the owner of the technical knowhow. The payment is not of an enduring nature|
The department argued before the High Court that the reliance placed by the ITAT on the decisions in Premier Automobiles Ltd. vs. CIT, (1984) 150 ITR 28 (Bom) and Travancore Sugars and Chemicals Ltd. vs. CIT (1966) 62 ITR 566 (SC), to hold that the payment of technical knowhow fees is revenue in nature is misplaced because in those cases the assessees were manufacturing units and therefore different considerations would apply. It was urged that inasmuch as the essential business of the Assessee was entirely dependent on the technical knowhow provided by SMCL, the benefit to the Assessee was of an enduring nature and the expenditure incurred should be treated as capital expenditure. HELD by the High Court dismissing the appeal:
A perusal of the TCA shows that the payment by the Assessee to SMCL is for the technical knowhow given to the Assessee as a Licensee. Although the payment is spread over a period of 10 years, it does not make the Assessee the owner of the technical knowhow. The very nature of the license agreement is that it is not of a permanent nature. The view taken by the CIT (Appeals), and concurred with by the ITAT, cannot in the circumstances be said to be improbable or contrary to the settled legal position. The Court, therefore, concurs with the view of the CIT (A) and the ITAT that the benefit to the Assessee as a result of payment of royalty for technical knowhow was not of an enduring nature, and therefore cannot be construed to be a capital expenditure.
logic of revenue is indeed misplaced, hon ct is right in its decision.