Law:

Section:

Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessment years 2002-03, 2003-04 and 2005-06 - Royalty paid by assessee to foreign company for use of technical know-how on year to year basis would be allowable as revenue expenditure [In favour of assessee] The assessee-company was engaged in a business of providing guard services, development of computer software, staff training, etc. It had debited certain amount to the profit and loss account by way of royalty for technical know-how, and use of trade mark to a foreign company namely, 'G'. The Assessing Officer held that the payment of royalty in lieu of technical know-how was in the nature of enduring advantage for exclusive use and, therefore, on ad hoc basis, he held that 25 per cent of the royalty should be construed as payments of the capital nature. On appeal, entire royalty was allowed as revenue expenditure. Held that the ownership rights of the trade mark and know-how throughout vested with 'G' and on the expiration or termination of the agreement, the assessee was to return all know-how obtained by it under the agreement. The payment of royalty was also to be on year to year basis on the net sales of the assessee and at no point of time, the assessee was entitled to become the exclusive owner of the technical know-how and the trade mark. Hence, the expenditure incurred by the assessee as royalty was revenue expenditure and was, therefore, deductible under section 37(1). CASES REFERRED TO CIT v. Gujarat Carbon Ltd. [2002] 254 ITR 294 (Guj), CIT v. Lumax Industries Ltd. [2008] 173 Taxman 390 (Delhi), Deputy CIT v. Swaraj Engines Ltd. [2002] 124 Taxman 118 (Chd.), Goodyear India Ltd. v. ITO [2000] 73 ITD 189 (Delhi), Jonas Woodhead and Sons (India) Ltd. v. CIT [1979] 117 ITR 55 (Mad.) (FB) and Travancore Sugars and Chemicals Ltd. v. CIT [1966] 62 ITR 566(SC). Sanjeev Sabharwal, for the Appellant. Ms. Kavita Jha for the Respondent. JUDGMENT M.L. Mehta, J. - The question of law which arises for consideration in these appeals is common. These appeals concern with the same assessee, though these pertain to different assessment years. 2. I. T. A. No. 1943 of 2010 and I.…

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