INCOME TAX ACT, 1961

Section 37(1)

Business expenditure - Allowability of royalty payments made to foreign companies in order to avail technical information for manufacturing certain items - Expenditure allowed as revenue expense in subsequent years on similar circumstances -

Issue was with regard to payment of royalty. Assessee entered into an agreement with foreign companies in order to avail technical information for manufacturing certain items. The said expense was claimed as revenue expenditure and the same has been allowed as revenue expenditure till assessment year 2005-06. It transpired that before AO, in support of its expenditure, assessee by mistake filed earlier agreement dated 01-4-1997; but before CIT(A) assessee filed a later agreement dated 01-4-2005. CIT(A) during appellate proceedings compared terms of agreement and found them to be at variance. Assessee explained its case but same was not accepted by CIT(A). Held: It was only in assessment year 2005-06, said payment of royalty was not allowed in hands of assessee. In all later years, starting from assessment year 2007-08, royalty was allowed as revenue expenditure in hands of the assessee by CIT(A) up to assessment year 2011-12. In assessment year 2012-13, AO vide order passed under section 143(3) read with section 144C allowed payment of royalty as revenue expenditure. Even TPO had not made any adverse reference in his order under section 92CA(3). Following principal of consistency, issue was decided in favour of assessee.

REFERRED : CIT v. Neo Poly Pack (P.) Ltd. (2000) 245 ITR 492 (Del-HC) : (2000) TaxPub(DT) 1348 (Del-HC); CIT v. Ciba of India Limited (1968) 69 ITR 692 (SC) : (1968) TaxPub(DT) 0346 (SC); CIT-IV v. G4S Securities System (India) Pvt. Ltd. (2011) 338 ITR 46 (Del-HC) : (2011) TaxPub(DT) 2205 (Del-HC)

FAVOUR : In assessee's favour

A.Y. :

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