CONSTITUTION OF INDIA, 1950

Article 226

Writ - Reopening of assessment under section 147 - Classification of royalty paid by assessee being 'capital' in nature, as against claim of it being 'revenue' in nature, by petitioner -

Petitioner paid an amount to M/s. I towards royalty and claimed it as revenue expenditure. It was seen from the Intellectual Property Licence Agreement entered into between the assessee company and M/s. I that licensor was owner of certain intellectual property relating to development, manufacture, marketing promotion and distribution and/or sale of products. AO issued notice for reassessment observing that as per agreement entered into with M/s. I, petitioner was having a right to manufacture and sell products in India using licensed technology provided. A right was conferred on petitioner for manufacturing and selling the products and the royalty payment was towards technical information provided by the licensor. Thus, royalty payment should be treated as capital expenditure and after allowing eligible depreciation @ 25% balance amount claimed as revenue expenditure needed to be disallowed. Held: Perusal of the reasons extracted elsewhere in this order only referred to issue of classification of royalty on merits and nowhere it was stated that there was any failure by petitioner in making a disclosure in this regard. To be fair to AO, he did not even make such allegation in reasons for re-assessment and rightly so, since the material available would show a full disclosure by petitioner at all stages of assessment. So far as income-tax assessment orders are concerned, they cannot be reopened on the scope of income escaping assessment under section 147 after the expiry of four years from the end of assessment year unless there be omission or failure on the part of petitioner to disclose fully and truly all material facts necessary for the assessment. Thus, petition was allowed.

REFERRED :

FAVOUR : Petition allowed.

A.Y. : 2013-14

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