Revenue vis-à-vis capital expenditure — Payment of royalty by the assessee on a year-to-year basis on the net sales in lieu of technical know-how assistance and the trademark would not amount to capital expenditure but revenue expenditure, as held by DelHC in CIT v G4S Securities System (India) Pvt Ltd — In favour of: The assessee; ITA Nos 1943/2010 and 763, 765/2011.
The ownership rights of the trademark and know-how throughout were vested with G4F and on the expiration or termination of the agreement, the assessee was to return all G4F know-how obtained by it under the agreement. The payment of royalty was also to be on a year-to-year basis on the net sales of the assessee and at no point of time was the assessee entitled to become the exclusive owner of the technical know-how and the trademark. Hence, the expenditure incurred by the assessee as royalty is revenue expenditure and is, therefore, relatable under s 37(1) of the Act.
Decided on: 11 July 2011.
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