Relief to Honda: ITAT allows Claim of Deduction of Expenses for Technical Know-How Services [Read Order]

The Delhi Bench of Income Tax Appellate Tribunal (ITAT) directed the Assessing Officer (AO) to allow assessee’s claim of deduction in respect of technical know-how payment on the basis of decision of Tribunal in previous Assessment Year (AY) 2015-16.

The assessee Honda Motorcycle and Scooter India Pvt. Ltd is a subsidiary of Honda Motor Co. Ltd. Japan. Honda group is engaged in the business of manufacture and sale of motorcycles and scooters. Honda is one of the world leaders in manufacture and distribution of automobiles, motorcycle and power products and has substantial expertise, technical know-how, brand equity, a worldwide marketing network in the above field.

The assessee raised an additional claim of deduction of expenses of Rs.265,78,13,070  in respect of Technical Know how. The AO summarily rejected the plea of the Appellant by placing reliance on the Supreme Court decision in the case of Goetze India Ltd. v. CIT, and held that the assessee has raised the claim during the assessment proceedings by filing submission and not by filing revised return.

Aggrieved by the order the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)] which upheld the decision of AO. Further aggrieved, the assessee filed an appeal before the Tribunal.

The Authorised Representative of the assessee contented that it has been made clarified by the CBDT (Central Board of Direct Taxes) that the officers of the Department shall genuinely provide reliefs/remedies available to assessee in cases wherein the assessee has missed to claim any relief available to during the assessment and therefore the claim of deduction shall be allowed by the AO.

The AR further submitted that this issue is also covered in favour of the assessee in assessee’s own case for AY 2013-14 to 2016-17, and stated that the Revenue has not filed any appeal before the Hon'ble Punjab and Haryana High Court on this ground.

The Bench comprising of Shamim Yahya, Accountant Member and Challa Nagendra Prasad, Judicial Member found that this issue is squarely covered by the decisions of the ITAT in assessee’s own case in AYs 2013-14 to 2016-17, and observed that ,

“The Supreme Court has carved out the distinction between the payments at the time of setting up of the manufacturing facility and the payments made once the manufacturing process has already began. In the former case, royalty expenditure for setting up the manufacturing facility is capital in nature while in the latter case, the royalty expense is revenue in nature.”

Thus the tribunal bench directed the AO to allow assessee’s claim of deduction in respect of technical know-how payment, and so the ground raised by the assessee was allowed.

To Read the full text of the Order CLICK HERE

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