As a relief to Maruti Suzuki India, the Delhi bench of the Income Tax Appellate Tribunal (ITAT) directed the Assessing Officer (AO) to consider the amount of royalty as a revenue expenditure.
Maruti Suzuki India Ltd,the assessee challenged the finding of AO and DRP regarding the expenditure of Rs.444,43,46,5/- incurred on account of royalty holding same to be capital expenditure. During the year under consideration, the appellant had made a royalty payment of Rs.1035,49,95,272/- including a lump sum royalty of Rs.1857,36,000/- to Suzuki Motor Corporation, Japan (“SMC”) for use of licensed information for the engineering, design and development, manufacture, testing, quality control, sale and after-sales service of products and parts.
The AO in the final assessment order treated the same as capital expenditure based onan adjustment for Rs.442.92 crores made by the TPO. The assessee contended that the impugned action of the AO in holding the royalty payment to be capital in nature is not tenable in law since the payment under the agreement is allowable as Revenue expenditure.
It was observed that the nature and purpose for which the royalty had been paid to SMC was only the use of licensed information for the engineering, design and development, manufacture, testing, quality control, sale and after-sales service of products and parts.
A Coram comprising of Shri Shamim Yahya, Accountant Member & Shri Kul Bharat, Judicial Member held that the amount of royalty considered by the Assessing Officer as capital expenditure should be allowed as a revenue expenditure, and at the same time, depreciation allowed by the Assessing Officer on this amount should be taken back.
While allowing the appeal, the Court directed the AO to delete the disallowance.
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