CIT vs. HERO HONDA MOTORS LTD

* IN THE HIGH COURT OF DELHI AT NEW DELHI + INCOME TAX APPEAL NOS. 696/2011. 698/2011, 699/2011, 625/2012 & 633/2012 Reservedon : 10^ November, 2014 Date of decision: February, 2015 COMMISSIONER OF INCOME TAX-IV Appellant Through Mr. Rohit Madan, Mr. P. Roy Chaudhury & Mr. Ruchir Bhatia, Advocates. versus HERO HONDA MOTORS LIMITED Respondent ^ Through Mr. Ajay Vohra, Sr. Advocate with Ms. Kavita Jha & Mr. Vivek Bansal, Advocates. CORAM: HON'BLE MR. JUSTICE SANJIV KHANNA HON'BLE MR. JUSTICE V. KAMESWAR RAO SANHV KHANNA, J.; For detailed order, see ITA No. 694/2011 titled Commissioner ofIncome Tax-IV versus Hero Honda Motors Limited, pronounced today. (SANHV KHANNA) JUDGE (V. KAMESWAR RAO) JUDGE FEBRUARY 3,2015 VKR 2015:DHC:11016-DB

+ IN THE HIGH COURT OF DELHI AT NEW DELHI ^s^opm 1T 625/2012 Reserved on Date of deeision: November, 2014 7 February, 2015 a Through Mr RohitMadan, Mr. P. Roy Chaudhuiy &Mr. Rucliir Bhatia, Advocates. versus hero HONDA Ti nnah Mr AiayVohra, Sr. Advocate with Ms.KavitaJha&Mr. VivekBansal, Advocates. HON'BLE MR. JUSTICE V. J/o ™s comnaon dec.ston/*„t woo.d dispose ofthe ^ese t.1 .ppeais rded hy the Reveatre re.ata. to Assesstrteat Yea.. OO.t 2O N, 02 and 2002-03. These appeals ratpugned the order dated 6 Apt passed hy the hreo.e Tax Appellate Trlhuaal (Trlbuaal, for short . Th substaatial questio.. ofla» required to be decided aad adat.tted for heat. by order dated 20^'' April, 2012 reads as under.- "Whether the Irrcome Tax Appellate Tribunal was ri^ht in holding that the payment made to Honda Mo Limited under the "know how" agreement da e 2.6.1995 is revenue expense and not partly or who y capital expense?" 2. • The respondent-assessee Hero MotocoiT Limited, earlier Imown as Herd Honda Motors Limited, was ajoint venture between the Hero Group ITA 694, 696, 698, 699/2011 &625, 633/2012 ^ 2015:DHC:11016-DB

and Honda licenced by Honda. mannfectute and sale of mo ^ ,,e „, f9S4, «Mcb «as mv.sed by collaboration contract d agreements were valid second and third and Honda thereupon for a period often years. 3,^4 entered into another ^„„,,„ed in the present technical assistance agreem ^ -'•-•"trr:::— raised IS whether royalty p tinn raised by the Revenue is ri^fttrp Another contention raisea uy or partly capital expen • nvahle under the agreement „., „ ..a., -« ™ ••" aawd T' Jwte, mi f" \ by the Revenue relates to payme items arise for the same was but these aspects h^^^ consideration inAssessm and raised in the appeals preterrea 10 2002-03. • cthe relevant clauses of the 'licence and Before we critically examine the releva technical assistance agreement' dated 2- June. 1995 " ™ ' rr know-how. Afrequent and prim y ^ capital and revenue expenditure ,s the enduring nsLssee incurs expenditure which gives enduring benefit mthe cap : distinct frL expenditure of concurrent and reoccurring nature in revere field, it is treated and regarded as capita.^ tc3t is applied on the basis of commercial principles and^not . astia.t- ITA 694, 696, 698, 699/2011 &625, 633/2012 2015:DHC:11016-DB

694, 696, 698, 699/2011 &625,633/2012 ITA Page 3 of; ITR 1(SC) exempUfied that when the an advantage ofendnmgbene^t•^ ,,, nature ofadvantage eonsi ere ^ management to conduet assessee's trading or more profitability, while leaving the assessee's busrness more „t fixed capital untouc e. . ^ indefinite future. The test o though the advantage may en ur conclusive test; it enduring benefit is, there ore, camrot be applied impetuo y p^.^^t.mal, :: r- - - common sensical and down sent case we have to consider whether the 4, In the facts of t epre ^ information and expenditure mcuri-ed on acquisi 10 know-how would satisfy the endurmg business apparatus, in right acquired had enabled fire assesses trading practical and commercial sense. •Xeclmicalmformationandhnov.howmei^^^^^^^^ characteristics as distinct from tangi e as person over aperiod of time or — nansfer ownership or grant alicence ^ limited rights, while retaining ownership riglrts. i„,.,-... »-*" -• "•'"f,:t» WO.IJ . .»» .»! " ~ "'l " " ownership. 2015:DHC:11016-DB

its relevance in determining whether the \4 The aforesaid aspect and r„ eap.ta, expenditure was to acquire tec mca commissioner of or revenue field was elucidated y ^j„,aed, (1968) 69 ITR Income'Tax, Bombay Citf Iversus ^ pecember, 1967 is 692 (SC). This judgment question/issue. In the said case, ioeessantly cited and applied to dee de^^9 tire assessee company had procured to formulae, scientific p„„peny, to produce licensed property rights in India. Inspite of the fact diat the preparations tod to promom tltor^ ,ght and Swiss Company ha 8™ t^nts listed in Scheduled, to ucenee" in the territory of India „ o3e ^ „.he use, exercise tod vend ttom— rhetrademartosetoutmSche^ ^ court held that what was conferre assessee, it was observed, was no ^ infonnation was not to trademarks etc. As per the agreemen , . be divulged to third parties wtoout access to the technical toowle ge an ,rd trademarks for aliimted ptom^ ^ - asset of its business, nor did^m1^ , advantage of ™ .o^toess as amanufacturer tod rely draw for tire purpose ,,as no ^ upon tire technical know eg ,,3oiutely in favour ofthe Indian attempt to part with technical taow e g fo,- all assessee. It was not acase of transfei Thus, the expendlmre incurredwas revenue in nature. Page 4 of 20 ITA 694, 696, 698, 699/2011 &625, 633/2012 2015:DHC:11016-DB

• 1? •• fmds resonance in subsequent decisions T The aforesaid legal positron find n Hin CIT vs. Brilish Indian Corp. Ltd. ) ofthe Supreme Court mCI and CIT 51 (SC), CIT vs. Indian Oxygen ^ vs. Wavin (India) Hi- (1999) 2 wiow-how and what was granted outright sale oftechnical information^an was non-exclusive or ose the loiow-how after (supra), the Indian company was terminationofagreement. „f time for use of know-how Absence of stipulation as to dum^» etc., and whether it would be etermi^ whether it isacase ofouttiglfttr»^ Ini^tstries ^ideredhy l^e -Ihr , the said case, the Indian Ud. vs. CIT (1981) 127 ^on-transferable atrd non- assessee had been ^,„owledge and secret process for assignable licence in respect „tcept tuanufacture of sealed ^gteement, it was obseiwed with the consent of 8 terminated at end of oontemplated that it would contmue unl s^^ 10 years and at end of succee mg ^ inference that years was considered to be not un u g jy the division bench aoine lasting advantage was obtaine p^noiple held that once conclusion was reac e payment made for „,nt made for acquisition of assets and pay between apayment ^ p^l,3 mto only use of intellectual property rig . ^ ^ insignificance. Payment Similarly, whether period, it will be only jt,,,finthe absence ofother payment was fn, acquisition of a capital facts, help decide whether th g ^ Q. c.1^ fi^^/2012 ,TA 694, 696, 698, 699/2011 &625, 633/2012 2015:DHC:11016-DB

, , e But the nature and character of the asset ,sset or an enduring advanag^ ^„,yes an acquired, whether it rs perm determinative. In the sard assessee to tun its business more - r. of any loiowledge or as.et an iTjT fl982f Idd hflf 240 lo rn.eul Eusineerin, ^ ^ manufacturing in nature. 99 UTriveni Engineering ' ^company manufacturing ,BcO, the Indian assessee ^ action whh turbines and other machinery. ^,„ofacture of turbines and obtaining technical ,are paiby treated as revenue sugar mill inachmei7 or forward for two years, and ti^ expenditure in one year and party g^^mrd tvritten offin three years. Revenue court observed that that the expenditure was of capita n of knowhow or the test to be applied was wheth ^^,ovant t,e payment was for mere ng^ ,,e clauses of the agreement,^ made m •sold','absolute property a . closer scrutiny and reading the tBo agreement, but ™ ^re agreement was for aperiod of 10 agreement asawhole, 8 ..jorthv^ith". The agreement was limited years, but, it could be termina e to India. Though the data, towmg. oem ^ tteated as absolute prope.^^^^ ,,oreby continued and remain assessee was to that it was acase of gr-t oflicence for us ^ observe complete confidentiality with regai uot assign the agreement, without written ^ manifested that the right was only alimit , ITA 694,696,698, 699/2011 &625, 633/2012 2015:DHC:11016-DB

of absolute transfer of it was held drat teohnologieal ^ ,,oome obsolete atrd useless unless technical knowhow and mfoimati ' . Has been followed by the Delhi ,0. The aforesaid ratro and reasonrng c;„u rnurt in AMI. Commssioner /• .„„„ment was o High court in AMI C«—-J ^ ::™autonratrc renewal and right to continue „«.»-ao.P— 21 i. M. - «P- -fa" »-"• an exclusive riglrt to manu confidentiality clause on However, drere was —,,d p^ies. ^ was conununicatron or disci^re ^ obseived drat the information an ^3,3,, changing technologica eve ,, span oftime. The payment had ^ ^ ,f the business, and therefore, held that the expenditure the profit making process. .3,3,,33, of roust be treated as revenue. , ,95 ^pcl). Cjr vs. Bhai Sunder ,,3^ i„„„x Reference can also be made to therein referring to a Industries Ltd. (2008) 173 Taxm j^cquired for use of technical ' 1 that if a licence was acquiieu lu circular, it was observe ^ ^ .3,, ^^..ronce iroowhow for alimited perio ,, ,Pc an asset of enduring naure^^ ^ decision ofthe Supieme q-^e .X 00/i TTT? 342 wherein it has been nei ^ CIT (1997) 224 ITR . capital oi revenue expenditure, would dp P TO 694, 696, 698,699/20118. 625, 633/2012 2015:DHC:11016-DB

Iptelv new plant with completely new piocess assessee had obtained acompletely new and tectaology; whether the expen i i knowhow for betterroeirt of the pro u produced; is itacase of improvisatron and p Ltnessoratrewbusr„ess;whed.ertheass^-ft-^^^^^^ •.ri to return plans and designs dul period was recmred to manufacture the product m , .„h eonditions of the agreement effect on aconstruction of various erm 5,rislons A e„st be considered. Similar reasoning can nnoi^) 171 Taxman 81 lueij „„,S m2 property rights remain with • dicates that what was granted was amere licence, as ,e foreign party, It.—,- ^„„,,„hality as to the assessee wa i„f„„mion or assigned the , knowhow and could for agreement widtout prior cotrsent. In —g-^-^-^^^.d—y ellving world of sclenee and technology. Decision m Whether the-w.^ ,hus, Sci-i/lc T" «L(suPta) dealt with the issue, whether depreciation Bigg. ffouse (P) Ud( S„p^.o„,e should be allowed on mtangi P Court mScientific Engg (supra) had the expenditurewas capitalor revenue in nature. 11 Adetailed dispussion onthe said aspect is to befound rn the decision iTrfr^ r70091 176 Taxman 355 lueij, ofthis courtin CIT vs. J.K. SyntiieticsIt .i2m^^ wherein the principles to distinguish capl a an ^ ,TA 694, 696,698, 699/2011 a625,633/2012 2015:DHC:11016-DB

,, i:ve to refer to clauses 5and 6 .no We would only litre set out in paragraph 38. we thereof which reads as under:- , .f T•,cense which aceords ..(V) expenditure mcuned for g.an icess" to teehnicai „rdina,ii, be treated technieal knowledge and 'nforma ^ - o-e"uld .rave to e.oael, look at tbe the gram from the enau, attendant cireumstances, such as.- . (a) the tenure ofthe Licence. ' •nt if any in the licensee to create furtheiiig (b) the right, if any, m in favour ofthird parties, . • . • parting with a confidentia (c) the prohibition, i any parties information received under without the consent ofthe heenso, trptn^fers the "fruits of research (d) wlreter the Licence transfers ofthe licensor, "once tor all , • oaf the Licence the licensee is (e) whether on expii^ obtained required to ^retuin ^^^^or even though the licensee under the Licence o ^ product, in respect of, "tTess-- ritnowledge was obtained during the which subsisteneeottheUcerroe. tt,wbedtera„,seo.totpro.ss«^ by the licensor od be would ordiuarily be aLss to such secret process construed as capital mnature. COnSUU&Ll ".r nnnld use the technical knowledge (vi) the fact^ that assessee for the purposes of its obtained during the tenuie o expired, and in that sense, business after the ^ has been categorically resulting in an endnrmg a ^ by itself, passage oftime become obsolete Page 9 of 20 ,TA 694, 696, 698, 699/2011 8. 625, 633/2012 2015:DHC:11016-DB

. +1 o riprkion of the Bombay High The said decision makes reference to the decisi ^ loe sdiu u ^ Engineermg & Court in Commtdone, of Income Tax v. Tata g r Pvi m (1980) 123 ITR 538 (Bom) where payment was Locomotive Co Pvt Ltd ^ made to the foreign collaborator m respec information reciuired for manufacture of automohve products. T lining adopted by Division Bench ofthe Bombay Hr^ Court was to the effect that teclmical lcnowhow made available under an agieemen not stand on the same footing as protected rights of aregistered paten •••mto use in limited sense was granted. It was not holder, as mere ng material whether assessee could use the knowno ^ agreement on the ground that this aspect was wholly —ua^ • • n on other grounds/reasoning recorded in the sai express no opinion on otner g decision.) • T-TA "NTn I4'b0/2010 titled CIT vs. 19 PecentlY the Delhi High Court in ITA No. 1450/2Uiu J -A A n99^''Aunust 2012, observed that when Modi Revlon PvL Ltd., decided o ' .r nit would - Q ; p fnr use of know-how, it wouio. royalty was paid for alimited purpose, i.e. for use Kn be revenue in nature as the entire benefit of know-how was mean manufacture ofproducts. It was notamatter where assessee ha undertake the manufacture through acontractor. In the sai case, olrship of the brand, remained property of the foreign party and a licence to operate in adefined territory was granted. Expenditure wa. allowed under section 37(1) ofthe Act. This was inspite ofthe fact tha original licence was for indefinite period and the supplementary agre^ did not indicate aterminuo ,uo. It was, however, obseiwed agreement could be terminated and upon such expiration or teimmahon. There was no vesting ofknow-how or goodwill in the Indian assessee. Page 10 of 20 ITA 694, 696, 698, 699/2011 &625, 633/2012 2015:DHC:11016-DB

if? 13 Learned counsel for the assessee has ^so referred to decisions ut • ^ • (m ltd (1981) 127 ITR 409 (AP), Electrical Imdmtnes (P) Pw, U 1 ^0091 254 ITR 294(Guj), CIT vs. Jyoti Carbon Lid, (2002) 294 iiiv v 170021 255 ITR 345(Guj), S.if.f. Took ltd. vs. CIT Electric Motors ad. (2002) 2t, ^ m i,d (2000) (1999) 237 ITR 684 (Mad), CIT vs. Southern Pressings (P) L ( ) 242 ITR 67 (Mad) and CIT vs. B.N. Bias&Co. (P) Ud. (m 190 (Cal). We need not specifically dilate any more on the sarc aspec m a O- oflaw as expounded above. However, we would like view ofthe position of law as expou noRat 148 to refer to the decision in Cir vs; SotrtfcOT SM..fcfcg<K"-T •( ITR 272 (Mad) relied on by the revenue. In the said case, the assessee la for setting up ofafactory and operation thereof. The foreign company ta treed not to manufacture products in India or give right toathird person to do the same. Referring to the clauses of the agreement, the High Com Held that technical knowledge so secured had resulted man en uimg advantage and benefit, as the same was available even after termination o trtreement since the factory and its operation would have coi—. The duration of the agreement was 5years but the method, production plcedure, etc. would remain with the Indian assessee and, th.efore m enduring benefit/advantage was acquired. There was also con eimei exclusive right to manufacture and sell the articles, » independent right secured and was of an enduring nature. Accm gy A- iinwpfl as caoital expenditure. Noticeably, 25% ofthe royalty paid was disallowe as capi P • hwas obseiwed that fire entire royalty was foi acquisition ^ p,„Uege to manufacrnre and sell the products and, therefore, it was pa y capital andpartly revenue in nature. The aforesaid decision was uphel y^ the Supreme Court by ashort order observing that they weie not peisua ! l!:: that the view of dre High Court was erroneous vide W... Page 11 of 20 ITA 694, 696, 698, 699/2011 &625, 633/2012 2015:DHC:11016-DB

2-4 A (199S) 2.32 ITR .s. J^as c™.d«edb, Switchgear • ^ S*''S''"'' •. «d (2009) 319 359, The decision 1 ^ Motor Industna the Delhi High Court" ^ facts. „Kl09(Del)-d-sdisting .a «utispi-dhelote >.j;-^J;^^^^^^^„„a,,^ The tenn riDted 2"'^ n those patents, utility agi-eement stood defined to mea 'intellectual property ng intellectual property HE • t^pitents and other mrei to manufacturing ot rtdels design patents thereof or to man Lctly to the products or the licens^ P pa^tH . the products and their ptoperty rights relating 0*^= nti;inodels,designpatentsan terin - rZal property limited to dravrtugs, stand p^nducts or U •Kand direction maps etc. directy term manuals ai manufacture of i rtini t nf or necessary fo^^ any technical parts thereof, ct^.^ov/-lioNV technical information' was to m product 01 rLmation trot included in-;::,leofproduct or licensedparts linensed part or was necessary for or woul ^ «hiehtheHondaowned atfoe ^^^^^^nent, The^n^ own from time to tune urin as expressly spe t anCts' meant two-wl^eelei development codes, v. . " rat and (h). identified by dcensorsd J „„her clauses (a) an ( sloped an 198s, KCCA. etc. which (e), dw manufacture under the earlier a^^^ pursuant to inolude additional models or yp .p,, n new .„30del ehange' as speet^d r,r CQR 699/2011 St 625, bfi3/ ITA 694, 696, 698, b 2015:DHC:11016-DB

,esponde.t assessee.Uhaew deve P .,„P Si.Ua.y. t.e^ ,as »a.e by a ttaougb «feh anew mode „„t lumted ebange many part menUm.y .dmeaeb ease was .ppeaeanee, struemre, charactenst ^,,„,ded • •.t to anew model agreement. The ag subject to a new engaged mm ,,st the respondent assessee ws ^„,,,ee utanubacturlng, assembling, se .gj ,,e earl.er wheelers and their parts as J ,,Psequen eollaboration agreement date ,,3po„den .. t thereto which confened ana distribute,, amendment tttereto „,„„fseture. assemble, sell, ussessee a right and hcen ,epalr and service two/threewheel . r>fthe agreement were. IS The other terms ofthe agr •• td by the licensor to the respondent assesses (1) Rights and licenses grane . (enable, without tire iig t o , „ere ettCusWe, ,,„,Ue the ^""1: - rights and duties under the agreement product or pa s ^„,,,ectly. (or the term of the agreement, i.e. 10 years (« ^"^--^ldl"^':::;;,ja June. 1994. from the effective date 01/ from the effective date 01/ (3) The Agreement defaulting party, if d ai e ^ (orthwlth by aparty, if tte other party Page i3 of 20 PA 694, 696, 696, 69S/mU 8.a«, 633/201/ 2015:DHC:11016-DB

mereed with, or was adead, o. iaddecd. change in shareholding own r fi-ip Qsicemctrt, i- upan expiration of termmation. due to eau ^^^ufacture, assemble, , t pmsessee could contm obligations, respondent assess cf then deliver services but indudingpaytnent ofroyalty. .areeventofpre—— ro defanlt ofperformance o^oj^^^^ ,„a oh. ^"•^""''''TrToLcts and the parts, as well as tire tts dispositions 0 information. .rtellectnalproperty ng ^^^ (6) Purther in the event of propertiesmconneclron ropronrptlyretnrnalldocu.^-^^^^^^ and all r,hh the agreement »^ and confrdent.ality clanses. rntormationreceive un ^^^.3 factories and other Honda had right to access .e re.^^^ ^..^er facilities for rvere being compliedwith conditions/obligations n (3) ffnowhow, technical —- ^ ^^,,3,Hy the husiness information was 0rema^^ ^^„,,,„ce for property of Honda and was 0 ^^3 „„t rc he Honda by the respondent ass.se. ^ny divulged, communicated or y^d. Respondent was to manner whatsoever, except as express yp ,r,e9a,ess,sss,sss/mrr--s,e3S/zors 2015:DHC:11016-DB

2- • „to keep the said infomiation secret and take all necessary precau ^ the present agreement. Th for protection ofsecrecy. „aintamintert.a,regn,.ionsand^^^^ The informatron con ^ fo, hte approved sub-contractors tvh purpose of manufacWre. asse ^ ^^foeontractors to — ^'1"™:: al—tiai. •treat an informatron as sec. _ en exp.ration (p^Theaforesaidrightsandohiigationsweretopersrs ortermination ofthe agreement. ^ nt to use or cause or permit use by y (10) The respondent assessee was n foformation third party, totellectual property rrght orevided under the agfcement. ^ ewas not to claim any title or property rrgh an Ice ofthe agreement. Upon termination whatsoever during the exrs aresult of default of the respondent assessee. ropehyorinterestwhatsoevercouldbeciarmed. . . respondent assessee became aware or • et" propertyrrghtofHondainlndiabyathrrdparty. (13) Therespondentwas^ ;-rXolty and/or sale form to Honda regarding ma ol of parts or products. Honda wa^a accounts, financial statements and records. . Lactionsascontemplatedundertheagreement. ,TA 694,696, 698, 699/2011 8,625,633/2012 2015:DHC:11016-DB

, , jiot written consent, responaent conta trot, — ^ aitecUy or tnatreetiy or — - agent or any other or otherwise deaintg tn irranufactnting, assembhng. two/three wheelers ofother pat -::-j RuimingRoy^^^y- ^under the new a, ^Moaei fee' was agreenrent. P—^,,,,on stipniated the amonn^o payments. The agreemeirt „f usi „odel fee payable in respee ^ 10,00,000/- was payable mtr the ,rst 60 days of the ^^--1 ,,,, „1 Honda Government ^^-^'^YVtletJeimieal htfottnation necessary for delivering to the responden ^fter the .watmfaeture and assembly, an had parties cortftrmedmwrittng th eommeneed on commerc.al basts, whichever was earlier. ^^ b. Royalty was running and multiplying the rate ''•'•'r irx:::'.' specified m Bxhibii warehouse sales price. r -d terms and conditions and applying the • 15, Readmg the aforesaid term „,,hou were for right to expounded, ithas to beheld that the payments. Pag0 16of20 ITA 694, 696, 698, 699/2011 &625, 633/2012 2015:DHC:11016-DB

, . , vnowbow and information. Tde or rather for access to the taowho« or technical owcrship aad the mtellectua p „3pondent irformation «ere never transfe b, Tlrecrvrtershlp^-^^^ ^^^^^ Honda. The proprietorshrp mth ,3e on the respondent assessee but ony^ i„tarrgible strict and stringent terms were gr^te^^^ ,be . continued to remain the ^..gpondent assessee for day to informatiorr. etc. were made ava.a^ „s bay mnnlng and OP^ sales had already commence was not exactly new. M of the fns aaber the agreement dated 24 - • oontrnu.ty * « n"- ;• I. „„.».. »"»•' „„ „ „«»-M '» " .. V- '• »• f-~' .*• » agreement merely penmtted ptoprietorship and ownership payment ofroyalty and that after 10 years and tight was never granted or trans jospondent assessee could still after returning the jlowhow and information would be a have continued to use tec ic automobile industry, ttWia, and inconseTuentra, ;^;;J^p: ,one arethe days when one teclmology upgradation is cons ^ ^ob or two manufacturers ernoyedmonop^^ of out-of-date models. indeterminate wart an ... art loiow-how is injected every year TTTbttdC.tlto heep up and upgradewouldresultm :r::-:l-msales.-Tersistentupgradationandcuttingedge Page17 of20 ,TA 694, 696, 698, 699/2011 &625, 653/2012 2015:DHC:11016-DB

^6 „„irement in the competitive market technology is .mandate attdbusittessreq ,Pt«o/three wheelers. Model fee. subieet matter of PP^ .„ 2001-02 is .merely Rs.4.09 lakhs an ^ ,ears. crores. The said royalty pa.d to assessment-year 2001-02 was R• • .,^,,,„,mal Hortda. if pa.d f- tiEbt to nse of m^ ponble property right, would poss.bly 3^, Ore sa.d Taxation Avoidance Agreemen ^^3 absolute payment might not be taxable rn M^a^ by arrd complete transfer of ' f3permanentEstablishme.tt(See Horrdato thelndian assessee ma between Mdicles7andl2ottheDo«bleTaxat.on India a.td,Tapan). „ear 2000-01. Revenue has also • 18. in the appeal for lakhs paid as technical guidance challenged the tax treatment • has -• -^-"^-^^'nCl^ilantRcvenue. Inthe absertce ofany not been placed on record by the pp document and evendetails as to the matur^.^^^^^^ ca.mot adjudicate and dex.de thrs .ssu . eatment givenby the Tribunal is, therefore, n -ng the course of hearing had drawn our ,p. The respondent assessee urmg .„,™-..'•"""-" ~ nature had arisen for the fir expenditure and. therefore. Tribunal had held that ^be.r dec.sion reported as ;r;;^ - «"•«-—t::r" ,TA 694, 696,698,699/2011 a625,635/2012 2015:DHC:11016-DB

3 May 2005. The Delhi Commissioner of Income Tax, deeide ^ on the said -».—-ttryT - - aspeet in the appeal of the Rev dismissed. For ^ ~ UoO.s... e.pe.a..c of the assessment yeais gied by tee «as allowed as revenne e.pen^ the Revenue on the sat ^^3 g,e,„d and reason, as «ould not Hke to dectde P ,,e ffiglt court „„ „,ether the Hrglt Court . We do rrot eornmen f„,„e any under Seetion 260A ol tne additional question of law.. • t the eontention ot tire respondent/assessee w.th 20. We also rejeet th • :„„er under Section 263 ofthe Act reference to the power ,^p,g„ed order the Tribunal relating to assessment year 2Uti onthe said questionheld:- _ ^,3, assessment year "Learned counsel has ^^^e ^elhi High Court was 2001-02, the 263 appeal befo ^ourt passed the not pressed by the assessee ^nd Hon consideration orde'r to the effect that the -sue will be op in other years. In our v , expenses being acoirect Officer allowing '^odel fee and .ggessment order view, there was no eiTOi in pas g ^002-03 is quashed. Therefore, 263 -f;r2^order passed 'by GIT Since we have quas ciT(A)'s consequential subsequent proceedmgs I.e. AO sand Uit ) orders thereon are also quashed. Areading of the aforesaid reasoning clearly eluc.dates that the Tr.buna has held that payments made by respondent to Honda were revenue escpendtture and not capital. On the said finding on merh, the Trtbunal observed that there was no error in the order passed by the Assessmg Officer. Power under Section 263 can be invoiced by the Commtss.oner Page 19 of 20 ITA 694, 696, 698, 699/2011 &625, 633/2012 2015:DHC:11016-DB

only when the order passed by the Assessrng Officer rs erroneous and not <>-2^ It is in these circumstances, that no specific quesfion of law ' der Section 263 of the Act, has been framed m with reference to power under the appeal relating to assessment year 2001-02. 21 In view ofthe aforesaid discussion, the substantial questions of law •nnswered rn favour ofthe respondent assessee and agarnst the appell are Revenue. to costs. ITA j There will be no order as 22. -The appeals are accordingly disposed . JUDGE / 694, 696, 698, 699/2011 &625,633/2012 1\ • •- w 6-: Page 20 of 20 2015:DHC:11016-DB