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March 2015

Capital or revenue expenditure- A. Y. 2000-01- One time lump sum payment for use of technology for a period of six years- Is licence fee for permitting assessee to use technology- Licence neither transferrable nor payment recoverable- No accretion to capital asset- No enduring benefit- Revenue expenditure:

By K. B. Bhujle Advocate
Reading Time 2 mins
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Timken India Ltd. vs. CIT; 369 ITR 645 (Cal):

For the A. Y. 2000-01 the assessee had claimed that the lump sum payment made for acquiring technical knowhow for a period of six years as revenue expenditure. The Assessing Officer and the Tribunal held the expenditure is capital expenditure and therefore disallowed the claim..

On appeal by the assessee, the Calcutta High Court reversed the decision of the Tribunal and held as under:

“i) The fact was that the payment made by the assessee was on account of licence fee. By making such payment, the assessee had got permission to use the technology. The money paid was irrecoverable. If the business of the assessee stopped for some reason or the other, no benefit from such payment was likely to accrue to assessee.

ii) The licence was not transferrable. Therefore, it could not be said with any amount of certainty that there had been an accretion to the capital asset of the assessee. If the assessee continued to do business and continued to exploit the technology for the agreed period of time, the assessee would be entitled to take the benefit thereof. But if it did not do so, the payment made was irrecoverable.

iii) Therefore, the one-time lump sum payment made by the assessee for acquiring technical know-how for a period of six years was revenue expenditure.”

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