On the termination of royalty agreement for training it cannot be returned expenses incurred on such training can be treated as capital expenditure

Last updated: 27 March 2012

Court :
INCOME TAX APPELLATE TRIBUNAL

Brief :
From the observation we can find the following fact, it is very clear that assessee has not obtained any benefit of enduring nature. The royalty is payable on the basis of volume of sales year to year. In the event of termination of agreement has to discontinue uses of material provided return everything in this respect. Hence it cannot be said that any benefit of enduring nature accrued to the assessee. Furthering examining the present case on the touchstone of Jurisdictional High Court cited above, we find that the same is squarely applicable to the facts of the case. The ld. Departmental Representative did not fully dispute this finding, he only contended that the agreement also provided training to the assessee’s employees, which cannot be returned in any case. We do not find any cogency in this aspect of this agreement as training expense of employee cannot be treated as capital expenditure. The case law relied upon by the revenue are not applicable to the facts of the present case. Hence, respectfully following the precedent from the decision of the Hon’ble Jurisdictional High Court cited above, we set aside the order of the authorities below on this issue and decide the issue in favour of the assessee

Citation :
Assistant Commissioner of Income Tax,Circle-12(1),New Delhi.(Appellant)Vs. M/s Henkel Teroson India Ltd.,1, Sri Aurobindo Marg,New Delhi – 110 016. PAN: AAACH5216Q. (Respondent)