The case ITA No. 5297/DEL/2019 involves appellant Voith Paper Fabrics India Ltd., a company based in Faridabad, contesting against the Additional Commissioner of Income Tax (ACIT), Circle-II, Faridabad, for the assessment year 2016-17. The appeal was filed on June 10, 2019, against the order of the CIT(A), Faridabad, dated March 31, 2019.
The appellant filed the appeal challenging the disallowance of Rs. 3,60,48,535 on account of technical know-how fees, which was treated as capital expenditure by the Assessing Officer (AO). The AO argued that the expenditure incurred provided the company with an enduring benefit, making it capital in nature.
The tribunal hearing was held on June 13, 2022, with the order pronounced on June 30, 2022. The counsel for the appellant, Shri S.K. Agarwal, argued that similar disallowances made in previous assessment years (2009-10 to 2014-15) had been deleted by the CIT(A) and upheld by the ITAT. The Department’s representative, Shri Toufel Tahir, supported the AO’s decision.
The appellant had entered into a technical know-how agreement with Voith Paper Fabrics GmbH & Co. KG, a company incorporated in Germany. The agreement required the appellant to pay 5% of the net export sale price as royalty for technical assistance and know-how related to the manufacturing of paper maker felts and other industrial fabrics. The AO considered these payments as capital expenditure, arguing that they provided long-term benefits and increased the company’s production capabilities.
The appellant argued that the payments were revenue in nature as they were recurrent and necessary for the ongoing business operations. They highlighted that the CIT(A) had consistently ruled in their favor in previous years, a decision upheld by the ITAT. The appellant also referenced the Hon’ble Punjab & Haryana High Court ruling in the case of CIT vs. Super Steels, which supported their stance.
The tribunal, consisting of Accountant Member Shri Anil Chaturvedi and Judicial Member Shri N.K. Choudhary, decided in favor of the appellant. They noted that similar disallowances in previous years had been overturned by the CIT(A) and upheld by the ITAT. The tribunal found no reason to deviate from these precedents, especially since the Revenue had not provided any new evidence or legal basis to challenge the CIT(A)’s earlier decisions.
This decision underscores the importance of consistency in tax rulings and the challenges of reclassifying recurrent business expenditures as capital in nature. The case of Voith Paper Fabrics India Ltd. demonstrates that technical know-how fees, while potentially providing long-term benefits, can still be considered revenue expenditure if they are essential to the ongoing operations and success of the business.
Manage the increasing number of hearings effortlessly by leveraging the legal AI revolution We are India's Leading revolutionary AI-powered legal platform where you can get enough insights into top cases and judgements.
Research Platform