Income Tax Appellate Tribunal provides relief to Honda India

Income Tax Appellate Tribunal provides relief to Honda India

Directs assessing officer to delete addition on account of capitalization of royalty expenses

The Delhi bench of Income Tax Appellate Tribunal (ITAT) has come to the rescue of Honda Motorcycle & Scooter India. It has directed the assessing officer (AO) to delete the addition on account of capitalization of royalty expenses by holding it to be revenue in nature.

The assesse is a subsidiary of Honda Motor Company Limited, Japan, engaged in the business of manufacture and sale of motorcycles and scooters. It entered into international transactions with its associated enterprise and therefore reference was made to the transfer-pricing officer to determine the arm's-length price in respect to the international transactions.

The assesse raised the issue of capitalization of the royalty expenses paid to him in lieu of granting the license under the royalty and technical know-how agreement. The assesse claimed it did not acquire any new asset or benefit from the payment made under the agreement.

The Coram of judicial member Amit Shukla and accountant member Prashant Maharishi noted that the assesse was already engaged in the manufacturing of motorcycles and scooters and the payment of royalty expenses was not with respect to the setting up of a manufacturing facility.

ITAT found that the issue was squarely covered in favour of the assesse by the decision of the coordinate bench. It, therefore, directed the AO to delete the addition of capitalization of royalty expenses holding it to be revenue in nature.