Assessee's Appeal Granted: Depreciation for License Fee, Annual Fee as Revenue

The Tribunal partially allowed the Assessee's appeal, permitting depreciation on the one-time license fee while categorizing the annual fee as revenue expenditure. The Tribunal determined that the one-time fee conferred enduring benefits akin to acquiring intangible assets, thus eligible for depreciation under Section 32(1)(ii). The judgment was rendered on 29th June 2018.

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Issues:
- Disallowance of trademark and license fee of Rs. 3.73 Crores as capital expenditure or revenue expenditure.

Analysis:
1. The appeal was against the disallowance of trademark and license fee of Rs. 3.73 Crores by the Commissioner of Income Tax (Appeals)-2, Hyderabad. The Assessee contended that the amount should be considered as revenue expenditure, while the Assessing Officer (AO) treated it as capital in nature.

2. The Assessee entered into agreements with GMR Holdings Pvt. Ltd. for trademark and artistic work licenses. The Assessee paid a one-time consolidated fee and regular license fee based on turnover. The AO disallowed the entire amount as capital expenditure, considering it to be for acquiring a benefit of enduring nature. The Assessee argued that it was a non-exclusive agreement for the purpose of using the license, not ownership, and thus should be treated as revenue expenditure.

3. The Commissioner of Income Tax (Appeals) agreed with the AO, noting the contradictory stand taken by the Assessee. The Assessee contended that the amount should be allowed as revenue expenditure or considered an intangible asset eligible for depreciation under Section 32(1)(ii) of the Act.

4. The Tribunal considered the agreements and case law. It allowed the annual recurring license fee as revenue expenditure, citing previous assessment years. For the one-time license fee, the Tribunal referred to the nature of the right given, benefit derived, and payment nature. Relying on judicial pronouncements, it concluded that the one-time fee was a capital asset eligible for depreciation under Section 32(1)(ii).

5. The Tribunal differentiated the one-time fee from the annual fee, stating that the former provided enduring benefits and was akin to acquiring intangible assets. Therefore, it directed the AO to allow depreciation on the one-time fee and consider the annual fee as revenue expenditure, partially allowing the Assessee's appeal.

6. In conclusion, the Tribunal partially allowed the Assessee's appeal, allowing depreciation on the one-time license fee while treating the annual fee as revenue expenditure. The judgment was pronounced on 29th June 2018.

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