Royalty for non-exclusive logo use is revenue expenditure, and exempt-income adjustments in book profit need independent computation.

Royalty paid for non-exclusive use of a logo was treated as revenue expenditure because no proprietary or exclusive right was acquired, and the earlier Tribunal view in the assessee's own case was followed; the Revenue's objection on this point failed. For computation of book profit under section 115JB, expenditure relatable to exempt income must be adjusted under clause (f) of Explanation 1 on an independent basis and not by mechanically importing section 14A read with Rule 8D. The matter was therefore sent back for fresh computation in line with the correct method.

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Issues: (i) Whether royalty paid for non-exclusive use of the logo was allowable as revenue expenditure or was liable to be treated as capital expenditure. (ii) Whether disallowance relatable to exempt income under section 14A and Rule 8D could be imported into computation of book profit under section 115JB.

Issue (i): Whether royalty paid for non-exclusive use of the logo was allowable as revenue expenditure or was liable to be treated as capital expenditure.

Analysis: The payment was made only for permission to use the logo on a non-exclusive basis, without acquisition of any proprietary or exclusive right. The issue had already been decided in the assessee's own case in earlier years and the same view had been consistently followed in connected group-company matters. The pendency of the Revenue's appeal before the High Court did not prevent adjudication on the existing Tribunal precedent.

Conclusion: The royalty payment was allowable as revenue expenditure. The Revenue's challenge on this issue failed.

Issue (ii): Whether disallowance relatable to exempt income under section 14A and Rule 8D could be imported into computation of book profit under section 115JB.

Analysis: Clause (f) of Explanation 1 to section 115JB(2) requires adjustment for expenditure relatable to exempt income, but the computation is to be made independently and not by mechanically applying section 14A read with Rule 8D. The matter therefore required fresh computation in accordance with the Special Bench ruling in Vireet Investment.

Conclusion: The issue was remitted to the Assessing Officer for fresh adjudication in accordance with the correct method of computation.

Final Conclusion: The appeal succeeded on the royalty issue being decided against the Revenue, while the book-profit issue was restored for fresh computation, resulting in only partial relief to the Revenue.

Ratio Decidendi: Royalty paid for a non-exclusive right to use a logo is revenue expenditure, and adjustment to book profit under section 115JB for exempt-income-related expenditure must be computed independently of section 14A and Rule 8D.

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