2022 (8) TMI 737 - AT - Income Tax

Tribunal dismisses appeals on Trademark Fees but upholds addition for delayed PF & ESI contributions

The Tribunal dismissed both the Revenue's and assessee's appeals. The disallowance of Trademark License Utilisation Fees was deleted, emphasizing no ... Allowability of trademark licence/royalty as revenue expenditure - treatment of payment for acquisition of a trade mark as capital expenditure - deduction of employer's contribution to provident and ESI funds under s.36(1)(va) of the Act - applicability of Section 43B to deductions under s.36(1)(va) - precedential effect of tribunal and High Court decisionsAllowability of trademark licence/royalty as revenue expenditure - treatment of payment for acquisition of a trade mark as capital expenditure - precedential effect of tribunal and High Court decisions - Deletion of addition disallowing Trademark Licence Utilisation Fees - HELD THAT: - The Assessing Officer treated the licence fees paid for use of the trade mark 'Vimal' as payment for acquisition of a capital asset under the definition of capital asset and made an addition. The CIT(A) set aside that disallowance, and the Tribunal has upheld the CIT(A)'s order. The Tribunal applied its earlier decisions in the assessee's own cases for preceding assessment years and noted undisputed facts: the trade mark is owned by another company and the payments were made under a registered licence agreement and debited to selling and distribution expenses. Respectfully following the Tribunal's earlier rulings on identical facts and characterisation of the payments as royalty/licence for use (revenue in nature), the addition was deleted and the Revenue's appeal dismissed. [Paras 7]Addition in respect of Trademark Licence Utilisation Fees deleted; Revenue appeal dismissed.Deduction of employer's contribution to provident and ESI funds under s.36(1)(va) of the Act - applicability of Section 43B to deductions under s.36(1)(va) - precedential effect of High Court decisions - Disallowance of deduction for delayed payment of employees' contribution to PF/ESIC under s.36(1)(va) - HELD THAT: - The assessee challenged the addition made for delayed payment of employer's contribution to PF/ESIC under s.36(1)(va), contending reliance on a Karnataka High Court decision in Essae Teraoka (P.) Ltd. vs. DCIT . The Tribunal found the assessee's appeal covered by the jurisdictional High Court decision in CIT vs. Gujarat State Road Transport Corporation and, accordingly, affirmed the disallowance. The CIT(A)'s confirmation of the addition was therefore sustained and the assessee's appeal dismissed. [Paras 8]Addition for delayed PF/ESIC contribution upheld; assessee's appeal dismissed.Final Conclusion: Both cross appeals are dismissed: the Revenue's appeal against deletion of the trademark licence fees addition is dismissed (addition deleted), and the assessee's appeal against the disallowance for delayed PF/ESIC contribution is dismissed (addition sustained). Issues:1. Disallowance of Trademark License Utilisation Fees by the Revenue.2. Addition of delayed payment of Employees' contribution to P.F. & E.S.I.C. by the Assessing Officer.Analysis:1. The Revenue contended that the disallowance of Trademark License Utilisation Fees should not have been deleted by the CIT(A). The Tribunal noted that the issue of disallowance of these fees was consistent in previous assessment years as well. The assessee had paid a significant amount as trade mark license utilization fees, claiming it as revenue expenses, while the Assessing Officer treated it as a capital asset acquisition payment. The Tribunal, based on earlier decisions, upheld the CIT(A)'s decision to delete the addition, emphasizing that there was no dispute regarding the ownership of the trademark and the payment of royalty as per the agreement. The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision.2. The assessee's appeal regarding the addition of delayed payment of Employees' contribution to P.F. & E.S.I.C. was based on the argument that Section 43B should apply, citing a decision by the Karnataka High Court. However, the Tribunal referred to a decision by the Jurisdictional High Court in another case, CIT vs. Gujarat State Road Transport Corporation, which was unfavorable to the assessee's position. Consequently, the Tribunal dismissed the assessee's appeal, aligning with the High Court's decision.In conclusion, both the Revenue's and assessee's appeals were dismissed by the Tribunal, with the disallowance of Trademark License Utilisation Fees being deleted, and the addition of delayed payment of Employees' contribution to P.F. & E.S.I.C. being upheld based on relevant legal precedents.