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 ... Disallowance of Trademark License Utilisation Fees - HELD THAT:- In the present A.Y. the CIT(A) has observed that the assessee paid a sum as trade mark licence utilization fees and debited the said amount under the head ‘selling and distribution expenses’, the assessee company came into existence after conversion of erstwhile firm namely M/s Vishnu Packaging (firm) and the firm was also carrying out the same business of manufacturing the pan masala under the brand name Vimal which was taken over by the assessee company. The assessee company has been paying trade mark licence utilization fee to the licensor for utilization of the brand Vimal under agreement to this effect. The assessee company claimed the entire licence fees paid during the year as revenue expenses whereas the AO treated the same as payment made for acquisition of trademark and licence within the meaning of capital assets as defined in Section 32(1)(ii) of the Act. Respectfully following the decision of the Tribunal, the CIT(A) has rightly deleted the addition as in earlier years also it has been observed that there is no dispute that the trade mark “Vimal” is owned by Vishu & Company Trademark Pvt. Ltd. It is also true that the assessee has paid royalty as part of terms and conditions of the registered agreement. These facts were not disputed before us by the ld. DR in this A.Y. as well. Therefore, appeal of the Revenue is dismissed. Delayed payment of Employees’ contribution to P.F. & E.S.I.C. u/s.36(1)(va) r.w.s. 2(24)(x) - HELD THAT:- The issue is covered against the assessee by the decision of Jurisdictional High Court in case of CIT vs. Gujarat State Road Transport Corporation [2014 (1) TMI 502 - GUJARAT HIGH COURT]. Thus, the appeal filed by the assessee is dismissed. 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.