Tribunal rules license payment as revenue expenditure, not capital. Disallowance overturned.

The Tribunal allowed the appeal, finding that the expenditure claimed as revenue expenditure for securing a non-transferable right and license to use a trademark was not capital in nature. The Tribunal held that the payment was for a license and did not result in the acquisition of an intangible asset. Therefore, the disallowance of the expenditure was deemed erroneous, and the addition made by the Revenue Authorities was deleted.

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Issues Involved:
1. Assessment of income discrepancy.
2. Disallowance of expenditure claimed as revenue expenditure.
3. Classification of expenditure as capital expenditure.

Issue-wise Detailed Analysis:

1. Assessment of Income Discrepancy:
The appellant contested the CIT(A)'s decision to uphold the assessment of income at Rs. 144,44,45,110 against the returned income of Rs. 139,56,95,110. The Tribunal did not specifically adjudicate on this ground as it was deemed general in nature and required no separate adjudication.

2. Disallowance of Expenditure Claimed as Revenue Expenditure:
The appellant claimed a deduction of Rs. 6,50,00,000 paid to AMW for securing a non-transferable right and license to use AMW's name, trademark, and logo. The Assessing Officer (A.O.) disallowed this deduction, treating it as capital expenditure, and allowed depreciation at 25% on the amount. The CIT(A) upheld this view, stating that the payment resulted in an acquisition of an intangible asset, thus enhancing the profit-earning apparatus of the appellant.

3. Classification of Expenditure as Capital Expenditure:
The Tribunal examined the nature of the co-branding agreement between the appellant and AMW. The agreement granted a non-transferable right and license to use AMW's brand name and logo for a period of 60 months. The Tribunal noted that the co-branded products were exclusively for AMW vehicles, and the marketing was to be done through AMW's network. The agreement did not confer proprietary rights in the trademark to the appellant but only a limited, non-transferable right to use it.

The Tribunal relied on the judgment of the Jurisdictional High Court in the case of Hilton Roulunds Ltd. v. CIT, where it was held that a license agreement, which retains rights with the owner and grants only a right to use, is not an assignment but a license. The Court outlined several factors to determine whether an arrangement is a license or an assignment, including the retention of rights by the owner, the nature of the payment, and the right of supervision and control by the licensor.

Applying these principles, the Tribunal concluded that the payment made by the appellant to AMW was for a license to use the trademark and did not result in the acquisition of an intangible asset. Therefore, the expenditure was of a revenue nature and should not have been disallowed.

Conclusion:
The Tribunal found that the lower authorities erred in treating the expenditure as capital in nature and disallowing it. The addition made by the Revenue Authorities was deleted, and the appeal filed by the appellant was allowed. The order was pronounced in the Open Court on 9th February 2023.

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