Royalty payments for trade name usage classified as revenue expenditure, not capital expenditure

The ITAT Chennai dismissed the Revenue's appeal regarding royalty payment classification. The assessee paid royalty based on annual sales turnover for using trade name and management services under contractual terms. Upon agreement termination, all benefits and licenses would lapse, requiring return of materials. Since no new asset was acquired and the assessee merely acted as user without acquiring enduring rights, the CIT(A) correctly treated the royalty as revenue expenditure rather than capital expenditure. The tribunal upheld this decision following its own precedent from assessment year 2012-13.

---

---

Issues involved:
The appeal concerns the delay in filing the appeal, disallowance of various expenses, specifically the deletion of addition made towards disallowance of royalty payments.

Delay in filing the appeal:
The Revenue filed an appeal 34 days late, but the delay was condoned as the Revenue provided sufficient cause for the delay and the appeal was admitted for adjudication.

Disallowance of royalty payments:
The case involved the disallowance of royalty payments made by the assessee, with the Revenue contending that the payments were capital in nature and therefore not allowable as revenue expenditure. The assessee argued that the payments were for the right to use certain trademarks and services, not for the acquisition of any capital assets. The Tribunal, in line with previous decisions, held that the royalty payment was revenue expenditure as it was for the use of trademarks and services on an annual basis, with no enduring rights acquired by the assessee. The Tribunal dismissed the Revenue's appeal, upholding the deletion of the addition made towards disallowance of royalty payments.

Conclusion:
The Tribunal dismissed the appeal filed by the Revenue, affirming the decision to delete the addition made towards disallowance of royalty payments. The order was pronounced on 31st October, 2023 in Chennai.

---