TaxTMI 
TaxTMI 
TaxTMI 
2018 (7) TMI 63
X X X X Extracts X X X X
X X X X Extracts X X X X
....ldings Pvt. Ltd., on 28-03-2009, paid an amount of Rs. 3,73,40,480/- comprising of Rs. 3,37,50,000/- towards one time initial consolidated fees for use of trademark and artistic works ever since its incorporation on 13-06-2008 and an amount of Rs. 35,90,480/- towards regular license fee payable on the basis of the turnover achieved. AO disallowed the entire amount holding that the same was 'capital in nature' incurred to acquire a benefit of enduring nature. It was the contention of assessee that there was no ownership on the trademark and it was the non-exclusive agreement and it was entered only for the purpose of use of the license without ownership and therefore, the amount is allowable as 'revenue expenditure'. 3. Ld.CIT(A) after reco....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nnual revenue, where the trademark is not used as part of its corporate name and is used in normal course of business/letter heads/correspondence etc. Accordingly, assessee has paid an amount of Rs. 84,37,000/- as one time initial consolidated payment of Rs. 87,74,480/- and an amount of Rs. 7,46,827/- as regular fees calculated as above. 4.1. Assessee also entered into another agreement for using 'artistic work license' by which it was to pay one-time consolidated fees of Rs. 2,53,13,000/- since assessee has been using the artistic work, ever since its incorporation. In addition, assessee has to pay a regular license fee @ 0.40% of net annual revenue where the artistic work was used as part of corporate name and 0.30% of net annual revenue....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as also made on regular basis on the net annual revenue and these payments have been allowed by the AO in the later assessment years. Ld. Counsel relied on the judicial pronouncements in the case of Bhaktimala Beedi Factory Vs. CIT [219 ITR 6] (AP) and in the case of CIT Vs. Ashoka Mills Ltd., [218 ITR 526] (Gujarat) and in the decision of the Hon'ble Delhi High Court in the case of Hilton Roulunds Ltd., Vs. CIT [92 taxmann.com 368] (Delhi). It was the submission that the amount is allowable as revenue expenditure. 5.1. Without prejudice to the above, it was also submitted that in the event the said amount paid is treated as capital asset, assessee should be eligible for depreciation as per Section 32(1)(ii) of the Act. It was submitte....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... amount of Rs. 35,90,450/- towards annual recurring license fee. The amount of annual recurring license fee payable on the basis of certain percentage on the net annual turnover is in the nature of revenue expenditure, which the AO has allowed in later two assessment years. To that extent, the case law relied upon by assessee about allowing trademark and license fee as revenue expenditure, including the judgment of the jurisdictional High Court in the case of Bhaktimala Beedi Factory Vs. CIT [219 ITR 6] (AP) is applicable. Therefore, the amount of Rs. 35,90,480/- is allowed as revenue expenditure and to that extent, the orders of AO and CIT(A) stand modified and they are directed to allow the above amount as revenue expenditure. 7.1. Then ....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., could be a transfer of title in the mark, and could constitute capital expenditure. Thus, the Court has to see not merely the terms of the agreement but also the facts and circumstances surrounding the agreement in order to determine the nature of the expenditure". 7.2. In the present case, it can be seen that the expenditure is not for assigning the license but use of the trademark in assessee's business. It is to be noted that there are two types of payments as per the agreement, one is onetime consolidated payment and other is regular license fee on the basis of the turnover. In the above referred case of Hilton Roulunds Ltd., Vs. CIT [92 taxmann.com 368] (Delhi), the Hon'ble Court has considered two types of agreements entered b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....icence which enables the member to access the market. Therefore, the right of membership, which includes right of nomination, is a "licence" or "akin to a licence" which is one of the items which falls in section 32(1)(ii) of the 1961 Act. The right to participate in the market has an economic and money value. It is an expense incurred by the assessee which satisfies the test of being a "licence" or "any other business or commercial right of similar nature" in terms of section 32(1)(ii)". 7.3. Therefore, one-time consolidated amount paid can be considered as a payment for use of the trademark in the business of assessee. Since it has an enduring benefit and is applicable till assessee ceases to be a subsidiary of GRM Holding/GMR Group, we....