TaxTMI 
TaxTMI 
2019 (10) TMI 855
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.... etc. 3. For the assessment year 2014-15 assessee filed its return of income on 29/11/2014 declaring an income of Rs. 33,71,08,130/-. During the scrutiny proceedings, so far as this appeal is concerned, learned Assessing Officer noticed that under the head "other expenses" assessee had debited an expenditure of Rs. 693.780 Lacs on account of license fee. 4. Onco Laboratories Limited ('OLL'), a company incorporated in Cyprus and a subsidiary of Strides Arcolab Limited and Onco Therapies Limited (OTL), a company incorporated in India and subsidiary of Agila Specialties P. Ltd. (joint referred as 'Onco Labs') is engaged in the business of research, development, manufacturing and supply of pharmaceutical products and has capability to develop and manufacture variety of products in one or more of its facilities, which are approved by various Regulatory Authorities. OLL owns Marketing Authorizations of the products that are either approved or pending with the regulatory authorities and also owns related information for Marketing Authorization not yet filed with the regulatory authorities in India. Since the assessee has experience and expertise in the commercialization of pharmaceu....
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....duct line extension. As the preface to the agreement says, the assessee company has expertise and experience in marketing products in India. Through the licensing agreement the assessee company has extended its business by marketing/commercializing new set of products in the market it is already established. This would re4sult in expanding the profit making apparatus of the assessee company and no relation with improving the efficiency as was held by the Honourablecourt in Empire Jute Company. Therefore the advantage of the expenditure is in capital field and the licensing agreement is central to this advantage. III. One of the other arguments raised by the AR during the course of assessment proceedings is that the licensee is non-exclusive one and therefore it cannot be presumed that it leads to ownership of asset. However, it is important to realize that assessee company has extensive experience and expertise in the market. Its own trademarks and brands have a value in itself. The assessee company has a well-established distribution network, access channels, rapport, with doctors/hospitals. Therefore it is important to highlight distinction between reselling and branding....
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....of capital nature can be claimed as business deduction; that is not the case of the assessee that after termination of the agreement by Agila (OLL), any part of the license fee was returned/refunded; or that is also not the case that those formulations became obsolete with the scientific advance, for OLL or the assessee. Ld. DRP, therefore, rejected the objections raised by the assessee. Consequently, by order dated 29/10/2018, learned Assessing Officer treated the licenses fee as income of the assessee, but allowed depreciation at 25% on the sum of Rs. 6,93,78,000/-which came to Rs. 1,73,44,500/-. 10. While inviting our attention to paragraph numbers 16 of the agreement, dated 30/11/2012, Ld. AR submitted that in the terms of agreement, the assessee had received non-exclusive license to use, market, sell and distribute the products in India during the terms of agreement and the assessee did not obtain any ownership of technical knowhow, manufacturing process or any other intellectual property of Onco labs. According to him the assessee only had a limited right to use the technical information, regulatory approval and related information to commercialize and market the products ....
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....e event of termination of the agreement vide clauses 16.1 and 18.2 thereof, and, therefore, it cannot be said that any everlasting advantage to use the technical information had accrued to the assessee. He submitted that before Ld. DRP it was demonstrated that the products being manufactured by OTL pursuant to the licenses issued for commercialisation, were discontinued w.e.f. 09/01/2015 and the contract was terminated, and therefore, it clearly demonstrates that no enduring benefit had resulted to the assessee by payment of the license fee. By placing reliance on the decision of the Hon'ble Apex Court in the case of Empire jute Company limited vs. CIT 124 ITR 1, he submitted that where the expenditure incurred merely facilitates carrying on the business more profitably and efficiently, without addition to the Revenue earning capital apparatus, the advantage of enduring nature ensuing therefrom shall be on Revenue account only. In support of propositionthat the absence of clause of return of documentation/ knowhow and the fact that the assessee was entitled to carry on manufacturing activities with use of such know-how/documentation even after the expiry of the agreement, did not a....
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....demark rights on royalty were involved in such case but not in the present case. 15. For proper appreciation of the contentions raised by respective parties in respect of the nature of rights acquired by the assessee and whether own the ownership of the technical knowhow, regulatory approvals, manufacturing process etc vest, it is necessary to refer to the following clauses of the agreement which are relevant for our purpose. 2. License 2.1 Product Licenses: OLL owns, has developed and/or has the exclusive perpetual rights to the use of the Dossier and the Onco Data, Additionally, subject to the terms and conditions of this Agreement, Onco agrees to obtain the Regulatory Approval for the Product in the Territory using the Dossier and Onco Data to allow Lilly India to Commercialize and Market the Products in the Territory. Onco and its Affiliates hereby grants to Lilly India and its Affiliates and Lilly India and its Affiliates hereby accepts a non-exclusive license, under the Dossier, Technical Information, Regulatory Approval and any other intellectual property of Onco, to commercialize and Market the Products in the Territory. 2.2 Limitation of Right....
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.... If there is a material change in the ownership structure or control of a Party that in the reasonable discretion of the non-acquired Party adversely affects performance of the obligations by such acquired Party under this Agreement. 17.3. Onco reserves the right to terminate this Agreement if it is unprofitable for it to continue to fulfil its obligations and duties set out in the Agreement after twelve (12) months written notice to Lilly India. 17.4. Lilly India may terminate this Agreement upon twelve (12) months written notice to Onco or on a Product by Product basis after six (6) months written notice, for example but not limited to, as mentioned in Section 10.5 18.1 Upon expiry or termination of this Agreement - 18.1.1 Termination of this Agreement for any reason shall not release or discharge either party's liability for obligations incurred or accrued at the time of such termination, cancellation or expiration of this Agreement according to the terms of this Agreement. 18.1.2 Lilly India shall purchase the finish goods manufactured against the firm orders of the Lilly India upon termination. Lilly India shall reimburse the cost o....
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....India. HRL owned 50% of the equity shares of the appellant, and RF and IFU held 26% and 24% respectively of the said joint venture. At the time when the joint venture was formed, the first license agreement dated 27th January 1993, was entered into, under which the appellant was granted by HRL license to use the Trade Mark HILTON in respect of Raw-Edge and Wrapped VBelts. .............................................. Thus, as per the First license agreement: (a) The appellant was granted an exclusive right to use the Trade Mark "HILON" in India in respect of Raw-Edge and Wrapped VBelts; (b) Ownership of the mark vested in HRL; (c) Running royalty on domestic sale was payable to the HRL; (d) License was terminable by 12 months' notice or by 30 days' notice in case of breach of the terms of the agreement; (e) License could also be terminated if the appellant did not adhere to the conditions of use under the agreement, or if the rights in the mark were endangered in any manner. 2. Though, the agreement was for a period of 10 years, a second license agreement was entered into on 9th November, 1995. ....
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....fic, but they will vest complete and absolute ownership in the assignee. Assignment of a registered trade mark can be with or without the goodwill of the business concerned. Such an assignment can be in respect of all the goods or services or part of the goods or services for which the mark is registered. However, an unregistered trademark is assignable with the goodwill of a business and if the same is assigned without the goodwill of the business, the nature of the transfer would have to be determined on the facts of a particular case. 27. The fundamental test to determine as to whether a particular mark has been licensed or assigned is to see if the licensor/assignor has retained any rights in the mark. If rights are retained with the owner, usually it is a license and if no rights are retained by the owner, then it would usually be an assignment. A license is, therefore, nothing but a permissive use of the mark, which permission, is revocable. A 'right to use' is usually a license and not an assignment, except in certain circumstances. Some of the questions that determine whether an arrangement is a license or an assignment include: (i) Whethe....
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....ame and the trade name which was familiar to the industry and market. The advantage of having used the mark "HILTON" between 1992 and 2005 could endure and benefit the appellant as a permitted and authorized user, but it cannot be called an acquisition and benefit of capital nature so as to constitute capital expenditure. The appellant did not purchase and acquire title in the trademark. It did not retain any rights in the mark. In fact the appellant no longer uses the word "HILTON" either as a trade mark or trade name or as a part of its corporate name. Thus, the payment of Rs. 1 crore was for the purpose of obtaining an advantage in carrying on its business and is therefore in the revenue field. ... ... ... 36. A supplemental corporate license agreement was executed along with the first license and the second license agreement. Under these agreements also the right to use the corporate name "HILTON" was non-exclusive and royalty free. Though, it was to remain in full force and executed without any limit of time, a licensor had the right to terminate the said agreement with 30 days' notice. Thus, even the corporate name license agreement was terminable and di....
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....xclusive license. 20. We are also not in agreement with the findings of the assessing officer that since the assessee had entered into the agreement to be in force for a period of 15 years, they had obtained a benefit of enduring nature in view of class 16.1 and 18.2 of the agreement where under the assessee is under an obligation to discontinue the use of technical information and regulatory approvals immediately in the event of termination of the agreement as stated therein. In other words, the benefit enjoyed by the assessee is co-terminus with the enforcement of the agreement. 21. It is not in dispute that the assessee demonstrated before the Ld. DRP that the products being manufactured by OTL in respect of which the license was obtained for commercialisation, was discontinued w.e.f. 09/01/2015 and the contract was terminated. Though, it is submitted by the Ld. DR that inasmuch as the termination letter speaks that it has to come into force w.e.f. 9/10/2015, it has no relevance to the year under consideration, what is relevant to be seen here is whether the assessee held the rights under the agreements in perpetuity or at least further agreed period of 15 years in continu....