TaxTMI 
TaxTMI 
2022 (11) TMI 1581
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....to have considered that the trade mark "CRI" was given away for a meager consideration of Rs. 1000/only by a family settlement, though an agreement deed was not justifiable. 4.The Ld. CIT(Appeals) ought to have observed that though the payment for trade mark "CRI" fixed by the directors of the transferor company was only Rs. 1000/-, then the payment of Rs. 4,12,50,564/- to the holding company is excessive and unreasonable 5. For these and other grounds that they may be adduced at the time of hearing, the order of the Commissioner of Income tax (Appeals) may be cancelled and that of the Assessing Officer restored." 3. The brief facts of the case are that the assessee company is engaged in the business of manufacture, purchase and sale of agricultural motors, monoblocs, pumps, valves, compressors and cables under the brand name CRI. The appellant had filed its return of income for the assessment year 2013-14 on 29.11.2013, declaring total income of Rs. 44,80,87,360/-. During the previous year relevant to assessment year 2013-14, the assessee company has paid Rs. 4,12,50,564/- as royalty to M/s. CRI Amalgamations Pvt Ltd, the holding company for using the trade ma....
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....fter the merger, the trade mark "CRI" is the property of the assessee company. Normally when any property is assigned or given away and when it is pretty well known that the assigner will use it in future, then the right will be reserved for its use without any consideration. In the instant case, the assessee has assigned the trade mark for a meagre value of Rs. 1000/-, as a part of family arrangement, and paid a substantial royalty of Rs. 4,12,50,564/- to the assignee. The action of making the assignment as a part of the family settlement is not accordance with normal business prudence. 4.3 If we presume that, the payment of royalty charges to the holding company is logical as per the deed of assignment entered between two companies then we should enquire the issue of reasonableness of such payment. If the fair market value of" CRI" brand was Rs.1000/- then payment of any amount in excess to Rs.1000/ is unreasonable. Here Assessee Company has paid total Rs. 4,12,50,564/- towards royalty charges. Here it is important to note that, when C.R.I.INDUSTRIES PRIVATE LIMITED was holding brand "CRI", every year it was receiving royalty income from that brand less than Rs. 60 lakhs....
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....of the respective month. b. The terms relating to Royalty may be changed by mutual agreement between the parties, which agreement may be expressed by mere exchange of letters and such letters shall become part and parcel of this Agreement. c. The "User" shall send monthly statements to the "Proprietor" on the quantity of "User Goods" manufactured and quantity and value of "User Goods" sold. d. The "User" shall keep an account of the "User Goods" manufactured and sold by it and the royalty payable / paid thereof and such account shall be open for inspection by the "Proprietor" from time to time as may be deemed fit by the "Proprietor". 8. A perusal of the above clearly indicates that royalty is paid based on sales. Similar agreement between the assessee and M/s. C.R.I. Industries earlier was allowed by the Department as revenue expenditure. Further, it is noticed that M/s. C.R.I. Industries had declared this in their income when they were receiving royalty in earlier years and the same was continued by M/s. C.R.I. Amalgamations Pvt Ltd when they received royalty. 9. The issue of allowability of royalty in the hands of M/s. C.R.I. Pumps Pv....
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....ure in the hands of the appellant company. This ground of appeal is ALLOWED." 5. The ld. DR submitted that the Ld. CIT(A) erred in deleting the royalty payment made to M/s. CRI Amalgamations Pvt. Ltd., without appreciating fact that the trade mark CRI was given away for a meager consideration of Rs. 1,000/- only at a family settlement, though, an agreement deed was not justifiable. Therefore, the AO has rightly disallowed royalty payment u/s. 40A(2)(b) of the Act, but the CIT(A) has allowed without assigning any reasons. 6. The Ld. Counsel for the assessee on the other hand submitted that this issue is covered in favour of the assessee by the decision of ITAT, Chennai Benches in assessee's own case for assessment year 2008-09 in ITA No. 1246/Mds/2012, where on identical set of facts and on identical agreement between the parties, the payment of royalty to holding company has been allowed. 7. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. We find that an identical issue had been considered by the Tribunal in assessee's own case for assessment year 2008- 09 in ITA No. 1246/Mds/2012, where the Tribunal c....
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.....6 The Assessing Officer simply comparing the payment of royalty with the consideration paid towards acquiring the trade mark "CRI" by the proprietor to whom the royalty was paid. If any claim of expenditure made without any evidence or found false or bogus, then the Assessing Officer has every right to reject the claim after recording salient findings. What is required to be expended has to be seen from the businessmen point of view and not from the view of the Assessing Officer. In this case, the Hon'ble Madras High Court has sanctioned the Scheme of Merger vide its order dated 25.09.2007 w.e.f. 31.03.2007 between CRI Industries and five group concerns along with the assessee provided specifically for the transfer of all assets of the transferor companies to the transferee company, except those set out in Schedule G of the Scheme as per clause 5.6 (page 22 of the Hon'ble High Court order), wherein it has been stated as under: "The trade mark belonging to various transferor companies as are specifically enumerated in Schedule G hereto are already the subject matter of an agreement of assignment in favour of M/s. CRI Amalgamations Private Limited, to be effective from 31.0....
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....able having regard to the fair market value of the goods, services or facilities for which the payment is made or the legitimate needs of the business or profession of the assessee or the benefit derived by or accruing to him therefrom, so much of the expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as a deduction. The case of the assessee does not come under the purview of any person referred to in clause (b) of sub-section (2) to section 40A of the Act. Accordingly, we reject the contention of the ld. DR. 4.9 In the case of ACIT v. Shriram Transport Finance Co. Ltd. [2011] 9 ITR (Trib) 543 (Chennai), the Coordinate Bench of the Tribunal has observed that the payment for nonexclusive user of logo based on turnover and not lump sum payment should be treated as revenue expenditure. In the present case, the assessee paid the royalty for exclusively using the trade mark "CRI" based on monthly turnover at the rate of 0.50%, which was duly agreed and executed a User Agreement between the proprietor and user. Therefore, the expenses incurred towards payment of royalty should be treated as revenue expenditure. 4.10 In the case o....