TaxTMI 
TaxTMI 
TaxTMI 
2009 (1) TMI 299
X X X X Extracts X X X X
X X X X Extracts X X X X
.... claimed as revenue in nature for tax purpose. AO required the assessee to explain why this amount should not be disallowed since it was in his opinion capital in nature. Assessee's reply was that it was allowed only use of the trade mark of L&T and had not acquired any right, title or interest therein. According to the assessee, it was not entitled to assign, transfer, or alienate such trade mark and what was received by it was only a permission to use such trade mark. 4. Learned AO did not accept these contentions. According to him, the agreement with M/s L&T whereby, rights in the trade mark of M/s L&T was obtained by the assessee, was for creating a new trade mark using a combined trade mark of both the companies and the new trade mark was neither the same as that of M/s L&T nor the same was as that of the assessee. Therefore, according to the AO assessee was creating a new asset with independent identity and the owner of the new trade mark being the assessee company itself, it was immaterial whether assessee had any right, title, transfer or alienate the trade mark of M/s L&T obtained through the above referred agreement. Learned AO also relied on s. 32(1)(ii) of the IT Act ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....but also could register it in its own name. No doubt the appellant did not have a right to transfer the new trade mark, nonetheless it was a valuable right which was used by the assessee for the purpose of its business. It is also pertinent to note that the joint venture which has given birth to the appellant company, is not a short-term venture for completion of a short-term project. The joint venture has set up an industrial unit for manufacture of plastic machinery and, therefore, the new trade mark which is a combination of trade mark of L&T Demag, will provide enduring benefit to the assessee. The expenditure is not for earning the profit but for using the asset i.e., trade mark. By obtaining the right to use the trade mark, the appellant had added to the capital infrastructure of its company. In fact the expenditure has given rise to a capital asset though the assessee's right in that asset is limited. For treating the expenditure as capital, it is not necessary that the assessee should be absolute owner of the property or uses the asset permanently. By using the trade mark of L&T, the assessee is in a way capitalizing on the name or goodwill of L&T. It is also seen that the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ions and perused the orders. The sale issue arising is whether the payments made by assessee to L&T qualifies for deduction under IT Act for the computation of its business income. In order to clearly appreciate the purpose of the agreement between assessee and L&T., it would be appropriate to recite certain important clauses which would have a bearing on the facts relating to the use of the trade mark of M/s L&T as obtained by the assessee through this agreement. Clauses 1 to 12 of the particular agreement runs as under: "1. L&T hereby permits L&T Demag to use its trade mark, a copy whereof is annexed hereto at Annex A, for the sole purpose and in the manner specified hereunder. 2. L&T Demag shall prepare a combined trade mark using the trade marks of L&T and DET (hereinafter referred to as "the combined trade mark"). Such combined trademark annexed hereto at Annex B shall be used by L&T Demag exclusively for the purpose of marketing and sale of the licensed products in India, Bangladesh, Nepal, Bhutan, Pakistan and Sri Lanka. However, where permitted by DET, the combined trade mark may be used for marketing and sale of the licensed products in countries other than India, Bang....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on of the trade mark of L&T. 10. L&T Demag agrees that by mere use of the trade mark of L&T as contemplated herein, L&T Demag shall neither acquire nor claim to have acquired any right, title or interest in the said trade mark, other than the right. of user as granted herein. Further, by such user, L&T Demag shall neither acquire nor claim to have acquired any ownership rights in the trade mark or L&T. 11. L&T shall be entitled to inspect and inquire, periodically at such times as each may deem fit with prior notice of 24 hours to L&T Demag, as to whether its trade mark is being used properly, in the manner and for the purpose contemplated herein. 12. In case of breach of any provision of this agreement by L&T Demag, L&T, shall issue to L&T Demag a written notice specifying the breach and requiring it to rectify such breach within 7 (seven) days from the date of receipt of the notice, failing which L&T shall be entitled to terminate this agreement with further 7 (seven) days notice." 10. A reading of the above clauses clearly shows that assessee company was getting a right to use trade mark of M/s L&T for the purpose of preparing a combined trade mark of L&T, and Demag Ergo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....resentative, concerned an agreement with foreign company which was for transfer of technical information for improvement of products already manufactured by the assessee. Here it is not a transfer of any technical information but the right to use a trade mark for a limited and sole purpose of creating a new trade mark, which no doubt was an asset of the assessee. On the other hand we find that Hon'ble Madras High Court in the case of CIT vs. Maschmeijer Aromatics (India) (P) Ltd. (1995) 127 CTR (Mad) 221 : (1995) 214 ITR 22 (Mad) has held in relation to the Surtax Act that payment made for technical know-how. user of patents, designs, trade marks etc., where cost thereof are shown in the balance sheet as capital, could not be termed as revenue expenditure. Assessee having obtained registration of a new trade mark using a combination of trade marks of two companies and such new trade mark being the sole asset of the company, all expenses incurred in relation to acquiring such assets can only be considered as capital in nature. Therefore, we find no reason to interfere with the order of learned CIT(A) in this regard. Ground No. 1 of the assessee stands dismissed. 11. Vide its groun....