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2019 (12) TMI 1613 - ITAT AHMEDABADNature of expenditure - Disallowance of Trademark License Utilization fees - maintainability of expenditure incurred by way of license fees to the licensor of the trademark as revenue expenditure - HELD THAT:- The claim of the assessee for payment of user license fees based on turnover is deductible as revenue expenditure. In our view, where the licensor continues to be owner of the capital asset i.e. trademark ‘Vimal’, the assessee cannot be said to have acquired any capital asset by making payment of user license fee. The interpretation of certain restrictive covenants by the AO is totally misplaced. The contractual obligations are ordinary in commercial parlance and does not grant any valuable right to the licensee. The advantage earned by the assessee by use of the license is neither permanent nor ephemeral but is linked to the use of the trademark owned by the licensor. The expense towards use of trademark was clearly laid out for the purpose of ongoing business carried on by the assessee and fee paid for use of such trademark is clearly deductible as revenue expenditure. The assessee herein has been merely granted a license to use trademark on payment of license fee determined on the basis of a formula laid down in the agreement. The right to use can neither be assigned at the wishes of licensee nor is the licensor prohibited to terminate the user license agreement executed with licensee. Thus, licensor retains the inherent control over the manner of use of trademark. Thus license fee paid for mere use of capital asset which continues to belong to someone else thus cannot be regarded to be in the capital field in the hands of licensee. We thus see no error in the conclusion drawn by the CIT(A) in favour of the assessee.
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