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2015 (8) TMI 426 - HC - Income TaxRoyalty payment to a related person - whether would be allowable for business expenditure u/s 37(1) whereas the same has not been exclusively and wholly incurred for business purposes? - whether ITAT erred holding that royalty payment would be allowable business expenditure u/s 37(1) when the same has not been paid to the owner/holder of the patent, design, copyright and technical know how or to an inventor and where there is no transfer/acquisition of any assets? - Held that:- Tarun Mohan retained the brand name phoneytunes.com. He merely permitted the assessee to use the intellectual property right acquired by him, namely, the brand name/trade-mark phoneytunes.com. He had not assigned the same to the assessee, but only licensed the same to the assessee. Assessing Officer and the CIT (Appeals) wrongly came to the conclusion that Tarun Mohan being a Director of the respondent was not entitled to enter into an agreement for the transfer of his assets to the company. They held that the same person cannot enter into an agreement with himself. This ignores the fundamental concept that the assessee being a company incorporated under the Companies Act, 1956 is a separate legal juristic entity. The Tribunal, therefore, rightly disagreed with this finding. The Tribunal also rightly observed that Tarun Mohan had in any event paid the entire taxes in respect of the royalty received by him. That, however, would not make a difference for if the deduction sought by the assessee is wrongful, the Assessing Officer is bound to disallow the same. The CIT (Appeals) observed that there was no evidence to prove that Tarun Mohan had developed any product for which he had any copyright or trade mark. Firstly, as we noted earlier, he had obtained the copyright in respect of the artistic work comprised in the name phoneytunes.com. Registration of the copyright is, however, not compulsory. In any event, phoneytunes.com was a part of his trading style and constitutes a trade mark. This is not a ground for challenging his entitlement to the trade mark. The assesee was entitled, therefore, to use the trade mark as a licensee thereof. The payment of royalty for the same is nothing unusual or out of place. In these circumstances, the deletion by the Tribunal of the addition of royalty by the Assessing Officer and confirmed by the CIT (Appeals) was rightly set aside by the Tribunal. - Decided against revenue.
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