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Issues involved: Interpretation of whether the payment made for the exploitation of a trade mark is a revenue expenditure or a capital expenditure.
Summary: The High Court of Madhya Pradesh considered a reference made by the Income-tax Appellate Tribunal regarding the nature of a payment of Rs. 25,001 made by an assessee-firm to M/s. M. B. Umbrella Factory for the exploitation of a trade mark. The Tribunal questioned whether this payment should be treated as a revenue expenditure. The assessee had debited this amount in their trading account as a trade mark commission. The Income Tax Officer initially treated it as a sale of goodwill, but the Commissioner of Income-tax (Appeals) determined that it was a payment for a license to use the trade mark, akin to royalty, and therefore deductible as revenue expenditure. The Tribunal upheld this decision, citing a similar precedent where a payment for technical knowledge was considered revenue expenditure. The High Court agreed with the Tribunal's finding that the payment was in the nature of a royalty for the use of the trade mark, not for the acquisition of a capital asset, and thus constituted revenue expenditure. Consequently, the court ruled in favor of the assessee, holding that the payment of Rs. 25,001 was indeed a revenue expenditure. In conclusion, the court's answer to the question posed was affirmative, stating that the payment for the exploitation of the trade mark was a revenue expenditure, and the parties were directed to bear their own costs in this reference.
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