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2022 (1) TMI 348 - AT - Income TaxDisallowance of expenditure incurred by the assessee towards legal fees - allowable revenue expenditure - HELD THAT:- The assessee is being granted patents for the one of its process in United States. A US based company filed suit against the appellant in July, 2008 for infringement of the patents rights. The assessee was also made a parity to the suit. It impacted adversely sale of assessee’s product. Therefore, to defend the suit the assessee engaged a law firm in US. The total fees paid on that account - Ultimately, the patent suit resulted into a settlement agreement and the assessee paid settlement amount to the plaintiff. This sum was also paid by legal firm which in turn was paid to USA entity who filed the suit against the appellant. Further, a sum of ₹ 1,86,118/- is fees paid for routine maintenance of Patents. Therefore, all these above expenditure have been incurred by the assessee for the protection of its business and intellectual rights. These expenditure has been incurred mostly on account of defending the right of the assessee, therefore the same cannot held to be an expenditure which resulted into any endure benefit to the assessee. Any expenditure incurred by the assessee company for protection of IPR rights and for normal maintenance of its intellectual property are revenue expenditure. Further, the increase in the sales resulting into the higher profit could not be the reasons to hold that such expenditure are capital in nature. In fact the better protection of the intellectual property rights of the property would naturally result into higher profits and turnover but that does not make such expenditure as capital expenditure - appeal of AO is dismissed to hold that expenditure incurred by the assessee towards legal fee is Revenue in nature. - Decided in favour of assessee.
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