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2023 (2) TMI 354 - AT - Income TaxNature of expenses - disallowance of payment made towards co branding fees treating the same as capital expenditure - HELD THAT:- As perused the co branding agreement entered into by the assessee with AMW, wherein the assessee acquired non transferable limited right and license to use the brand name and logo of AMW on the packaging of licensed products manufactured by the assessee and the co-branded license produced products were meant for use as service fills and by way of retail sale for use in AMW vehicles only, which is evident from the preamble and Section 2 & Section 5 Agreement. The co- branded Licensed Products could not be used by the Assessee to service its other clients. The sole and exclusive customer of the Assessee in respect of the co-branded Licensed Products was AMW itself for use as service fills or retail use. The agreement did not confer/vest in the Assessee’s proprietary rights in the trademark/ license/ brand name, the Assessee was only granted an exclusive, non-transferable right and license to use the brand name of AMW on products manufactured by it. Assessee did not have absolute ownership of brand name of AMW and merely obtain right and license to use the said brand name on the products manufactured by the assessee. The use of the co brand license product was also only for one customer i.e. AMW itself. The Jurisdictional High Court in the case of Hilton Roulnds Ltd.[2018 (4) TMI 1485 - DELHI HIGH COURT] held that that the fundamental test to determine as to whether a particular mark has been licensed or assigned is to see if the licensor/ assignor has retained any rights in the mark. If rights are retained with the owner, usually it is a license and if no rights are retained by the owner, then it would usually be an assignment. A license, therefore, in the opinion of the Hon’ble High Court, is nothing but a permissive use of the mark, whose permission, is revocable. A ‘right to use’ is usually a license and not an assignment, except in certain circumstances. Thus Lower Authorities have committed an error in disallowing the expenditure claimed in respect of payment made by the assessee to AMW, accordingly the addition made by the Revenue Authorities is deleted and the Grounds of Appeal are allowed.
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