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2008 (5) TMI 659 - AT - Income TaxRunning Royalty paid to NR company - Treated as Capital or Revenue expenditure - brand name of "United Colors of Benetton" - Granted exclusive licence to use the trade-marks in India - whether the assessee acquired assets itself or it was merely granted the license to use the trade-marks on the products being manufactured by it - HELD THAT:- On Persual of the license agreement, it is clear that the assessee was only granted non-assignable licence, right and privilege with reference to the licensed marks to manufacture on the mark and distribute the licensed product in India and to use the expression "Benetton". The assessee did not become the owner of the licensed marks or the holder of the trade-marks. Such license marks at all times remain the property of the licensor. The license was initially granted for a period from October, 1992 till fall/winter season of 1999-2000. However, to continue to use the license mark for manufacturing of the licensed products, the assessee was to pay royalty @ 5 per cent of the amount of net sales. By paying the royalty the assessee did not acquire any right in the licensed trade-marks. Only the products manufactured by the assessee i.e. garments will bear the licensed marks for which the license has been granted. Accordingly it can be said that the assessee has not acquired any capital asset but has merely paid to the licensor for use of such trade-marks. Therefore, expenses are to be treated as revenue expenditure and not capital expenditure. It is seen that the assessee was required to pay royalty every year. But for payment of royalty every year the assessee could not continue receiving the license to use the licensed marks on the products manufactured by it. Thus making payment every year, it cannot be said that the assessee received advantage of enduring nature primarily to bring it as capital expenditure. Royalty payment is not a one time but rather recurring expenditure merely to use licensed marks. As rightly contended by the learned counsel for the assessee that granting of exclusive license to the assessee alone in India does not alter the character of payment from revenue to capital. In the case of Avery India Ltd.[1993 (4) TMI 25 - CALCUTTA HIGH COURT] the Hon'ble Calcutta High Court held that even if the assessee was granted exclusive license, it will not convert the revenue expenditure into capital expenditure. Similar view has been held by Full Bench in the case of Praga Tools Ltd. vs. CIT [1979 (11) TMI 80 - ANDHRA PRADESH HIGH COURT]. We accordingly hold that the expenditures are revenue in nature and even do not bring into existence any capital asset or the assessee receives any advantage of enduring nature so as to treat it as capital expenditure. In the result, Appeals are dismissed.
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