2016 (9) TMI 1600 - AT - Income Tax

Nature of expenses - logo charges - revenue or capital expenditure - HELD THAT - As decided in own case 2012 (10) TMI 1001 - ITAT CHENNAI title of the logo in question has not passed over to the assessee. Further there is no acquisition of assets or part of any capital asset. Usage of logo by the assessee is only for displaying it on the product manufactured i.e. rubber contraceptives. That too for a limited period as provided in the agreement in lieu of payment @ 2% of the gross sales. When we apply the tenor of the case law above cited to the facts of the instant case we hold the instant logo charges are also revenue expenditure within the meaning of Sec.37 of the Act in the nature of wholly and exclusively for the purpose of assessee s business.

Summary

Issues:
Revenue's appeal against Commissioner of Income Tax (Appeals) order regarding treatment of logo charges as revenue expenditure.

Analysis:
The Revenue appealed against the Commissioner of Income Tax (Appeals) order for the assessment year 2005-2006, disputing the treatment of logo charges as revenue expenditure. The Assessing Officer initially considered the logo charge as capital expenditure due to the enduring benefits it provided to the assessee. The AO observed that the usage of the monogram 'ttk' would create a strong image and awareness in the public's minds, leading to increased business and profits. Consequently, the AO allowed 25% of the payment as depreciation and disallowed the remaining amount, adding it to the assessee's total income. The assessee, aggrieved by this decision, filed an appeal before the Commissioner of Income Tax (Appeals).

In the appellate proceedings, the Commissioner of Income Tax (Appeals) deleted the addition, leading to the Revenue's appeal before the Tribunal. The Tribunal, after hearing both parties and reviewing the material on record, noted a similar issue in the assessee's previous case. The Tribunal cited agreements where the assessee paid for the use of the monogram 'ttk' for a limited period, similar to royalty payments. The Tribunal referred to legal precedents where such payments were considered revenue expenditure, not capital, as the ownership rights of the trademark remained with the licensor. The Tribunal upheld the CIT(A)'s decision, stating that the logo charges were revenue expenditure wholly and exclusively for the purpose of the assessee's business.

The Tribunal also mentioned previous orders in the assessee's case for other assessment years, where similar decisions were made. Based on the legal precedents and the specific terms of the agreement for using the logo, the Tribunal dismissed the Revenue's appeal, upholding the treatment of logo charges as revenue expenditure. Consequently, the appeal of the Revenue in ITA No.1921/Mds/2016 for the assessment year 2005-06 was dismissed by the Tribunal on September 8, 2016, at Chennai.