TMI Blog2004 (12) TMI 319X X X X Extracts X X X X X X X X Extracts X X X X ..... uction of Rs. 1 crore under s. 37 of the IT Act in respect of the payment made to M/s Hilton Rubber Ltd. (hereinafter called as HRL) under an agreement for use of proprietary trade-mark "Hilton". The assessee-company entered into an agreement for trade-mark license with HRL on 9th Nov., 1995 and as per cl. 4 of the agreement, the assessee-company paid an amount of Rs. 1 crore to HRL who was the owner of trade-mark "Hilton" and claimed it to be a revenue expenditure for acquiring right to use of the above referred trade-mark. Doubting the claim of the assessee, the AO asked it as to why the expenditure incurred as per the said agreement should not be treated as capital expenditure or towards goodwill and why it should not be disallowed. The assessee has filed a copy of the agreement and a letter dt.16th March, 1999stating therein that the agreement gives a right to use the said trade-mark for a period of 10 years and fresh negotiation will take place thereafter. The AO examined the relationship between the parties and the earlier agreement dt. 27th Jan., 1993 whereby HRL has given right to use the trade-mark to the assessee-company, in India or any other part of the country as per t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ten years. Besides, selling the entire shareholding in the assessee-company to RF, the HRL has also sold the trademark of "Hilton" to the assessee against Rs. 1 crore. The claim of the assessee that in the earlier years the payment on account of use of trade-mark was treated to be as revenue expenditure does not hold force because through the original agreement dt.27th Jan., 1993, the assessee was required to pay a running royalty on the domestic sale of Raw-edge, V Belts @ 1.8 per cent of the net selling price from the date of commercial production thereof. Since the assessee was required to make a regular payment of running royalty on net sales, the payment was rightly treated to be a revenue expenditure but through this agreement dt.9th Nov., 1995, the assessee was allowed to use trade-mark permanently against a lump sum payment of Rs. 1 crore. Though a specific clause for a duration of agreement was inserted but it was not specified whether this agreement was required to be renewed. The liberty was given to the assessee to continue to use of the trade-mark exclusively without limit of time. The learned CIT-Departmental Representative further invited our attention to the legal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s placed before us, in the light of rival contentions. From the perusal of the order of the CIT(A), we find that the CIT(A) has reproduced the submissions of the assessee verbatim in its order and has given his findings in a small paragraph instead of adjudicating the issue independently. While adjudicating the appeal, the CIT(A) heavily relied upon the judgment of the Madras Industrial Corporation Ltd. vs. CIT and after having a careful perusal of this judgment, we are of the view that this judgment was rendered on different facts and is not directly applicable to the facts of the present case and as such its reference to the present controversy by the CIT(A) is uncalled for. It is also a settled proposition of law that nature of documents should not only be examined on the basis of its title but the contents of the documents should be examined minutely in toto to draw an inference about the nature of document. One should not go with the title of the document as sometimes title of the document is illusory and deceptive and to understand the nature of the transaction, the document should be read in toto to know the intention of the parties. We therefore, are of the considered opini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and other power transmission belts excluding flat transmission belts (hereinafter referred to as "the goods) the trade-mark in India and in such other countries to which the goods are exported. 3.(a) In consideration of the said right, the user shall pay to the proprietor a running royalty on the domestic sale (i.e. sales within the Republic of India) of Raw Edge and Wrapped V Belts at the rate of 1.8 per cent of the net selling price from the date of commercial production thereof. The expression net selling price shall mean ex-factory selling price of Raw-Edge and Wrapped V Belts excluding sales-tax, excise duty and other Governmental taxes and levies, insurance, forwarding and packaging expenses and freight charges. (b) Unless otherwise specified by the proprietor, the royalty hereunder shall be paid to Hilton Rubbers Ltd. S 23 Green Park Extension, New Delhi-110016, in India rupees at half-yearly intervals, within 60 days at the end of each calendar half-year." Agreement dt. 9th Nov., 1995 This agreement is made this 9th day of November, 1995, between Hilton Rubbers Ltd., a company incorporated under the Indian Companies Act, 1956 and having its registered office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cluding the Union of India and of the rights attaching to the said trade-mark when used in relation to business in the said goods advertisement or promotional material or otherwise in connection therewith. 2. Subject to the terms of this agreement, the proprietor hereby grants to the user for the term of this agreement an exclusive right to use upon or in connection with Raw Edge, Wrapped V Belts and other power transmission belts excluding flat transmission belts (hereinafter referred to as "the goods") the trade-mark in India and in such other countries to which the goods are exported. 3. This agreement shall come into effect from the day of signing of this agreement (hereinafter referred to as 'effective date'). 4. In consideration of the said right, the user shall pay to the proprietor a sum of Rs. 1,00,00,000 (rupees ten million only) within 3 weeks of the effective date. In the event that the payment is not made as aforesaid, the said amount will carry interest w.e.f. 22nd day of the effective date till the date of actual payment, as below: Interest will be payable @ 18 per cent per annum w.e.f. 22nd day of the effective date till the 82nd for the period the amount is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing HRL's entire shareholding in the company on the terms, conditions and covenants appearing hereinafter. Now, therefore, in consideration of the premises and mutual promises and covenants, the parties hereto agree as follows: 1. Sales and purchase of the equity shares 1.1 Subject to requisite regulatory approvals being obtained under the laws of India and provisions of this agreement, HRL agrees to sell to RF and RF agrees to purchase from HRL the equity shares, representing fifty (50) per cent of the subscribed and paid up capital of the company, being HRL's shareholding in the company. 1.2 RF may acquire the equity shares by itself and/or cause the equity shares to be acquired by other parties, whether residents ofIndiaor not, selected by RF [hereinafter the 'nominee(s)']. If the whole or a part of the equity shares are acquired by nominee(s), RF shall be entitled to assign its rights and obligations in respect of such shares under this agreement and subsequent agreements flowing therefrom to such nominee(s). 1.3 Stamp duties and other cost for transfer of the equity shares shall be borne by RF and/or its nominee(s). 2. Purchase consideration: In consideration of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lding in the assessee to RF and trade-mark to the assessee against a lump sum consideration of Rs. 1 crore which was to be paid within three weeks of effective date and if the assessee failed to pay, interest would be charged @ 18 per cent per annum w.e.f. 22nd day of the effective date till the 82nd (sic-day) for the period the amount is outstanding and thereafter @ 20 per cent per annum of the rate being charged by the bankers of proprietor, whichever is lower, for the subsequent period till the date of actual payment. From its cl. 12, it is also made clear that this agreement shall run for an initial period of 10 years and continue thereafter without any limit of time until terminated by at least 12 calendar months previous written notice given by either party to the other. In cls. 13 and 14, though HRL was given a right to terminate this agreement and the license granted thereunder but these conditions are quite different and the onus is placed upon the proprietor to demonstrate certain conditions. In this entire agreement, there was no clause how the agreement can be renewed after the lapse of initial period of 10 years and what would be the consideration for the use of trade- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yment or a lump sum payment but after lapse of the period of license it was required to be renewed or be terminated by the act of the parties. But in the instant case, the assessee was allowed to use the trademark for an unlimited period and no clause was inserted as to how the agreement can be renewed after the period of 10 years and what would be the further consideration for the use of trade-mark. Meaning thereby the trade-mark was finally sold or transferred to the assessee through this agreement permanently and the assessee was not required to get renewal of the license. For this reason, we have no hesitation to hold that this expenditure incurred for the use of the trade-mark is of a capital nature as the assessee procured enduring benefit for his business. We, therefore, set aside the order of the CIT(A) and restore the assessment order on this count. 12. Ground No. 2 relates to the delayed payment of provident fund. During the course of hearing, it was admitted by both the parties that the assessee has made payment of PF/EPF and ESI within the grace period which was disallowed by the AO. The CIT(A) following the decision of different Benches of the Tribunal and the decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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