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The Assistant Commissioner of Income Tax Versus M/s TTK Protective Devices Ltd (Formerly Known As. M/s TTK LIG Ltd)

2015 (9) TMI 445 - ITAT CHENNAI

Payment of logo charges - revenue v/s capital expenditure - Held that:- Tribunal in assessee's own case for the assessment years 2002-03 to 2007-08 [2012 (10) TMI 1001 - ITAT CHENNAI] decided the issue in favour of the assessee wherein held 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 .....

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ment years 2002-03 to 2007-08 decided the issue in favour of the assessee, wherein, the Tribunal has observed the payment made by the assessee in the shape of technical know-how fee by way of royalty @ 2% of the gross sales is Revenue expenditure - Decided in favour of assessee. - ITA No. 258/Mds/2015 - Dated:- 24-7-2015 - A. Mohan Alankamony, AM And V. Durga Rao, JM, JJ. For the Petitioner : Shri P B Sekaran, CIT For the Respondent : Shri Saroj Kumar Parida, Adv. ORDER Per V. Durga Rao, Judicia .....

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n benefits also. The decision of the ITAT on this issue in the assessee's case for earlier assessment years had not become final. Accordingly, he disallowed the claim of the assessee. 3. On appeal, the ld. CIT(A), by following the decision of the Tribunal in assessee's own case for earlier assessment years, allowed the ground raised in the appeal filed by the assessee. 4. The Revenue carried the matter in appeal before the Tribunal. 5. At the time of hearing, the ld. Counsel for the asse .....

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rities below. We find that the ld. CIT(A), by following the decision of the Tribunal in assessee's own case for the assessment years 2002-03 to 2007-08 in I.T.A. Nos. 1791 to 1796/Mds/2011 vide order dated 31.10.2012, decided the issue in favour of the assessee, wherein, the Tribunal has observed as under: "20. We have given our thoughtful consideration to the issue and also perused the relevant findings, contents of paper book referred and case law cited. Undisputed facts are that vide .....

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mage and awareness on the minds of public and has also evolved an original artistic work in the form of a monogram entitled 'ttk' (hereinafter referred to as the said monogram) which has established an identity of its own in the public minds relating to the quality of the products and other services, as well as the stature of the organization. WHEREAS TTK is the owner of the copyright of the said monogram having secured a registration of the said copyright under No.A- 39006/83 under the .....

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ermission to use the said monogram on or in relation to the goods manufactured and marketed by TTK - LIG and in relation to other business activities of TTK -LIG. WHEREAS TTK had acceded to the request of TTK -LIG to grant license and permission to TTK -LIG to use the said monogram, subject to certain terms and condition, which terms and conditions in writing by this Deed of Agreement. WHEREAS both the parties hereto consider it necessary and expedient to record such terms and conditions in writ .....

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e and permission granted by TTK in favour of TTK-LIG as aforesaid, shall entitle TTK-LIG, so long as this agreement in force, to use the said monogram on or in relation to the goods of TTK-LIG and in relation to the business activities of TTK-LIG, including the use of the said monogram on stationery, trade literature, packing of goods, labels, wrappers and advertisements of TTL-LIG. TTK-LIG shall not under any circumstances transfer or assign any of their rights under this agreement. 3. TTK-LIG .....

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in relation to the name of TTK-LIG 4. The agreement shall be in force for a period of three years effective from 1st April, 2000 and may be renewed thereafter by the consent of both the parties, subject to Government approval. 5. The renewal of this agreement may be effected by both the parties hereto by exchange of letters signed by persons duly authorized in this behalf. 6. In consideration of the said License and permission granted by TTK., TTK-LIG shall pay to TTK as non-refundable license f .....

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63 E dated 19.08.93,I, the Regional Director, Department of Company Affairs, Chenai-6, do hereby approve under proviso to sub section (1) of section 297 of the Companies Act, for entering into contract with M/s. T.T. Krishnamachari & Co. for licensing use of trade name and logo thereof in consideration of payment of 2% license fee calculated on the total sales of the company for a period of 3 years with effect from 1.4.2000. 2. The approval accorded in para 1 above is subject to the followin .....

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party is competitive and is not less advantageous to it as compared to similar contracts with other parties." 3. This approval has been accorded without prejudice to any action that may be required to be taken by the company under any other provisions of the Companies Act, 1956 or any other law in force. Dated at Chennai the 27th day of April 2000." There is hardly any dispute between the parties about the factum of payment made by assessee of logo charges @ 2% of the gross sales. The .....

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tained by it under the agreement. The payment of royalty was also to be on year to year basis on the net sales of the assessee and at no point of time was the assessee entitled to become the exclusive owner of the know-how and trade mark. Hence, the expenditure incurred by the assessee as royalty was revenue expenditure and was deductible under section 37(1) of the Income-tax Act, 1961." 20.1. Similarly, the Co-ordinate Bench of Delhi ITAT in the case of DCM Benetton(supra) has also held us .....

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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 @ % % of the amount of net sales. By paying the royalty the assessee did not acquire any right in the licenses trade-marks. Only the products manufactured by the assessee i.e. garments will bear the licensed marks for which the license has been granted. Accordi .....

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see received advantage of enduring nature primarily to bring it as capital expenditure." Taking cue from the same, we hold that in the instant case also, 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 .....

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ld. CIT(A) on this issue and the ground raised by the Revenue is dismissed. 9. The next ground of appeal of the Revenue relates to royalty payment. In the assessment order, the Assessing Officer has observed that the payment of royalty for technical know-how is a capital expenditure, which provides the assessee an enduring benefit and for which the Act provides for depreciation and accordingly, he disallowed the claim of the assessee. 10. On appeal, the ld. CIT(A), by following the decision of t .....

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ontentions at length and also gone through relevant findings and case laws. There is no quarrel between the parties that the assessee and other entity, namely M/s.LRC Products had entered into an agreement dated 07.03.00 and 01.04.05 followed by supplementary agreements dated 13.07.01 & 28.03.07 respectively. The relevant clauses in the agreement are reproduced as follows:- "LRC is the owner of certain data and information relating to new formulations in the manufacture of Rubber Contra .....

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s, formulae, drawings, blue prints and other technical and commercial information, together with any samples or specimens thereof, but excluding: (a) information which at the time of disclosure is in the public domain (b) information which subsequent to disclosure becomes part of the public domain by publication or otherwise (other than through disclosures by TTK-LIG in breach of this Agreement. (c) Information which may be received by TTK-LIG from any third party having the right to disclose th .....

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o TTK-LIG by like obligations as to confidentiality. (b) not otherwise to disclose the Information to any person firm or company without the prior written permission of LRC (c) upon conclusion of the purpose as aforesaid or sooner at LRC's request, to return all the Information to LRC together with all copies of written and graphic material and to retain no copies thereof and provide LRC with a certificate that no copies have been retained. WHEREAS both the parties hereto consider it necessa .....

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urces as applicable under the provisions of Indian Income Tax Act, 1961 and subject to approval under the Foreign Exchange Regulation Act, 1973 and other applicable Act and Regulations in India. 2. This Agreement shall be in force for a period of five years effective 1st April 2000 and may be renewed thereafter by mutual consent of both the parties. The renewal of this Agreement may be effected by both the parties hereto by exchange of letters signed by persons duly authorised in this behalf. 3. .....

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shall be entitled to terminate this Agreement without assigning any reason whatsoever by giving three months notice in writing served on LRC. 5. The obligations of confidentiality contained herein shall continue for a period of five years after the termination or expiry of the Agreement for whatever reason." 18.1. In the subsequent agreement dated 01.04.05 as well, we have come across the same set of clauses. It is therefore, clear that assessee's obligation to pay royalty @ 2%(supra) s .....

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favour of assessee for using the technical inputs. In these circumstances, in our opinion, the case law of M/s. Southern Switch Gear (supra) does not apply to the facts of the case as in the said case, the non-compete clause was there wherein the foreign company concerned had agreed not to manufacture similar products in India and not to give rights of manufacture to others. The instant case is rather covered by case law of M/s. IAEC Pumps Ltd., wherein the license to use the intellectual know-h .....

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