TMI Blog2015 (9) TMI 663X X X X Extracts X X X X X X X X Extracts X X X X ..... ermitted to use the trademark 'Macnaught' on its products. The royalty was payable per unit of the product and, therefore, was clearly linked to sales. There was also no doubt that such payment was in fact made by the Assessee to MPL. It is also not in doubt that MPL was not related to the Assessee in any manner. In the circumstances, there should have been some reasonable basis for the CIT(A) to simply conclude that this was a sham transaction and proceed to enhance the disallowance. The interpretation of the agreement by the ITAT appears to be plausible. The Court is not persuaded to hold that the impugned order of the ITAT is perverse. - Decided in favour of assessee. - ITA No. 386/2015, ITA No. 474 to 476 /2015 - - - Dated:- 4-9-2015 - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... procedure and equipment. MPL had also allowed the Assessee to use the trademark 'Macnaught' on these products in consideration of the royalty. The Assessee pointed out that royalty was linked to the volume of sales and, therefore, should be allowed as business expenditure. 3. In its order dated 16th November, 2007 for AY 2005-06, the Assessing Officer (AO) did not accept the above explanation of the Assessee and concluded that the use of these drawings, procedure and trademark of MPL was going to bring an advantage of an enduring nature to the Assessee. He, therefore, capitalized the royalty paid by the Assessee to MPL. However, he allowed 25% depreciation thereon to the Assessee. The balance amount of ₹ 37,65,091/- was add ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... demark 'Macnaught' on the products of the Assessee and for using the drawings etc. The expenditure was incurred wholly and exclusively for the purposes of the business of the Assessee. From the payments made to MPL, the Assessee had deducted tax at source and deposited it with the Government. The genuineness of the payment was also not in doubt. In the circumstances, the ITAT was of the view that the CIT(A) was not justified in enhancing the addition made by the AO by capitalising the royalty. The appeals of the Assessee were, accordingly, allowed. 7. It is urged before us by Mr. Raghvendra Singh, the learned Junior Standing counsel for the Revenue, that the royalty agreement between the Assessee and MPL was vague. There was noth ..... X X X X Extracts X X X X X X X X Extracts X X X X
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