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TMI Blog2018 (3) TMI 133X X X X Extracts X X X X X X X X Extracts X X X X ..... erein for the purpose of carrying on profession in the name of M/s. "ARA LAW". 2. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in :- Sustaining enhancement by 5% in adhoc disallowance in respect of expenses incurred on business promotion, travelling and telephone expense holding it to be personal nature without pointing out from complete details furnished which and how a particular amount is of personal nature." 3. As the above stated Grounds of appeal reveal, the first substantive dispute is with regard to an amount of Rs. 53,74,502/- representing licence fee/royalty which has been disallowed by the income-tax authorities. Briefly put, the relevant facts are that the appellant before us is a partnership firm which is carrying the profession of Advocates & Solicitors, whose founding partner is one Shri Rajesh Begur. For the assessment year under consideration, it filed a return of income declaring income at Rs. 2,33,84,420/- and in the course of scrutiny assessment the Assessing Officer noted that in the Profit & Loss Account the assessee firm had claimed expenditure of Rs. 53,74,502/- under the head 'Royalty'. On being asked to explain, assessee poi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. At the time of hearing, the learned representative for the assessee vehemently pointed out that the lower authorities have failed to appreciate the facts in proper perspective inasmuch as the claim for payment of royalty to the founding partner was based on the 'Name Licence' agreement dated 18.03.2004, a copy of which has been placed in the Paper Book at pages 54 to 60, and not on the basis of the Partnership Deed. In any case, the learned representative pointed out that the Partnership Deed has also not been properly appreciated inasmuch as clause (10) thereof makes a reference to the 'Name Licence' agreement dated 18.03.2004 for the payment of royalty to the founding partner and thus, in that view of the matter, the partners can also be understood to have ratified the agreement dated 18.03.2004. On facts, it was pointed out that the assessee-firm has been paying the royalty regularly since 01.04.2004 and that during the year under consideration, royalty of Rs. 53,74,502/- was paid after deducting the necessary tax u/s 194J of the Act. By referring to the clauses of the 'Name Licence' agreement dated 18.03.2004, it was sought to be pointed out that the assessee-firm is allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the licence to use the name 'ARA Law', assessee-firm agreed to pay a royalty from 01.04.2004 onwards as a percentage of net billings. Be that as it may, in pursuance of said agreement, assessee-firm has been paying royalty to its founder partner, Shri Rajesh Begur, and so far as the year under consideration is concerned, such payment stands at Rs. 53,74,502/-. The allowability of such an expense is the dispute before us. The entire discussion in the assessment order as well as in the order of the CIT(A) reveals that the sole basis of disallowance is that there is no provision in the partnership deed for payment of such royalty. In fact, the Assessing Officer has rested his case on clause (10) of the partnership deed, which we reproduce hereinafter :- "10. NAME LICENSE The name, logo and trading style, all intellectual property rights comprised therein and in respect thereto belongs exclusively to the Founder Partner alone and neither the Retained Partners nor any person claiming by or through her / him shall have any right, title, interest or claim whatsoever to the name, logo, word or mark "ARA LAW", as a prefix or suffix or otherwise either during the continuance of the F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only to the legal heirs of the founder partner after his death and not during his lifetime. So, however, once the 'Name Licence' agreement dated 18.03.2004 is read conjointly with the partnership deed, it becomes crystal-clear that the claim of the assessee in the instant year is fully justified, and the assessee-firm is obligated to pay the royalty even during the lifetime of the founder partner. At no stage either of the lower authorities have repudiated or doubted the bona fide of 'Name Licence' agreement dated 18.03.2004, which fully covers the instant payment of royalty to the founder partner. In our considered opinion, the selective meaning placed on the contents of the partnership deed has led the income-tax authorities to misdirect themselves to disallow the impugned expenditure. For the sake of argument, even if one is to accept the plea of the Assessing Officer that the instant payment of royalty of Rs. 53,74,502/- is not contained in the partnership deed, even then, we find no reason to disallow the same u/s 37(1) of the Act. Firstly, in the absence of any material to repudiate the 'Name Licence' agreement dated 18.03.2004 or challenge its bona fide, the disallowance is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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