TMI Blog2019 (12) TMI 1613X X X X Extracts X X X X X X X X Extracts X X X X ..... tractual obligations are ordinary in commercial parlance and does not grant any valuable right to the licensee. The advantage earned by the assessee by use of the license is neither permanent nor ephemeral but is linked to the use of the trademark owned by the licensor. The expense towards use of trademark was clearly laid out for the purpose of ongoing business carried on by the assessee and fee paid for use of such trademark is clearly deductible as revenue expenditure. The assessee herein has been merely granted a license to use trademark on payment of license fee determined on the basis of a formula laid down in the agreement. The right to use can neither be assigned at the wishes of licensee nor is the licensor prohibited to term ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -13 4. The grounds of appeal raised by the Revenue read as under: that the ld. CIT(Appeals) has erred in law and on facts in deleting the addition amounting to Rs.2,44,82,272/- made on account of disallowance of Trademark License Utilization fees. 5. Briefly stated, the assessee company has been incorporated under the provisions of Chapter IX of the Companies Act, 1956 by converting the partnership firm namely M/s. Vishnu Packaging into Vishnu Pouch Packaging Pvt. Ltd. w.e.f. 21.06.2011. The assessee company is engaged in the business of manufacturing of Pan Masala without tobacco and Pan Masala containing tobacco. The assessee filed return of income for AY 2012-13 in question declaring total loss at Rs.4,00,76,491/-. The retu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concluded by the AO that expenditure incurred by the assessee towards license utilization fee is incurred in the capital field and is not revenue in character. The AO accordingly disallowed the claim of the assessee towards license fees in Revenue account and reduced the declared loss to the extent of the license fees. 6. Aggrieved, the assessee preferred the appeal before the CIT(A). 7. The CIT(A) followed a view taken in the case of the erstwhile partnership firm concerned AYs. 2010-11, 2011-12 2012-13 and passed a consolidated order for AYs. 2012-13, 2013-14 2014-15 in question in favour of the assessee. The relevant operative part of the order of the CIT(A) is reproduced hereunder: 6. I have carefully considered the facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T(A) be reversed and the action of the AO be restored. 8.2 The learned AR for the assessee, on the other hand, submitted that the issue is no longer res integra and the license agreement was under judicial scrutiny of the co-ordinate bench in the hands of the erstwhile partnership firm in the preceding AYs. in ITA Nos. 2046/Ahd/2013 1218/Ahd/2015 order dated 06.04.2017. 9. We have carefully considered the rival submissions. The short controversy relates to the maintainability of expenditure incurred by way of license fees to the licensor of the trademark as revenue expenditure. Whereas, it is the case of the assessee that license fees paid as specified percentage of sales (6%) is revenue expenditure for use of trademark owned by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se utilization fees treated to M/s. Vishnu Company Trade Mark Pvt. Ltd. have to be considered as a capital expenditure and accordingly disallowed the same and at the same time allowed depreciation @ 25%. 10. Aggrieved by this, the assessee carried the matter before the ld. CIT(A) and reiterated its claim. 11. After considering the facts and the submissions, the ld.CIT(A) found that the Vimal Trade Mark is owned by M/s. Vishnu Company Trade Mark Pvt. Ltd. and the assessee has paid royalty @ 6% of its turnover as per the terms and conditions of license/registered user agreement dated 11.05.2007. The ld. CIT(A) further observed that the CBDT circular relied upon by the A.O. does not apply on the impugned payment since there is no a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly misplaced. The contractual obligations are ordinary in commercial parlance and does not grant any valuable right to the licensee. The advantage earned by the assessee by use of the license is neither permanent nor ephemeral but is linked to the use of the trademark owned by the licensor. The expense towards use of trademark was clearly laid out for the purpose of ongoing business carried on by the assessee and fee paid for use of such trademark is clearly deductible as revenue expenditure. The assessee herein has been merely granted a license to use trademark on payment of license fee determined on the basis of a formula laid down in the agreement. The right to use can neither be assigned at the wishes of licensee nor is the licensor pro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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