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TMI Blog2023 (2) TMI 354X X X X Extracts X X X X X X X X Extracts X X X X ..... Appellant to AMW for securing non-transferable right and license to use the name/ trade mark/ logo of AMW for a limited period, holding the same to be capital expenditure, viz., acquisition of intangible asset. 3. That on the facts and circumstances of the case and in law, the CIT(A) erred in holding that payment made for securing right and license to use the name/ trade mark/ logo of AMW resulted in accretion to the profit earning apparatus and hence, was a capital expenditure." 3. Brief facts of the case are that, the assessee filed return declaring income of Rs. 1,39,56,95,110/-. The case of the assessee was selected for scrutiny, statutory notice u/s 143(2) and also notice u/s 142(1) of the Income Tax Act 'Act' for short) were issued and the assessment proceedings were initiated against the assessee. The assessment order came to be passed on 18/12/2017, wherein the expenses of Rs. 6,50,00,000/- was disallowed as revenue expenditure. However, the assessee was allowed to claim depreciation at Rs. 25% on such amount, accordingly a sum of Rs. 4,87,50,000/- was added back to the income of the assessee. 4. As against the assessment order, the assessee has preferred an appeal b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mited period. Further submitted that, the Ld.CIT(A) has committed an error in holding that payment made for security right and license to use the name/trade mark /logo of the AMW resulted in accretion to profit earning apparatus and hence it was capital expenditure. The Ld. Counsel for the Assessee also taken us through the paper book and relied on the various judicial pronouncements. 11. Per contra, the Ld. DR relied on the orders of the Lower Authorities and submitted that the expenses of Rs. 6,50,00,000/- gives right of acquisition intangible asset being in the nature of commercials right and license to use to logo of AMW for considerable period of 60 months in furtherance of business. Therefore, the disallowance made by the A.O in characterizing the expenditure as depreciable intangible assets and allowing depreciation at Rs. 25% on the cost of payment is not only in accordance with law, but also same is reasonable. 12. We have heard the parties and perused the material available on record and gave our thoughtful consideration. We have perused the co branding agreement entered into by the assessee with AMW, wherein the assessee acquired non transferable limited right and lice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etc. incurred to VCL if AMW's dealers, distributors, B2B customers fail to make timely payment to VCL. Further, the Parties agree that both the Parties shall equally bear the cost of premium and all the losses, outstanding amount, damages (including collection ofpending forms from AMW's dealers, distributors and B2B customers) etc. which Insurance Company fails to make good or compensate. VCL reserves the right to deduct the said amount from the charges as specified in Annexure B, payable by VCL to AMW. 5.6 VCL shall deliver the Licensed Products at its own cost to AMW dealer's locations, B2B Customers and at other retail network places of AMW as specifically informed to VCL by AMW from time to time. ........................... (Emphasis supplied) 13. On perusal of the above two Sections it is found that the co-branded Licensed Products were only for use in AMW vehicles- inasmuch as marketing of the same was to be done through the dealer, distributors network of AMW, the Assessee was obliged to deliver the same at its own cost to AMW dealer's locations, B2B Customers and at other retail network places of AMW. In other words, the co- branded Licensed Products could not be u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... license and if no rights are retained by the owner, then it would usually be an assignment. A license is, therefore, nothing but a permissive use of the mark, which permission, is revocable. A 'right to use ' is usually a license and not an assignment, except in certain circumstances. Some of the questions that determine whether an arrangement is a license or an assignment include: (i) Whether the user acknowledges the licensor's right and title over the mark? (ii)Whether it is a mere right to use the mark or it was a transfer/assignment of a permanent nature? (iii)Whether the manner of use is specified and restricted and the effect thereof on the rights of the user? (iv) Whether the payment made by the User is one-time, fixed running royally or a percentage of sales, with or without investment made by the Licensor on marketing and advertising? (v) Whether the licensor has right of supervision and control over the use of the mark? (vi) Whether sole and exclusive right was conferred on the user and the effect thereof? (vii) Whether the user can further transfer his rights to third party, with and without consent of the licensor and the effect thereof? (viii) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Appellant. No Ions term benefit accrued to the Appellant. The royalty payable by the Appellant was 1.8% of the net selling price from the date of commercial production. ................................ 32. It is relevant to record some important facts at this stage. The mark "HILTON" in respect of Raw Edge, Wrapped V Belts, was a mark which was known in India in the relevant industry. It was being used by HRL which was the original owner for many years prior to the joint venture agreement. The registration of the mark Hilton dates back to 3rd June, 1977 and the user claimed for the said mark was form 1st December, 1972. When the joint venture was entered into, the mark was licensed to the joint venture company i.e. the Appellant which, thereafter, became a subsidiary of RF. HRL did not have any stake in the Appellant after 9th November 1995. The Appellant company which was known as Hilton Roulunds Ltd. is now known as Contitech India Private Limited. Thus even the corporate name of the company has changed, though subsequently. The settled position in law is that use by a licensee would also inure to the benefit of a licensor, for it would continue to remain the owner, unle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w known as 'Contitech India Private Limited'. Appellant states that they had applied for transfer and registration of the trademark "Hilton Euroflex" on 13th January, 1994, but on 28th April, 1999 they had deleted the word "Hilton " from the said application. Appellant has also placed on record pamphlet/price list that they had not used the mark "HILTON" and are marketing their goods on the mark "Roflex", which is their registered trademark since 10th July, 1996. We would accept and not proceed on the basis that the subsequent change in trademark would not be conclusive and determinative of the fact whether the mark "HILTON", was acquired by the Appellant as a capital asset or the payment made was to use the mark "HILTON", which belonged to and was owned by a third party, namely, HRL. Subsequent facts would only confirm our opinion and ratio that the right conferred on the Appellant under the second license agreement entered into 9th November, 1995 had only authorized the Appellant to use the mark for ten years. The Appellant had not acquired any permanent ownership or title in the said mark. The said payment though in lump sum was made to use the said mark and could well have been ..... X X X X Extracts X X X X X X X X Extracts X X X X
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