2015 (1) TMI 104 - HC - Income Tax

Disallowance of Royalty u/s 35A deleted by Tribunal Held that - The Tribunal was rightly of the view that the deletion of the amount of ₹ 2,90,602/- on account of royalty amount is justified - the assessee has used the term Bisleri for selling its own goods and therefore the payment made cannot be covered within the provisions of section 35A and it has to be allowed as a revenue deduction for compensation or royalty for the use of the term Bisleri in the goods sold by the assessee Decided against revenue.

Summary

Issues:
Interpretation of Section 35A of the Income Tax Act, 1961 regarding the deduction for expenditure on acquisition of patent rights or copyrights.

Analysis:
The case involved a dispute over the disallowance of a royalty payment claimed by the assessee under Section 35A of the Income Tax Act, 1961. The Assessing Officer restricted the allowance to 1/4th of the total claim, considering it as an acquisition of patent rights. The CIT(A) deleted the disallowance, which was upheld by the Tribunal. The main contention was whether the payment made for the use of the trade mark 'Bisleri' should be treated as a capital expenditure under Section 35A.

The Tribunal referred the question of law to the High Court under Section 256(1) of the Income Tax Act. The revenue contended that the orders of the lower authorities were against the principles of Section 35A. The High Court analyzed the provisions of Section 35A, which allow a deduction for expenditure on acquisition of patent rights or copyrights used for business purposes.

After considering the arguments and the facts of the case, the High Court agreed with the Tribunal's decision. It noted that the assessee used the term 'Bisleri' for selling its own goods, and the payment made should be treated as a revenue deduction for compensation or royalty. Therefore, the High Court ruled in favor of the assessee, stating that the payment cannot be covered within the provisions of Section 35A and should be allowed as a revenue deduction.

In conclusion, the High Court disposed of the reference by answering the question raised in favor of the assessee and against the revenue. The judgment clarified the interpretation of Section 35A in the context of royalty payments for the use of trademarks in business activities, emphasizing the distinction between capital and revenue expenditures under the Income Tax Act.