2015 (9) TMI 445 - AT - Income Tax

Payment of logo charges - revenue v/s capital expenditure - Held that - Tribunal in assessee s own case for the assessment years 2002-03 to 2007-08 2012 (10) TMI 1001 - ITAT CHENNAI decided the issue in favour of the assessee wherein held title of the logo in question has not passed over to the assessee. Further, there is no acquisition of assets or part of any capital asset. Usage of logo by the assessee is only for displaying it on the product manufactured i.e. rubber contraceptives. That too, for a limited period as provided in the agreement in lieu of payment @ 2% of the gross sales. Thus we hold the instant logo charges are also revenue expenditure within the meaning of Sec.37 of the Act in the nature of wholly and exclusively for the purpose of assessee s business - Decided in favour of assessee. Payment of royalty for technical know-how - revenue v/s capital expenditure - Held that - By following the decision of the Tribunal in assessee s own case for the assessment years 2002-03 to 2007-08 decided the issue in favour of the assessee, wherein, the Tribunal has observed the payment made by the assessee in the shape of technical know-how fee by way of royalty @ 2% of the gross sales is Revenue expenditure - Decided in favour of assessee.

Summary

Issues Involved:
1. Payment of logo charges.
2. Payment of royalty for technical know-how.

Detailed Analysis:

1. Payment of Logo Charges:

The first issue pertains to the classification of logo charges as capital expenditure. The Assessing Officer (AO) deemed the payment of logo charges as capital expenditure, providing the assessee with enduring benefits, thus disallowing the claim for revenue expenditure. The AO's decision was based on the fact that the ITAT's decision for earlier assessment years had not become final.

On appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] followed the Tribunal's decision in the assessee's own case for previous years, allowing the appeal in favor of the assessee.

During the Tribunal hearing, the assessee's counsel argued that the issue was covered by the Tribunal's earlier decisions for assessment years 2002-03 to 2007-08. The Departmental Representative (DR) supported the AO's order and mentioned that the Department had appealed to the High Court against the Tribunal's decision.

The Tribunal reviewed the materials and previous decisions, specifically the agreement dated 31.03.00/06.05.00, which allowed the assessee to use the "ttk" monogram for a fee. The Tribunal noted that the agreement was approved by the Department of Company Affairs and that the payment of 2% of gross sales as logo charges did not transfer ownership or any capital asset to the assessee. Citing similar cases like G4S Securities System and DCM Benetton, the Tribunal concluded that the logo charges were revenue expenditure under Section 37 of the Income-tax Act, 1961, and upheld the CIT(A)'s decision.

2. Payment of Royalty for Technical Know-How:

The second issue concerns the classification of royalty payments for technical know-how as capital expenditure. The AO considered these payments as capital expenditure, providing the assessee with enduring benefits, and disallowed the claim for revenue expenditure.

On appeal, the CIT(A) again followed the Tribunal's decision in the assessee's own case for previous years, allowing the appeal in favor of the assessee.

The Tribunal reviewed the agreements dated 07.03.00, 01.04.05, and supplementary agreements, which outlined the terms for receiving technical know-how from LRC Products. The agreements specified that the technical know-how remained the property of LRC and was provided for a limited period (five years), with the assessee paying 2% of the total annual sales turnover as a technical know-how fee.

The Tribunal noted that the agreements did not grant exclusive rights or title to the assessee and lacked an element of endurability. Citing cases like Southern Switch Gear and IAEC Pumps Ltd., the Tribunal found that the royalty payments were for the use of technical know-how without acquiring any capital asset. The Tribunal concluded that the royalty payments were revenue expenditure under Section 37(1) of the Income-tax Act, 1961, and upheld the CIT(A)'s decision.

Conclusion:

The Tribunal found no infirmity in the CIT(A)'s orders on both issues and dismissed the Revenue's appeal. The Tribunal's decision was pronounced on 24.07.2015.