2014 (11) TMI 1248 - AT - Income Tax

Nature of expenditure - expenditure incurred on payment of royalty to M/s Macnaught Pvt. Ltd., U.K - HELD THAT - As decided in own 2014 (11) TMI 191 - ITAT DELHI expenditure incurred on royalty is a Revenue expenditure, incurred wholly and exclusively for the purpose of business. As a result, the claim made by the assessee is allowed and disallowance is deleted.

Summary

Issues Involved:
Denial of deduction of expenditure incurred on payment of royalty to M/s Macnaught Pvt. Ltd., U.K.

Analysis:

1. Issue of Denial of Deduction of Royalty Expenditure:
The appeal in this case pertains to the denial of deduction amounting to &8377; 57,7,094 representing expenditure incurred on the payment of royalty to M/s Macnaught Pvt. Ltd., U.K. The Tribunal considered the evidence on record and noted that the issue was previously addressed in an order by a co-ordinate Bench of the Tribunal for the assessee's own case for AY 2005-06 to 2007-08. In that order, it was established that the royalty expenses were paid for using the trademark on products sold by the assessee, and this payment was for the use of technology and trademark, making it a revenue expenditure. The Tribunal found that the expenditure was incurred wholly and exclusively for the purpose of the business, and the genuineness of the payment was not in doubt. Consequently, the Tribunal allowed the appeal, holding that the expenditure on royalty is a revenue expenditure, and the disallowance was deleted based on the precedent set in the previous order.

2. Conclusion:
In conclusion, the Tribunal ruled in favor of the assessee, allowing the appeal and holding that the expenditure incurred on royalty to M/s Macnaught Pvt. Ltd., U.K., was a revenue expenditure and therefore eligible for deduction. The decision was based on the previous order of a co-ordinate Bench of the Tribunal, which established the nature of the royalty payment as being for the use of technology and trademark, making it a legitimate business expense. Consequently, the disallowance of the deduction was overturned, and the appeal was allowed in favor of the assessee.

This detailed analysis of the judgment highlights the key legal aspects and reasoning behind the Tribunal's decision regarding the denial of deduction for royalty expenditure in this case.