2016 (7) TMI 1639 - AT - Income Tax

Disallowance of royalty - nature of expenditure - AO treated the expenditure as capital in nature and allowed depreciation @ 12.5% - HELD THAT - Material available on record. Shriram Ownership Trust is a Trust by itself, therefore, its logo cannot be used by any other concern. The object of the Trust is not to do business. The assessee-company was established for the purpose of business. When the assessee-company used the logo belongs to Shritam Ownership Trust, this Tribunal is of the considered opinion that for the purpose of using the logo, the assessee has to necessarily make the payment. In the case before us, the payment was made on turnover basis, therefore, the same has to be allowed as revenue expenditure u/s 37(1) of the Act. This Tribunal do not find any reason to interfere with the order of the CIT(A). Accordingly, the same is confirmed. - Decided against revenue.

Summary

Issues Involved: Disallowance of royalty as revenue expenditure.

Analysis:

1. Disallowance of Royalty:
The appeal dealt with the disallowance of royalty amounting to ?74,50,665. The Departmental Representative argued that the payment made by the assessee to Shriram Ownership Trust for using their logo should be treated as capital expenditure, as it was initially allowed depreciation at 12.5%. However, the CIT(A) allowed the claim as revenue expenditure based on a previous Tribunal order related to a group concern. The Departmental Representative contended that since the payment was for an intangible right, it should not have been treated as revenue expenditure. On the other hand, the Counsel for the assessee argued that the payment was made for using the logo on a turnover basis, justifying its treatment as revenue expenditure.

2. Tribunal's Decision:
After considering both sides' arguments and examining the material on record, the Tribunal found that Shriram Ownership Trust's logo was unique and could only be used by the assessee. As the Trust was not engaged in business activities, the payment for using its logo was deemed necessary for the assessee's business operations. Since the payment was made on a turnover basis, the Tribunal concluded that it should be allowed as revenue expenditure under section 37(1) of the Income Tax Act. Consequently, the Tribunal upheld the CIT(A)'s decision to allow the claim as revenue expenditure and dismissed the appeal of the Revenue.

In conclusion, the Tribunal's judgment confirmed the allowance of the royalty payment as revenue expenditure, emphasizing the necessity of the payment for the assessee's business operations and its basis on turnover.