2017 (7) TMI 868 - HC - Income Tax

Royalty and License fees paid by the Assessee to its legal owner - revenue or capital expenses - Held that - Assessee pays an amount of ₹ 1 lakh per annum as license or copyright fees to M/s. Kirloskar Proprietary Limited for use of the name. The Assessee is also admitted as a member of M/s. Kirloskar Proprietary Limited and the Assessee has agreed to maintain the quality and to comply with the specifications prescribed by the said concerned. There is no transfer of a technical nohow. The M/s.Kirloskar Proprietary Limited is acknowledged as the original conceiver, adopter, user and registered proprietor of the trademark Kirloskar . For allowing the use of the trademark M/s.Kirloskar Proprietary Limited charges from the Assessee 0.25% on annual turnover as royalty. For the earlier years also i.e. for the Assessment Years 2007-08 and 2008-09, the same is accepted as the revenue expenditure by the Assessing Officer. The finding of fact have been concurrently arrived at by the Commissioner (Appeal) and the Tribunal in a plausible manner.

Summary

Issues:
- Whether the Royalty and License fees paid by the Assessee to its legal owner are revenue expenses or capital in nature for Assessment Year 2009-10.

Analysis:
1. The Appellant argued that the Tribunal erred in treating the Royalty and License fees as revenue expenses without considering all facts, claiming it is capital in nature. The questions raised were whether the expenses should be treated as revenue expenditure under the Income Tax Act and whether the payment made under the agreement was a revenue expenditure incurred in the course of business.

2. The Appellant contended that the agreement was misread by the authorities, emphasizing that technical knowhow was transferred to the Assessee, making the expenses capital in nature. The Appellant argued that these aspects were not considered by the authority during the assessment.

3. The Tribunal's order highlighted that the Assessee paid an annual fee for using the name 'Kirloskar' to the legal owner. The payments were for the use of the name and not for technical knowhow. The Tribunal found that the expenditure was in the revenue field, benefiting the Assessee in carrying out its business operations, thus classifying it as revenue expenditure.

4. The Assessee paid an annual fee for using the name 'Kirloskar' to the legal owner and agreed to maintain quality standards set by the owner. No technical knowhow was transferred, and the payments were for the use of the trademark. The Tribunal noted that similar payments were accepted as revenue expenditure in previous assessment years.

5. The Tribunal concluded that the payments made by the Assessee were for the use of the trademark and not for technical knowhow, benefiting the Assessee in its business operations. As a result, the Tribunal found that the expenditure was revenue in nature and not capital. The decision was based on the facts presented, and no substantial question of law arose, leading to the dismissal of the appeal.