2023 (11) TMI 121 - AT - Income Tax

Nature of expenses - payment of royalty - revenue or capital expenditure - Permission to user the name and Trade Mark - Royalty is payable on the basis of Annual Sales Turnover - CIT(A) directed the AO to delete the addition made on account of royalty payment - HELD THAT - As in assessee's own case 2022 (4) TMI 804 - ITAT CHENNAI for the assessment year 2012-13 vide order dated 04.04.2022 assessee is using the trade name as well as management services under contractual terms. The payment was to be made on annual basis and the same was based on fixed percentage of net sales turnover. Upon termination of the agreement, the benefits / licenses / services were to lapse and the assessee was to return the manuals, reports etc. No new asset was acquired by the assessee. The assessee merely acted as user. Therefore, it could not be said that the rights acquired by the assessee were enduring in nature. CIT(A), in our considered opinion, has clinched the issue in the correct perspective and therefore, the same would not require any interference on our part. Appeal filed by the Revenue is dismissed.

Summary

Issues involved:
The appeal concerns the delay in filing the appeal, disallowance of various expenses, specifically the deletion of addition made towards disallowance of royalty payments.

Delay in filing the appeal:
The Revenue filed an appeal 34 days late, but the delay was condoned as the Revenue provided sufficient cause for the delay and the appeal was admitted for adjudication.

Disallowance of royalty payments:
The case involved the disallowance of royalty payments made by the assessee, with the Revenue contending that the payments were capital in nature and therefore not allowable as revenue expenditure. The assessee argued that the payments were for the right to use certain trademarks and services, not for the acquisition of any capital assets. The Tribunal, in line with previous decisions, held that the royalty payment was revenue expenditure as it was for the use of trademarks and services on an annual basis, with no enduring rights acquired by the assessee. The Tribunal dismissed the Revenue's appeal, upholding the deletion of the addition made towards disallowance of royalty payments.

Conclusion:
The Tribunal dismissed the appeal filed by the Revenue, affirming the decision to delete the addition made towards disallowance of royalty payments. The order was pronounced on 31st October, 2023 in Chennai.