9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2016 (7) TMI 109 - AT - Income TaxPayment for use of technical know-how and trademark/logo - Revenue expenditure or capital expenditure - Held that - All the salient features of transfer of technical know-how show that the assessee paid 3% of selling price of the Joints sold by it for the use of technical know-how provided by the Licensor which is not a consideration for acquiring any know-how. It is a case of parting by the Licensor for consideration with the partial ownership of technical know-how that is for allowing only a right to use to the assessee; and not a case of parting with full ownership of technical know-how that is for transferring the ownership to the assessee. Hence the amount so paid is eligible for deduction as a revenue expenditure. When we consider all the relevant clauses of the Agreement it becomes clear that the assessee did not acquire any ownership right in trademarks and payment was simply for the use of the trademarks and that too by means of a non-exclusive License. It has been made clear in the Agreement that the ownership in the trademarks shall remain the intellectual property of the Licensor and the assessee shall have a mere right to use them. Further upon the termination the Licensee shall cease to make any use of such trademarks. Thus it is patent that the payment has been made by the assessee for use of trademarks and not for acquiring trademarks as an owner. It goes without saying that any payment made for a mere use of an asset falls in the realm of a revenue expenditure and cannot be treated as a capital expenditure. - Decided in favor of assessee.
Issues Involved:
1. Withdrawal of Ground Nos. 1 to 6. 2. Confirmation of disallowance of ?2,94,77,926/- on account of payment for technical know-how and trademark/logo. Detailed Analysis: 1. Withdrawal of Ground Nos. 1 to 6: - Summary: The assessee's representative withdrew Ground Nos. 1 to 6 due to the settlement of the dispute under Mutual Agreement Procedure (MAP) proceedings. Consequently, these grounds were dismissed as withdrawn. 2. Confirmation of Disallowance of ?2,94,77,926/- on Account of Payment for Technical Know-How and Trademark/Logo: - Facts of the Case: The assessee, an Indian company part of the GKN Group, engaged in manufacturing and selling Constant Velocity Joints (CVJ), entered into agreements with GKN Automotive GmbH, Germany, and GKN Holdings plc., UK, for technical know-how and trademark usage respectively. The total payment made was ?2,94,77,926/-. - Assessing Officer's (AO) Stand: The AO treated the total payment as a capital expenditure, thereby disallowing the claimed revenue expenditure. This decision was based on the technical collaboration agreement and the nature of the payments made. - Dispute Resolution Panel (DRP) Stand: The DRP noted that this issue had been in dispute for the preceding two assessment years without final resolution, and upheld the AO’s addition. - Tribunal's Analysis: The Tribunal separated the payments into two categories: ?71 lakh for technical know-how and ?2.23 crore for trademark/brand royalty. a. Payment of ?71 Lakh for Technical Know-How: - Agreement Details: The agreement granted the assessee an exclusive right to use the know-how for manufacturing CVJ and non-exclusive rights for selling them in a defined territory. The agreement also emphasized confidentiality, non-disclosure, and non-assignment of the know-how. - Tribunal's Findings: - The payment was for the "use" of technical know-how, not for acquiring ownership. - The agreement included clauses ensuring the licensor retained proprietary rights, and the licensee could not disclose or assign the know-how. - Upon termination, the licensee had to cease using the know-how and return all materials. - The payment of 3% of the selling price for using the know-how was deemed a revenue expenditure, not a capital expenditure. - Conclusion: The Tribunal allowed the deduction of ?71 lakh as revenue expenditure. b. Payment of ?2.23 Crore for Trademark/Brand Royalty: - Agreement Details: The agreement granted a non-exclusive license to use trademarks, with the licensor retaining ownership. The licensee was required to cease using the trademarks upon termination of the agreement. - Tribunal's Findings: - The payment was for the "use" of trademarks, not for acquiring ownership. - The agreement clearly stated that the ownership of the trademarks remained with the licensor. - The payment was made for the right to use the trademarks, which is a revenue expenditure. - Conclusion: The Tribunal allowed the deduction of ?2.23 crore as revenue expenditure. Final Judgment: - Total Payment: The total payment of ?2.94 crore made by the assessee for the use of technical know-how and trademarks was classified as a revenue expenditure and not a capital expenditure. - Outcome: The appeal was partly allowed, granting the deduction for the sum of ?2.94 crore. Order Pronounced: The order was pronounced in the open court on 30.06.2016.
|
