2019 (11) TMI 42 - AT - Income Tax

Disallowance in respect of Royalty Payments - capital expenditure - HELD THAT - What was paid by the assessee is for the right to use the Logo belonging to Shriram Ownership Trust. When the assessee made payment for use of right, this Tribunal is of the considered opinion that the same cannot be treated as capital expenditure. CIT(Appeals) has rightly found that the payment made by the assessee is in the revenue field. In fact, similar addition made by the AO for the assessment year 2002-03 was deleted by this Tribunal. CIT(Appeals) by placing reliance on the order of this Tribunal in Shriram Tamil Nadu Pvt. Ltd., 2016 (8) TMI 1204 - ITAT CHENNAI allowed the claim of the assessee. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.

Summary

Issues involved:
- Appeal by Revenue against deletion of disallowance of royalty payments by CIT(A)
- Challenge of Tribunal's decision by Revenue
- Consideration of Tribunal's decision in assessee's own case for earlier assessment years

Analysis:
1. The judgment involves appeals filed by the Revenue against the deletion of disallowance of royalty payments by the Commissioner of Income Tax (Appeals) in the cases of two different entities for the assessment year 2016-17. The appeals were disposed of together as the issues were identical in both cases.

2. The main issue raised by the Revenue in both appeals was against the action of the CIT(A) in deleting the disallowance of "Royalty Payments" based on a decision of the Co-ordinate Bench of the Tribunal in the assessee's own case. The Revenue contended that despite the Tribunal's decision in favor of the assessees, the Revenue had challenged the decisions, and therefore, the CIT(A)'s orders should be reversed.

3. The Revenue argued that the royalty payments should be treated as capital expenditure, and depreciation should be allowed. However, the assessee's representative highlighted that the payments were for the right to use a logo, not for purchasing the logo itself, and thus should be considered as revenue expenditure.

4. The Tribunal examined the previous decision in the assessee's own case for the assessment year 2012-13, where a similar issue regarding royalty payments was considered. The Tribunal upheld the decision that the payments were for the right to use the logo and should be allowed as revenue expenditure, not capital expenditure.

5. Considering the consistent decisions of the Tribunal in the assessee's own case for earlier assessment years and following the decision of the Co-ordinate Bench, the Tribunal confirmed the findings of the CIT(A) in deleting the disallowance of royalty payments. Consequently, both appeals by the Revenue were dismissed.

6. The judgment was pronounced on 22nd October 2019 in Chennai, with Shri George Mathan and Shri Ramit Kochar presiding over the case. The representatives for the parties were Mr. J. Pavithran Kumar for the Revenue and Mr. S. Gautam for the Assessee.