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TMI Blog2018 (7) TMI 63X X X X Extracts X X X X X X X X Extracts X X X X ..... unt of 3,37,50,000/- is to be considered as capital asset u/s. 32(1)(ii) and necessary depreciation is to be allowed. There is no dispute with reference to commercial expediency or with reference to being capital in nature. AO and CIT(A) disallowed the entire amount as capital expenditure, but they failed to consider whether the said amount is eligible for depreciation u/s. 32(1)(ii). AO to allow depreciation on the amount of 3,37,50,000/- treating it as capital asset and allow the balance amount of 35,90,480/- paid towards annual recurring license fee as revenue expenditure, in tune with the amounts allowed in later years. Assessee’s grounds are accordingly considered allowed partly. X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness/letter heads/correspondence etc. Accordingly, assessee has paid an amount of ₹ 84,37,000/- as one time initial consolidated payment of ₹ 87,74,480/- and an amount of ₹ 7,46,827/- as regular fees calculated as above. 4.1. Assessee also entered into another agreement for using 'artistic work license' by which it was to pay one-time consolidated fees of ₹ 2,53,13,000/- since assessee has been using the artistic work, ever since its incorporation. In addition, assessee has to pay a regular license fee @ 0.40% of net annual revenue where the artistic work was used as part of corporate name and 0.30% of net annual revenue where the artistic work is used in normal course of business/letter heads/correspondence etc. Assessee has paid the consolidated payment of ₹ 2,53,13,000 and an amount of ₹ 14,93,653/- towards annual license fee. Thus, assessee has paid an amount of ₹ 3,51,00,000/- towards one-time lumpsum amount and an amount of ₹ 22,40,480/- as regular license fee towards two agreements entered. It was the contention that these above amounts are to be allowed as 'revenue expenditure'. 5. Ld. Counsel referring to the license agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Hon'ble Supreme Court in the case of Techno Shares & Stocks Ltd., Vs. CIT [327 ITR 323] (SC) the amount of license fee to be paid is eligible for depreciation in terms of Section 32(1)(ii). Assessee also placed reliance on the decisions of the Hon'ble Delhi High Court in the case of Areva T&D India Ltd., Vs. DCIT [345 ITR 421] (Delhi) and ITAT, Bangalore Decision in the case of Bosch Ltd., Vs. ACIT [183 TTJ 215] (Bangalore-Trib). 6. Ld.DR, however, relied on the orders of AO and CIT(A) to submit that expenditure is capital in nature. 7. We have considered the rival contentions and perused the facts on record, agreements and case law relied upon. As seen from the agreements, there are two types of payments made by assessee. An amount of ₹ 3,37,50,000/- has been paid as one-time license fee and an amount of ₹ 35,90,450/- towards annual recurring license fee. The amount of annual recurring license fee payable on the basis of certain percentage on the net annual turnover is in the nature of revenue expenditure, which the AO has allowed in later two assessment years. To that extent, the case law relied upon by assessee about allowing trademark and license fee a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idated payment and other is regular license fee on the basis of the turnover. In the above referred case of Hilton Roulunds Ltd., Vs. CIT [92 taxmann.com 368] (Delhi), the Hon'ble Court has considered two types of agreements entered by assessee, wherein on certain use of trademarks, assessee paid annual license fee on the basis of turnover and also by way of supplementary agreement paid a lumpsum amount for use of the trademark for a ten year period without any annual fee. In that context, the issue was about ₹ 1 Crore lumpsum amount paid for a period of ten years. Analyzing that agreement and the case law, the Hon'ble High Court has held that the amount of ₹ 1 Crore lumpsum payment, without any further charges, is a revenue expenditure. However, in this case, the facts are slightly different. Assessee has paid a lumpsum amount at the beginning for the use of its trade license and also further payment of annual fee for continuous use of license. The principles laid down by the Hon'ble Supreme Court in the case of Techno Shares & Stocks Ltd., Vs. CIT [327 ITR 323] (SC) are applicable to the facts of this case, wherein the Hon'ble Supreme Court has held as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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