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TMI Blog2019 (10) TMI 855X X X X Extracts X X X X X X X X Extracts X X X X ..... he agreement where under the assessee is under an obligation to discontinue the use of technical information and regulatory approvals immediately in the event of termination of the agreement as stated therein. The benefit enjoyed by the assessee is co-terminus with the enforcement of the agreement. What is relevant to be seen here is whether the assessee held the rights under the agreements in perpetuity or at least further agreed period of 15 years in continuity or such an agreement had met with a premature termination and such a fact strengthens the argument of the assessee that no endurable benefit had accrue to the assessee under such an agreement. Technical information and the marketing approvals of a product provided by the licensor only facilitates greater acceptable of the products of the assessee leading to higher profitability in the existing business of distribution and marketing of products carried on by it, without addition to the profit earning apparatus and on this premise we return a finding that the length of advantage in terms of time derived by the assessee has no bearing on the question to decide the nature of expenditure incurred by the assessee by way of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the products that are either approved or pending with the regulatory authorities and also owns related information for Marketing Authorization not yet filed with the regulatory authorities in India. Since the assessee has experience and expertise in the commercialization of pharmaceutical products in India, it was desirous of obtaining licenses and purchase products from Onco Labs on a non-exclusive basis to use, market, sell, distribute and otherwise commercialize products in India. 5. Assessee entered into a tripartite agreement with the OLL and OTL whereunder Onco and its affiliates granted a non-exclusive license to the assessee under the Dossier, technical information, regulatory approval and any other intellectual property of Onco, to commercialize and market the products in the territory, and paid a lump-sum amount of USD 1 million (INR 6,93,78,000/-) to Onco labs. 6. On a perusal of these details of license fee of ₹ 693.78 lakhs, learned Assessing Officer opined that such expenditure had to be treated as an intangible asset and depreciation be allowed under section 32 of the Income Tax Act, 1961 (for short the Act ), for the followi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to realize that assessee company has extensive experience and expertise in the market. Its own trademarks and brands have a value in itself. The assessee company has a well-established distribution network, access channels, rapport, with doctors/hospitals. Therefore it is important to highlight distinction between reselling and branding of products. Assessee is not just reselling the drugs, since the assessee company has all control over branding/trademarks/pricing of the product the license being a non-exclusive one does not make significant difference. It is well known and understood in the pharmaceutical industry that the same drug is marketed by different companies in the same market but yet all have different values depending upon several factors. In the instant case the assessee company has a well-established brand, distribution network and rapport with doctors. IV. The consideration paid for the licensing agreement is for acquisition of source of profit. Under the agreement it is mentioned that the assessee company would obtained drugs for a fixed price and thereafter the pricing/branding etc. of the drugs in the market are under the contr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eived non-exclusive license to use, market, sell and distribute the products in India during the terms of agreement and the assessee did not obtain any ownership of technical knowhow, manufacturing process or any other intellectual property of Onco labs. According to him the assessee only had a limited right to use the technical information, regulatory approval and related information to commercialize and market the products in India; whereas the ownership/proprietary rights in the technical knowhow, regulatory approvals, manufacturing processes etc. continue to be vested in OLL and the assessee has not been authorized to transfer, assign or convey such knowhow/technical information etc. to any third party. He placed reliance on many decisions including the decisions of the Hon ble Apex court in CIT v. Ciba India Ltd.: 69 ITR 692 (SC);Alembic Chemical Works Co. Ltd. v. CIT: 177 ITR 377 (SC);CIT vs. British India Corp. Ltd.: 165 ITR 51 (SC);CIT v. Indian Oxygen Ltd.: 218 ITR 337 (SC);CIT v. IAEC (Pumps) Ltd: 232 ITR 316 (SC) ;CIT v. Wavin (India) Ltd. 236 ITR 314 (SC) and CIT vs. British India Corp. Ltd. [1987] 165 ITR 51 (SC)and also, the recent decision of the Hon ble jurisdiction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g on the business more profitably and efficiently, without addition to the Revenue earning capital apparatus, the advantage of enduring nature ensuing therefrom shall be on Revenue account only. In support of propositionthat the absence of clause of return of documentation/ knowhow and the fact that the assessee was entitled to carry on manufacturing activities with use of such know-how/documentation even after the expiry of the agreement, did not alter the nature of transaction or result in any benefit of enduring character to the assessee, he placed reliance on the decisions reported in Shriram Refrigeration Industries Ltd. v. CIT: 127 ITR 746(Del), Triveni Engineering Works Ltd. V. CIT:136 ITR 340 (Del), CIT v. Bhai Sunder Dass Sons (P) Ltd.: 158 ITR 195 (Del.), Shriram Pistons and Rings Ltd.: 219 CTR 228 (Del.) and CIT v. J.K. Synthetics Ltd.: 176 Taxman 355 (Del.). 13. In respect of the observations of the assessing officer that the payment of licence fees as the capital expenditure on the ground that the license agreement constitutes extension of business for the assessee company, it is the submission of the Ld. AR that the test for determining whether differe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Regulatory Approval for the Product in the Territory using the Dossier and Onco Data to allow Lilly India to Commercialize and Market the Products in the Territory. Onco and its Affiliates hereby grants to Lilly India and its Affiliates and Lilly India and its Affiliates hereby accepts a non-exclusive license, under the Dossier, Technical Information, Regulatory Approval and any other intellectual property of Onco, to commercialize and Market the Products in the Territory. 2.2 Limitation of Rights Granted: Except as set forth in this Agreement, neither Party grants to the other Party any assignment or ownership rights to its intellectual property rights for the Products, including, but not limited to, the Onco Dossier, Technical Information, DMF-, Onco Data and Regulatory Approval. 7.1.1. For the grant of the non-exclusive license rights under section 2.1, Lilly India shall pay to OLL a one-time licensing fee equivalent to one million ($ 1,000,000) U.S. Dollars in Indian Rupees payable within forty five (45) days of the first commercial sale of any Product in the Territory. The exchange rate shall be calculated from the thirty(30) day average exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter six (6) months written notice, for example but not limited to, as mentioned in Section 10.5 18.1 Upon expiry or termination of this Agreement 18.1.1 Termination of this Agreement for any reason shall not release or discharge either party s liability for obligations incurred or accrued at the time of such termination, cancellation or expiration of this Agreement according to the terms of this Agreement. 18.1.2 Lilly India shall purchase the finish goods manufactured against the firm orders of the Lilly India upon termination. Lilly India shall reimburse the cost of raw material and packing materials procured against the firm orders. If such raw materials and packing materials are not utilized or not returned with 30 days of termination of the Agreement. 18.2 The Parties obligations under Sections 1, 14, 15, 16, 18, 21 and 24 shall survive termination, cancellation or expiration of this Agreement according to their respective terms, including payments outstanding towards Products supplied. 16. A reading of the above parts of the agreement show that the assessee had acquired only a limited right ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usive right to use the Trade Mark HILON in India in respect of Raw-Edge and Wrapped VBelts; (b) Ownership of the mark vested in HRL; (c) Running royalty on domestic sale was payable to the HRL; (d) License was terminable by 12 months' notice or by 30 days' notice in case of breach of the terms of the agreement; (e) License could also be terminated if the appellant did not adhere to the conditions of use under the agreement, or if the rights in the mark were endangered in any manner. 2. Though, the agreement was for a period of 10 years, a second license agreement was entered into on 9th November, 1995. . Thus, in the second license agreement the terms were: (a) That HRL had decided to sell its entire shareholding in the appellant to RF. (b) Instead of a royalty payable periodically, a onetime royalty of ₹ 1 Crore was payable towards the Trade Mark license. (c) Exclusive right to use the mark was given to the appellant. Hon ble court, after considering the law laid down by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the goodwill of a business and if the same is assigned without the goodwill of the business, the nature of the transfer would have to be determined on the facts of a particular case. 27. The fundamental test to determine as to whether a particular mark has been licensed or assigned is to see if the licensor/assignor has retained any rights in the mark. If rights are retained with the owner, usually it is a license and if no rights are retained by the owner, then it would usually be an assignment. A license is, therefore, nothing but a permissive use of the mark, which permission, is revocable. A 'right to use' is usually a license and not an assignment, except in certain circumstances. Some of the questions that determine whether an arrangement is a license or an assignment include: (i) Whether the user acknowledges the licensor's right and title over the mark? (ii) Whether it is a mere right to use the mark or it was a transfer/assignment of a permanent nature? (iii) Whether the manner of use is specified and restricted and the effect thereof on the rights of the user? (iv) Wheth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led an acquisition and benefit of capital nature so as to constitute capital expenditure. The appellant did not purchase and acquire title in the trademark. It did not retain any rights in the mark. In fact the appellant no longer uses the word HILTON either as a trade mark or trade name or as a part of its corporate name. Thus, the payment of ₹ 1 crore was for the purpose of obtaining an advantage in carrying on its business and is therefore in the revenue field. 36. A supplemental corporate license agreement was executed along with the first license and the second license agreement. Under these agreements also the right to use the corporate name HILTON was non-exclusive and royalty free. Though, it was to remain in full force and executed without any limit of time, a licensor had the right to terminate the said agreement with 30 days' notice. Thus, even the corporate name license agreement was terminable and did not create ownership rights in the appellant for the word HILTON . The Court takes notice of the fact that the corporate name has in any event been changed by the appellant. Moreover, before the Incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riod of 15 years, they had obtained a benefit of enduring nature in view of class 16.1 and 18.2 of the agreement where under the assessee is under an obligation to discontinue the use of technical information and regulatory approvals immediately in the event of termination of the agreement as stated therein. In other words, the benefit enjoyed by the assessee is co-terminus with the enforcement of the agreement. 21. It is not in dispute that the assessee demonstrated before the Ld. DRP that the products being manufactured by OTL in respect of which the license was obtained for commercialisation, was discontinued w.e.f. 09/01/2015 and the contract was terminated. Though, it is submitted by the Ld. DR that inasmuch as the termination letter speaks that it has to come into force w.e.f. 9/10/2015, it has no relevance to the year under consideration, what is relevant to be seen here is whether the assessee held the rights under the agreements in perpetuity or at least further agreed period of 15 years in continuity or such an agreement had met with a premature termination and such a fact strengthens the argument of the assessee that no endurable benefit had accrue to the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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