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TMI Blog2023 (2) TMI 354X X X X Extracts X X X X X X X X Extracts X X X X ..... by it. Assessee did not have absolute ownership of brand name of AMW and merely obtain right and license to use the said brand name on the products manufactured by the assessee. The use of the co brand license product was also only for one customer i.e. AMW itself. The Jurisdictional High Court in the case of Hilton Roulnds Ltd.[ 2018 (4) TMI 1485 - DELHI HIGH COURT] held that that 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, therefore, in the opinion of the Hon ble High Court, is nothing but a permissive use of the mark, whose permission, is revocable. A right to use is usually a license and not an assignment, except in certain circumstances. Thus Lower Authorities have committed an error in disallowing the expenditure claimed in respect of payment made by the assessee to AMW, accordingly the addition made by the Revenue Authorities is deleted and the Grounds of Appeal are allowed. - I.T.A. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee vide order dated 24/12/2018. 5. Aggrieved by the order dated 24/12/2018 passed by the Ld.CIT(A), the assessee has preferred the present appeal on the grounds mentioned above. 6. Ground No. 1 is general in nature which requires no adjudication separately. 7. The Ground No. 2 3 is regarding the disallowance of payment made by the assessee to AMW towards co branding fees treating the same as capital expenditure. 8. The brief facts of the case are that, during the relevant previous year, the assessee entered into co branding agreement dated 16/06/2014 with AMW, a company incorporated under Companies Act, 1956 and engaged in the business of manufacturing and sale of heavy commercial vehicles. In the return of the income filed buy the assessee for the relevant Assessment Year, the assessee claimed deduction of entire amount of Rs. 6,50,00,000/- paid to AMW treating the same to be revenue expenditure. The Ld. A.O. disallowed the aforesaid deduction of Rs.6,50,00,000/-holding the same to be capital in nature; depreciation at 25% was allowed thereon. The Ld. A.O. was of the opinion that the acquisition of the brand name will benefit the assessee company in for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he co-branded license produced products were meant for use as service fills and by way of retail sale for use in AMW vehicles only, which is evident from the preamble and Section 2 Section 5 Agreement which reads as under:- Section 2 CO-BRANDING AND EXCLUSIVITY After reviewing the features, characteristics and specifications of the Licensed Products, AMW hereby grants to VCL on exclusive basis, a non-transferable right and license to use AMW s name, Trade Mark viz AMW and Logo on the packaging of the Licensed Products in such manner as may be prescribed or approved by AMW, solely for the purposes of co-branding of the Licensed Products with AMW Vehicles. Section 5 DISTRUBUTION AND MARKETING NETWORK AND OBLIGATIONS 5.1. The Licensed Products shall be marketed by VCL through AMW s Authorized Dealers/Distributors, AMW B2B customers or VCL s network. 5.2 AMW shall arrange for marketing of the Licensed Products throush its dealer, distributor s network as and in the manner as mutually agreed and AMW shall extend necessary assistance to VCL for organizing workshops, training programmes anions their dealers, service personnel etc. AMW shall support ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in respect of the co-branded Licensed Products was AMW itself for use as service fills or retail use. 14. It is further observed that the said license is valid for specified period of six months commencing from 16/06/2014 and on completion of the 60 months both the parties i.e. assessee and AMW have right to revenue/extend the agreement by giving three months prior notice in writing to the other party. The said agreement further depicts that in case of termination of agreement, as per Section 9.1 of the said agreement, AMW had the right to forfeit the entire front of co branding fees and after the expiry of the agreement as per term of Section 9.3.5 of the Agreement, the assessee cannot use the brand name ie: AMW on the products manufacture by it. Thus, the agreement did not confer/vest in the Assessee s proprietary rights in the trademark/ license/ brand name, the Assessee was only granted an exclusive, nontransferable right and license to use the brand name of AMW on products manufactured by it. 15. From the above fact, the assessee did not have absolute ownership of brand name of AMW and merely obtain right and license to use the said brand name on the products manufactu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f so, under what circumstances? (ix) Whether upon termination by the licensor, the user has to stop use of the mark? (x) Whether or not the right to sue is given and conferred on the user? (xi) Whether there is a transfer of goodwill of the business and/or goodwill in the mark? (xii) Whether there are multiple users of the same mark? . 28. A license agreement usually has some or all of the above stipulations. Thus, the nature of the agreement can be easily deduced from the existence of all or any of the above conditions/characteristics. In some circumstances however, an exclusive licence which excludes the owner from using the mark and vests perpetual rights without any termination clause, could constitute an assignment. However, the present case is not one such case. 29. The question in the present case is as to whether the right in the mark HILTON was transferred in a manner that was to give a Ions term benefit to the Appellant. The first agreement contains an acknowledgment that HRL was the owner of the mark. The agreement grants an exclusive right to use HILTON owned by HRL to the Appellant. The Appellant could not, withou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the mark was not transferred. The Appellant only had permission and approval to use the mark. Thus, the benefit of the use of the mark HILTON durins the period when it stood licensed to the Appellant inures to HRL. In Fedders Lloyd Corpn. Ltd. v. Fedders Corpn. ILR (2005) I Delhi 478, it was held use of the trademark by a licensee inures to the benefit of the licensor. This position was again reiterated by this Court in Formula One World Championship Ltd. v. CIT, International Taxation [2017] 390ITR 199/[2016] 76 taxmann.com 6 (Delhi). 33. Thus, when the benefit of the use of the mark has inured to the licensor i.e. HRL, the amount, that has been paid to HRL was a consideration for permission to use the mark, and not for acquiring ownership rights in the mark. The mark HILTON did not belongs to the Appellant. It also did not belongs to either of its current promoters i.e. RF or IFU. It belonged to HRL which was one of the joint venture partners when the Appellant was initially formed. The use of the mark HILTON thus, merely facilitated the Appellant s business in India i.e. it facilitated the Appellant s entry into India under the brand name and the trade name which was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement dated 27th January, 1993. Certain terms and conditions for using the mark HILTON were changed and altered vide agreement dated 9th November, 1995, but in substance with reference to the rights acquired there was no difference between this agreement and earlier license agreement dated 27th January, 1993. 35. All the above facts point to the clear conclusion that the payment of Rs. 1 crore ousht to be treated as revenue expenditure. There is no doubt in the proposition relied upon by the revenue, as held in Honda Siel Power (P.) Ltd. (supra), the Court has to look at the real nature of the agreement. On an analysis of the agreement on record, there is no doubt that it was merely a trademark license agreement, which conferred no enduring benefit or long term benefit to the Appellant. 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 nonexclusive 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 no ..... X X X X Extracts X X X X X X X X Extracts X X X X
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