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TMI Blog2024 (1) TMI 699X X X X Extracts X X X X X X X X Extracts X X X X ..... the terms of the licence agreement and ascertaining the nature of the expenditure incurred by the assessee companies, disallowed the deduction of royalty payment and allowed the depreciation at 25% treating it as capital expenditure. Appellate authorities, while deleting the disallowances made by the assessing officer, have rightly treated the royalty payment as revenue expenditure. Once the payment of royalty is treated as revenue expenditure, automatically, it goes without saying that the assessees would be entitled to 100% deduction. Therefore, we need not interfere with the orders passed by appellate authorities. Decided in favour of assessee. Expenditure incurred on Employee Stock Option Scheme - Whether allowable as revenue expenditure? - HELD THAT:- The issue involved herein is squarely covered by the decision of this court in CIT v. PVP Ventures Ltd. [ 2012 (7) TMI 696 - MADRAS HIGH COURT] which was followed by the Tribunal while passing the orders impugned herein. In the said decision, this court held the order of the Tribunal allowing the deduction of ESOP expenditure, as an ascertained expenditure. Tribunal was correct in holding that the ESOP expenditure is re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r on the facts and in the circumstances of the case, the Tribunal was right in holding that the royalty paid by the assessee towards the use of logo of Shriram Chits and Investments P Ltd is to be treated as revenue expenditure without appreciating that as per the section 32 w.e.f. 1.4.99 the royalty is to be treated as intangible asset of capital nature and consequently the royalty payment is a capital expenditure and the assessee is entitled for depreciation only. (ii) Whether on the facts and in the circumstances of the case the tribunal was right in holding the expenditure incurred on Employee Stock Option Scheme is allowable as revenue expenditure. 3. The learned counsel appearing for the appellant / Revenue further submitted that the substantial questions of law, raised in all these appeals are covered, by a common judgment dated 30.06.2022 passed by this court in T.C.A.No.755 of 2009 etc. batch in respect of the assessee's own case. The relevant paragraphs of the said judgment are extracted below for ready reference: Substantial question of law No.1 - Royalty :- 7.7. It is an admitted fact that the assessee companies had entered into licence agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urrent dependent upon the sales, and only for the period of the agreement. We agree with the High Court that the first question was rightly answered in favour of the assessee. However, it is imperative for this court to apply the law laid down by the Apex Court to the facts of the present case, to determine the nature of the royalty payment made by the assessee companies i.e., whether it is revenue or capital expenditure. 7.9. At this juncture, it is apposite to refer to the decision of the Hon'ble supreme court in CIT v. Wavin (I) Ltd. (supra) which was referred to by the Tribunal, while passing the orders impugned herein and it was held by the Hon'ble Supreme court as follows: The expenditures were incurred to obtain benefit of research and development made by the foreign company. The technical information given to the Indian company was non-exclusive and nontransferable . In other words, this is not an out and out sale of technical know-how. The assessee was merely given a non-exclusive and nontransferable right of user of the technical information. Expenditures in these facts cannot be said to be for acquisition of any asset at all. 7.10. Fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia Limited (AIR 1968 SC 1131). 7.11. Thus, it is crystal clear from the aforesaid decisions of the Hon'ble supreme court that royalty payment made by the assessee, for use of logo or trademark for a particular period, for improvement / expansion of business, would qualify as revenue expenditure. The Judgment in Honda Siel Cars India Ltd (supra) is of no assistance to the revenue as in that case, the technical know-how was shared pursuant to technical collaboration agreement and not only technical information was transferred, but on field complete assistance was given pursuant to the joint venture agreement. Further, in that case, the very same business was set up by the transferee company. However, in the present case, it is not the case. The grant of licence to use the intellectual property of the parent company for limited purpose, cannot be treated as transfer of ownership or title. Though the licence is renewed periodically, it by itself does not guarantee the renewal. Similarly, the parent company is always at liberty to not only cancel the license, but also grants such rights to any other organization. Further, the findings of the Apex Court in the above judgment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness is revenue in nature . 8.7. According to the assessees, the ESOP benefit is taxable in the hands of employees as 'perquisite' under section 17(2) of the Act and it was brought within the purview of Fringe Benefit Tax, which is an employee related expenditure. It is further pointed out by the assessees that similar claim of ESOP expenses for deduction raised for the assessment years 2006-07, 2007-08 and 2008-09, was allowed by the assessing officer. However, the same was disallowed by the assessing officer relating to the assessment year 2009-10, by placing reliance on the decision of the Hon'ble supreme court in Brooke Bond India Ltd v. CIT (cited supra), wherein, it was held that though the increase in capital results in expansion of the capital base of the company and incidentally that would help in the business of the company and may also help in the profit making, the expenses incurred in that connection still retain the character of a capital expenditure since the expenditure is directly related to the expansion of the capital base of the company . Whereas the learned senior counsel appearing for the assessees submitted that the decision in Bro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Employees Stock Option Plan. This expenditure incurred as per SEBI guidelines and granted by the Officer could not be considered as erroneous one calling for exercise of jurisdiction under Section 263 of the Act. 8.9. It is also to be noted at this juncture that as against the aforesaid decision of this Court, SLP (C) No. 9091 of 2014 was filed and it was ultimately, dismissed on 28.03.2014, as a result of which the judgment of this Court thus, attained finality. 8.10. Further, in the decision of the Karnataka High Court in CIT v. Biocon Ltd. [(2020) 121 taxmann.com 351 (Karnataka)], the question as to whether the expenditure towards ESOP is allowable as deduction under section 37(1) of the Act, was considered and was ultimately decided that the same amounted to definite legal liability, which has to be allowed as deduction, after considering the definition of employees stock option under section 2(15A) of the Companies Act, 1956. The new provision under section 2(37) of the Companies Act, 2013 also is in similar lines. 8.11. In the light of the aforesaid legal proposition, this court comes to a conclusion that the Tribunal was correct in holding that the ESOP e ..... 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