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TMI Blog2024 (9) TMI 1062X X X X Extracts X X X X X X X X Extracts X X X X ..... nt Foodwork Pvt. Ltd. Order [ 2014 (8) TMI 353 - DELHI HIGH COURT] a coordinate Bench of the Delhi High Court was considering as to whether franchise fees and expenditure incurred on advertisement was a revenue expenditure or a capital expenditure held that CIT(Appeals) and Tribunal have rightly come to the conclusion that; (i) no new asset came into existence on account of payment of franchise fee and (ii) the rights under the agreement were only for the tenure of the agreement and no enduring benefit was derived by the assessee. Further, it was not an expenditure incurred for acquisition of source of profit, but enabled the respondent-assessee to run the business profitably. The fixed assets of the assessee remained untouched and no enduring asset came into existence. As already noted above, the brand or the trademark in question was not owned by the respondent-assessee - Decided in favour of assessee. Disallowing claim for deduction u/s 80JJAA - permanent employees solely employed for less than 300 days during the relevant previous years - HELD THAT: - This issue is covered in the case of Texas Instruments India (P) Ltd. [ 2021 (4) TMI 1049 - KARNATAKA HIGH COURT] and said submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowed by the Revenue in the preceding two assessment years, ie., in AYs 2003-04 and 2004-05, the claim for the subsequent years ought to have been allowed in the absence of any change in law and facts? iii. the Tribunal was right in sustaining the 1st Respondent s action in disallowing the claim for deduction under Section 80JJAA of the Act in respect of permanent employees solely on the ground that they were employed for less than 300 days during the relevant previous years despite the fact that they had been employed for periods much longer than 300 days? Re. substantial questions of law Nos.(i) and (ii): 7. The relevant facts necessary for consideration of the said substantial questions of law are that the assessee is a public limited company engaged in, inter alia, the business of manufacture and sale of automobile components, diesel fuel injection equipment, auto electrical items, etc. That vide Agreement dated 30.12.2002 [said agreement] , the assessee acquired the business of communication products and close circuit television products from Philips India Ltd. In consideration for acquiring non-exclusive and indivisible rights to use the trademarks of the products so acquire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peal. 11. The relevant factual matrix is undisputed, inasmuch as by virtue of the said agreement the assessee has acquired the right to use the trademark of Philips India Ltd., for a period of 36 months. Further, it is forthcoming that in respect of the said right to use the trademarks for the period of 36 months, the assessee had sought to claim deduction of a sum of Rs. 75,70,000/-, which it has amortized over the said period of 36 months. Further, the deduction claimed by the assessee as expenditure for the use of the trademark for AYs 2003-04 and 2004-05 has been accepted. That the deduction has been disallowed only for the period of AYs 2005-06 and 2006-07. It is forthcoming from the assessment order dated 24.12.2008 for the AY 2005-06 that with regard to the amortization of trademarks it was held as follows: 3. When the return of income was filed, the assessee had also filed a letter dated 27.10.2005 giving clarifications on various issues. Para 2.2 of this letter says that the assessee had acquired a business from Phillips India Ltd. The consideration paid includes an amount of Rs.75.7 lakhs towards 'non-exclusive and indivisible right to apply the trademark to the produ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 towards amortization of trademarks, amounting to Rs. 25,23,333/- is disallowed and in its place, depreciation of Rs. 6,30,864/- is allowed and difference amount of Rs. 18,92,500/- is added back to the income declared. (emphasis supplied) 12. It is forthcoming that it has been held that the deduction is required to be made under Section 32 (1) of the IT Act. 13. Section 32 (1) of the IT Act stipulates as follows: 32. Depreciation. (1) In respect of depreciation of (i) buildings, machinery, plant or furniture, being tangible assets; (ii) know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April, 1998, not being goodwill of a business or profession owned, wholly or partly, by the assessee and used for the purposes of the business or profession, the following deductions shall be allowed. (emphasis supplied) 14. It is further forthcoming from the order dated 24.12.2008 that reliance is placed on Section 43 (6) of the IT Act as to the written down value. In this context, it is relevant to note Section 43 (6) of the IT Act, which reads as follows: 43 (6) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .1.1 above. Firstly, there is no clear-cut finding given by the AO that the deduction claimed constituted capital or revenue expenditure as he merely disallowed one of the two claims made by the appellant on the ground that only one of the deductions was allowable. Secondly, merely because a mistake was committed in the earlier years does not mean that it should be committed in perpetuity. The AO is well within his rights to go into these issues and allow the correct deduction in the earlier years in accordance with law. For the detailed reasons reproduced in para 13.1 above, I am of the considered view that the AO has rightly disallowed the appellant's claim for amortization of trademarks amounting to Rs. 25,23,333/- and allowed depreciation of Rs. 6,30,834/-.The net addition of the difference of Rs. 18,92,500/- is therefore upheld. Grounds 3.1 to 3.3 also fail. (emphasis supplied) 17. The Tribunal, by its order dated 8.9.2016 while considering the contention regarding the deduction claimed with regard to the expenditure incurred towards trademark has, after noticing paras 13 to 13.1.2 of the order of the Commissioner has confirmed the findings of the Commissioner as well as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2014 passed in ITA No.310/2014, a coordinate Bench of the Delhi High Court was considering as to whether franchise fees and expenditure incurred on advertisement was a revenue expenditure or a capital expenditure. While considering the same, it has held as follows: 3. ..The Commissioner of Income Tax (Appeals) and the tribunal have rightly come to the conclusion that; (i) no new asset came into existence on account of payment of franchise fee and (ii) the rights under the agreement were only for the tenure of the agreement and no enduring benefit was derived by the assessee. Further, it was not an expenditure incurred for acquisition of source of profit, but enabled the respondent-assessee to run the business profitably. The fixed assets of the assessee remained untouched and no enduring asset came into existence. As already noted above, the brand or the trademark in question was not owned by the respondent-assessee. 4. We have also examined the order passed by the Assessing Officer. Other than relying upon the decision of the Madras High Court in the case of Southern Switchgear Limited ([1998) 232 ITR 359 (SC)], there is no discussion relating to the factual matrix to justify his ..... 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