Fenner (India) Ltd. v. Addl. CIT

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The Tax Publishers2013 TaxPub(DT) 0079 (Chen-Trib) : (2012) 139 ITD 0406 : (2012) 020 ITR (Trib) 0048 INCOME TAX ACT, 1961 --Capital or revenue expenditureRoyalty Payment for Royalty to use trade mark--During the course of assessment proceeding it was noted by assessing officer that assessee had made payment for royalty to use trademark the therefore, he treated the same as capital expenditure in whole. Held: 25 per cent of royalty to be considered as capital and 75 per cent would be treated as revenue expenditure and section 32(1) was not applicable in assessee's case. The Commissioner (Appeals), on analyzing the facts of the assessee's case, concluded that 25 per cent, of the lump sum royalty payment could be attributed to acquiring capital asset in the form of commercially valuable right to continuously use the Fenner brand name and trademark and the balance 75 per cent, could be permissible as deduction as revenue expenditure for mere use of brand name and the trademark. [Para 8] With regard to the contention of the Departmental Representative that the assessee has acquired intangible asset and therefore depreciation is allowable under section 32(1), the provisions of section 32(1) are applicable when the assessee acquired on or after 1-4-1998 and owned wholly or partly any know-how, patents, copyrights, trade mark, etc., by the assessee and used for the purpose of business or profession, depreciation is allowable. In this case, the assessee has not either owned wholly or partly any know-how, patents, copyrights, trademark, etc., so as to apply the provisions of section 32(1). The assessee is only permitted to use trademark and brand name of the foreign collaborator with certain conditions. Therefore, the provisions of section 32(1) are not applicable to the facts of the assessee's case. [Para 9] There is no reason to interfere with the reasoning of the Commissioner (Appeals), which is well founded and is in accordance with the law laid down by the jurisdictional High Court and the Supreme Court. [Para 10] Income Tax Act, 1961, Section 37(1) INCOME TAX ACT, 1961 --Business expenditure--Disallowance under section 14AApplicability of provision of section 14A read with rule 8D--During appellate proceeding Commissioner (Appeals) directed assessing officer to recompute the quantum of expenses for disallowance under section 14A read with rule 8D as against 5 per cent of corporate expenses disallowed by assessing officer. Held: Provision of rule 8D is applicable only from assessment year 2008-09 where assessee's case is relevant to the year 2005-06. Income Tax Act, 1961, Section 14A SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2013 TaxPub(DT) 0079 (Chen-Trib) : (2012) 139 ITD 0406 : (2012) 020 ITR (Trib) 0048

INCOME TAX ACT, 1961

--Capital or revenue expenditureRoyalty Payment for Royalty to use trade mark--During the course of assessment proceeding it was noted by assessing officer that assessee had made payment for royalty to use trademark the therefore, he treated the same as capital expenditure in whole. Held: 25 per cent of royalty to be considered as capital and 75 per cent would be treated as revenue expenditure and section 32(1) was not applicable in assessee's case.

The Commissioner (Appeals), on analyzing the facts of the assessee's case, concluded that 25 per cent, of the lump sum royalty payment could be attributed to acquiring capital asset in the form of commercially valuable right to continuously use the Fenner brand name and trademark and the balance 75 per cent, could be permissible as deduction as revenue expenditure for mere use of brand name and the trademark. [Para 8] With regard to the contention of the Departmental Representative that the assessee has acquired intangible asset and therefore depreciation is allowable under section 32(1), the provisions of section 32(1) are applicable when the assessee acquired on or after 1-4-1998 and owned wholly or partly any know-how, patents, copyrights, trade mark, etc., by the assessee and used for the purpose of business or profession, depreciation is allowable. In this case, the assessee has not either owned wholly or partly any know-how, patents, copyrights, trademark, etc., so as to apply the provisions of section 32(1). The assessee is only permitted to use trademark and brand name of the foreign collaborator with certain conditions. Therefore, the provisions of section 32(1) are not applicable to the facts of the assessee's case. [Para 9] There is no reason to interfere with the reasoning of the Commissioner (Appeals), which is well founded and is in accordance with the law laid down by the jurisdictional High Court and the Supreme Court. [Para 10]

Income Tax Act, 1961, Section 37(1)

INCOME TAX ACT, 1961

--Business expenditure--Disallowance under section 14AApplicability of provision of section 14A read with rule 8D--During appellate proceeding Commissioner (Appeals) directed assessing officer to recompute the quantum of expenses for disallowance under section 14A read with rule 8D as against 5 per cent of corporate expenses disallowed by assessing officer. Held: Provision of rule 8D is applicable only from assessment year 2008-09 where assessee's case is relevant to the year 2005-06.

Income Tax Act, 1961, Section 14A