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The Tax Publishers2020 TaxPub(DT) 3430 (Del-Trib) INCOME TAX ACT, 1961
Section 37(1)
Where all the factual aspects were not at all disputed by the Revenue authorities then merely on the ground that trademark was earlier, i.e., prior to present assessment year not registered cannot be the ground for making disallowance, especially when in the earlier assessment years, the said expenditure was allowed by the Revenue.
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Business expenditure - Allowability - Royalty payment -
Assessee company debited trade mark fee and it was mentioned that trade mark fee had been paid for the use of trade mark 'Indian Inc.' which was owned by Indian Inc., a proprietary concern owned by a director of the company. AO held that the said trade mark was unregistered which can be used by any other entity/individual. Therefore, he inferred that when it was required to give extra monetary benefit to its director, then it has been tried to formalize it by entering into an agreement between the two entities. Thus, it was held that whole exercise had been devised to provide monetary benefit in the guise of Royalty payment as trade mark fee which is not allowable under section 37(1).Held: Transaction under reference was a commercial arrangement between two parties which was entered into during assessment year 2015-16. No royalty was paid till a license agreement dated 22-7-2014 was entered into between the assessee and the proprietor ship concern of Ms. Rai, namely Indian Inc. As per the agreement, a payment of 2% of net revenue was to be made by the assessee to Indian Inc. on account of royalty for the use of the name 'Indian Inc.' The tax was duly deducted at source and deposited under section 194J. Besides this, the director had offered the said amount in here individual income tax return where she was taxed at the rate of 34.61% whereas the tax rate applicable for the company was 33.06%. All these factual aspects were not at all disputed by the Revenue authorities. Merely on the ground that trademark was earlier, i.e., prior to present assessment year, not registered cannot be the ground for making disallowance. In fact, in the earlier assessment years, the said expenditure was allowed by the revenue. Thus, AO was not correct in disallowing the said claim of business expenditure in respect of payment of royalty under section 37(1).
REFERRED :
FAVOUR : In assessee's favour.
A.Y. : 2015-16
INCOME TAX ACT, 1961
Section 32
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