| The Tax Publishers2021 TaxPub(DT) 0554 (Bang-Trib) INCOME TAX ACT, 1961
Section 37(1)
Assessee was not owner of any brand name. It had a right to use a brand name. Besides use of brand name, it had a right to have guidance from time to time on clinical procedures/methodology including marketing support, associations with Third Party Assurances (TPAs) for insurance claims. All these rights which assessee received under the agreement was only with a view to enable assessee to carry on its business more profitably. The reasons for termination of agreement and the reason for which assessee paid compensation were all for business considerations and exigency and there was no allegation of any mala fides in the decision taken by assessee. By incurring the expenses, assessee did not acquire any capital asset but only derived an advantage to enable it to carry on its business more profitably. Payment in question was owing to commercial expediency and enabled assessee to avoid payment of future licence fee and thereby reduced operating cost of assessee. Such payment could not be regarded as capital expenditure.
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Capital or revenue expenditure - Payment of license fee to use brand name - -
Assessee entered into a license agreement with Apollo Health and Lifestyle Limited ('Apollo') as per which Apollo had licensed the brand 'Cradle' to assessee for a period of 9 years. As per this license agreement, assessee was allowed to use brand and be provided with guidance from time to time on clinical procedures/methodology including marketing support, associations with Third Party Assurances (TPAs) for insurance claims, etc. Towards the same, assessee paid license fee as a percentage of its revenue to Apollo. Initially, said license fee was paid at the rate of 4% of revenue which was subsequently reduced to 2% of revenue, since both the parties realised that Apollo was not providing adequate support as originally envisaged in the license agreement. Assessee claimed the license fee paid to Apollo as revenue expenditure. AO disallowed for deduction on the ground that expenditure was of capital in nature since brand name (cradle) was a capital asset and the payment was being made for right to use the brand name it gave the assessee an enduring benefit and was to be regarded as a brand building actvity of the assessee. Held: Assessee was not owner of any brand name. It had a right to use a brand name. Besides use of brand name, it had a right to have guidance from time to time on clinical procedures/methodology including marketing support, associations with Third Party Assurances (TPAs) for insurance claims. All these rights which assessee received under the agreement was only with a view to enable assessee to carry on its business more profitably. The reasons for termination of agreement and the reason for which assessee paid compensation were all for business considerations and exigency and there was no allegation of any mala fides in the decision taken by assessee. By incurring the expenses, Assessee did not acquire any capital asset but only derived an advantage to enable it to carry on its business more profitably. Payment in question was owing to cmmercial expediency and enabled assessee to avoid payment of future licence fee and thereby reduced operating cost of assessee. Such payment could not be regarded as capital expenditure.
Relied:Empire Jute Co. Ltd. v. CIT (1980) (124 ITR 1, 10) (SC) : 1980 TaxPub(DT) 1083 (SC), CIT v. Motors Industries Co. Ltd., CIT v. Pioneer Engg. Syndicate (1988) 38 Taxman 151 (Mad-HC) : (1989) 175 ITR 93 (Mad-HC) : 1989 TaxPub(DT) 201 (Mad-HC), Empire Jute Co. Ltd. v. CIT (1980) (124 ITR 1, 10) (SC) : 1980 TaxPub(DT) 1083 (SC), CIT v. Hinthisthan Gpneral Flectrical Corpn. Ltd. (1971) 81 ITR 243 (Cal-HC), CIT v. Oblum Electrical Industries (P.) Ltd. (1981) 127 ITR 409 (AP-HC) : 1981 TaxPub(DT) 522 (AP-HC).
REFERRED :
FAVOUR : In assessee's favour.
A.Y. : 2011-12
INCOME TAX ACT, 1961
Section 115JAA
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