The Weekly Obiter

NATURE OF EXPENDITURE AS PER THE INCOME TAX ACT, 1961 FOR USE OF TRADEMARK VARIES FROM CASE TO CASE: DELHI HIGH COURT

May 16, 2018

The Hon’ble High Court of Delhi in the matter titled as M/s Hilton Roulunds Limited versus Commissioner of Income Tax bearing no. ITR 325 of 2005, dealt with the applicability of Section 37(1) of Income Tax Act, 1961 to lump sum amount paid for use of trademark and whether this expenditure is revenue or capital in nature.
The Hon’ble Court held that the agreement in question was in the nature of a license agreement and had all the ingredients of a license. It further concluded that there was no transfer of rights vesting in the trademark and only an authorization was given for limited use pursuant to the agreement. Therefore, it was held that title and ownership of the mark was not transferred. The appellant only had permission and approval to use the mark.
In view of the same, the Hon’ble Court observed and concluded that in this present case, such lump sum payment made towards licensing the use of trademark shall be treated as a revenue expenditure. 

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