The assessee is engaged in the chit fund business. The issue involved includes a question on whether the royalty payments made by the assessee to its parent company for using its logo should be treated as revenue expenditure or capital expenditure.

The revenue argued that the royalty payments should be treated as capital expenditure because they were for acquiring an intangible asset, thus only allowing for depreciation at 25% under Section 32. The assessee argued that the royalty payments were for the use of the parent company’s logo and trademark, which were non-transferable and non-exclusive, and thus should be treated as revenue expenditure under Section 37(1).

The Hon’ble Tribunal ratifying the argument of the Assessee held that the royalty payments were revenue in nature and allowed the full deduction under Section 37(1).

The Hon’ble High Court upheld the Hon’ble Tribunal’s decision, ruling that the royalty payments for the use of the logo or trademark for a particular period, aimed at business improvement/expansion, qualify as revenue expenditure under Section 37(1).(AY. 2014-15)