PR. COMMISSIONER OF INCOME TAX -7 vs. VALVOLINE CUMMINS PVT. LTD.

$~143 * IN THE HIGH COURT OF DELHI AT NEW DELHI + ITA 137/2024

PR. COMMISSIONER OF INCOME TAX -7 ..... Appellant

Through: Mr. Ruchir Bhatia, SSC withMs. Deeksha Gupta, Adv.

versus

VALVOLINE CUMMINS PVT. LTD. ..... Respondent

Through: Mr. Neeraj Jain & Mr. Aditya Vohra, Advs.

CORAM:

HON'BLE MR. JUSTICE YASHWANT VARMA HON'BLE MR. JUSTICE PURUSHAINDRA KUMAR KAURAV

26.02.2024 O R D E R

CM APPL. 11475/2024 (195 Days Delay in Refiling) 1. This is an application filed by the appellant seeking condonation of 195 days delay in filing the present appeal. For the reasons stated in the application, the delay of 195 days in filing the appeal is condoned. 2. Application is disposed of.

ITA 137/2024 3. The Principal Commissioner of Income Tax seeks to impugn the order of the Income Tax Appellate Tribunal [“ITAT”] dated 09 February 2023 and proposes the following questions for our This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 27/03/2026 at 13:12:13

consideration: “2.1 Whether on the facts and circumstances of the case and in law, the Ld. ITAT has erred in deleting the disallowance of expenditure of Rs.6,50,50,000/- claimed in respect of payment made to AMW for securing non-transferable right and license to use the name/trade mark/logo to AMW for a limited period i.e. 5 years, holding the same to be revenue expenditure, viz., acquisition of intangible asset?

2.2 Whether on the facts and circumstances of the case and in law, the Ld. ITAT erred in holding that payment made for securing right and license to use the name/trade mark/logo of AMW for the 5 years, was revenue expenditure?”

(i) the nature of the right being given - exclusive, non- exclusive, permanent or term based ;

(ii) the benefit being derived - whether enduring, long term, short term ;

(iii) the nature of payment being made - periodic, lump sum, revenue linked payments, etc. 24. The above factors are singularly not determinative of the nature of the expenditure. It depends on the facts of each case. In a given case, a lump- sum payment may still be revenue expenditure. A long-term licence, without ownership vesting in the licensee could also be revenue expenditure. An exclusive right to use, to the exclusion of the owner, though termed as a licence, could be a transfer of title in the mark, and could constitute capital expenditure. Thus, the court has to see not merely the terms of the agreement but also the facts and circumstances surrounding the agreement in order to determine the nature of the expenditure. This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 27/03/2026 at 13:12:13

(a) A simple licence agreement which is in the nature of a permissive use ; . A licence to a registered trademark in India can be of two kinds:

(b) A registered user, wherein the licence agreement is registered with the Registrar of trademarks and certain rights accrue to the licensee as per statute. 26. An assignment is however a complete transfer of the right and title in a trademark. Assignments can also be of various kinds 27. . For e.g., assignment could be product specific, territory specific, but they will vest complete and absolute ownership in the assignee. Assignment of a registered trademark can be with or without the goodwill of the business concerned. Such an assignment can be in respect of all the goods or services or part of the goods or services for which the trademark is registered. However, an unregistered trademark is assignable with the goodwill of a business and if the same is assigned without the goodwill of the business, the nature of the transfer would have to be determined on the facts of a particular case. The fundamental test to determine as to whether a particular trademark has been licensed or assigned is to see if the licensor/assignor has retained any rights in the trademark. If rights are retained with the owner, usually it is a licence and if no rights are retained by the owner, then it would usually be an assignment. A licence is, therefore, nothing but a permissive use of the trademark, which permission, is revocable. A "right to use" is usually a licence and not an assignment, except in certain circumstances.

(i) Whether the user acknowledges the licensor's right and title over the trademark ? Some of the questions that determine whether an arrangement is a licence or an assignment include:

(ii) Whether it is a mere right to use the trademark or it was a transfer/assignment of a permanent nature ?

(iii) Whether the manner of use is specified and restricted and the effect thereof on the rights of the user ?

(iv) Whether the payment made by the user is one-time, fixed running royalty or a percentage of sales, with or without investment made by the licensor on marketing and advertising ?

(v) Whether the licensor has the right of supervision and control over the use of the trademark ? This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 27/03/2026 at 13:12:13

(vi) Whether sole and exclusive right was conferred on the user and the effect thereof ? (vii) Whether the user can further transfer his rights to third party, with and without the consent of the licensor and the effect thereof ? (viii) Whether the licensor had the right to terminate the licence and if so, under what circumstances ? (ix) Whether upon termination by the licensor, the user has to stop use of the trademark ? (x) Whether or not the right to sue is given and conferred on the user ? (xi) Whether there is a transfer of goodwill of the business and/or goodwill in the trademark ? (xii) Whether there are multiple users of the same trademark? 28. A licence agreement usually has some or all of the above stipulations. Thus, the nature of the agreement can be easily deduced from the existence of all or any of the above conditions/characteristics. In some circumstances however, an exclusive licence which excludes the owner from using the trademark and vests perpetual rights without any termination clause, could constitute an assignment. However, the present case is not one such case 33. Thus, when the benefit of the use of the trademark has enured to the licensor, i.e., HRL, the amount, that has been paid to HRL was a consideration for permission to use the trademark, and not for acquiring ownership rights in the trademark. The trademark "Hilton" did not belong to the appellant. It also did not belong to either of its current promoters, i.e., RF or IFU. It belonged to HRL which was one of the joint venture partners when the appellant was initially formed. . The use of the trademark "Hilton" thus, merely facilitated the appellant's business in India, i.e., it facilitated the appellant's entry into India under the brand name and the trade name which was familiar to the industry and market. The advantage of having used the trademark "Hilton" between 1992 and 2005 could endure and benefit the appellant as a permitted and authorized user, but it cannot be called an acquisition and benefit of capital nature so as to constitute capital expenditure. The appellant did not purchase and acquire title in the trademark. It did not retain any rights in the trademark. In fact the appellant no longer uses the word "Hilton" either as a trademark or trade name or as a part of its corporate name. Thus, the payment of Rs. 1 crore was for the purpose of obtaining an advantage in carrying on its business and is therefore in the revenue field.” This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 27/03/2026 at 13:12:13

YASHWANT VARMA, J

PURUSHAINDRA KUMAR KAURAV, J FEBRUARY 26, 2024/kk This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 27/03/2026 at 13:12:13