ACIT, NEW DELHI vs. M/S. HITZ FM RADIO INDIA PVT. LTD., DELHI

This is an appeal by the department against the order dated 29.05.2014 of ld. CIT(A)-XV, New Delhi.

Following grounds have been raised in this appeal: “1. On facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs. 51,69,792/- made by the AO on capitalization of license fee and royalty expenditure?

As regards to this issue the ld. Counsel for the assessee at the very outset stated that it is covered vide order dated 08.09.2015 in for the assessment year 2007-08 in assessee’s own case by the same bench of the ITAT (copy of the said order was furnished which is placed on record).

The ld. DR although supported the assessment order passed by the AO but could not controvert the aforesaid contention of the ld. Counsel for the assessee.

We have considered the submissions of both the parties and gone through the material on record, it is noticed that an identical issue having similar facts was involved in the assessment year 2007-08 which has been decided against the revenue by this bench of the Tribunal in vide order dated 08.09.2015 in assessee’s own 3 Hitz FM Radio India Pvt. Ltd. case and the relevant findings have been given in para 8 of the order dated 08.09.2015 which read as under: “8. We have gone through all the records and perused the arguments of both the counsels. The ratio laid down in case of G4S Securities India Pvt. Ltd. is clearly applicable in the present case. In the case of Empire Jute Co. Ltd. v. CIT, (1980) 124 ITR 1, the Supreme Court observed that there may be cases where expenditure, even if incurred for obtaining an advantage of enduring benefit, may, nonetheless, be on revenue account and the cost of enduring benefit may break down. What is material to consider is the nature of the advantage in a commercial sense and it is only where the advantage is in the capital field that the expenditure would be disallowable on an application of this test. If the advantage consists merely in facilitating the assessee’s trading operations or enabling the management and conduct of the assessee’s business to be carried on more effectively or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future. The license fee and the royalty fee to the Government of India is on a year to year basis and this fact was never disputed by the Revenue at any point of time and thus the same has to be held as revenue in nature keeping in mind the decisions of the Supreme Court as well as the Delhi High Court.” In view of the above, we do not see merit in this ground of the departmental appeal.

As regards to this issue, the ld. Counsel for the assessee submitted that an identical issue was involved in for the assessment year 2009-10 in assessee’s own case wherein the issue has been decided against the department by this bench of the Tribunal vide order dated 08.09.2015.

The ld. DR in his rival submissions although supported the order of the AO but could not controvert the aforesaid contention of the ld. Counsel for the assessee.

After considering the submissions of both the parties, it is noticed that an identical issue having similar facts was a subject matter of the departmental appeal for the preceding year i.e. assessment year 2009-10 in wherein vide order dated 08.09.2015, the issue has been decided against the department and the relevant findings have been given in para 25 of the aforesaid referred to order dated 08.09.2015 which read as under: “25. We have perused the records and submissions made by both the counsels and come to the 5 Hitz FM Radio India Pvt. Ltd. conclusion that even that the assessee made for classified part of advertisement as Brand Development Expenses the real nature is no more than a normal advertisement expenses as it includes expenses on hoardings, pamphlets, advertisement behind buses expenses relating to promotional events etc. The Hon’ble Delhi High Court in the case of CIT Vs. Casio India Ltd [2011] 335 ITR 196 (Del) and CIT Vs. CITI FINANCIAL CONSUMER FIN. LTD. [2011] 335 ITR 29 (Del) hold that the expenditure on publicity and advertisement is to be treated as Revenue in nature allowable fully in the year in which it was incurred. The assessee’s case is squarely covered by these judgments as well as the judgment of Gujrat High Court in case of DEPUTY COMMISSIONER OF INCOME-TAX v. CORE HEALTHCARE LTD. [2009] 308 ITR 263 (Guj) which held as under: “14. In relation to the first item, namely, advertisement expenses, it is not in dispute that the expenditure of Rs. 70 lakhs and odd was incurred on a special advertisement campaign. However, that by itself would not be sufficient to determine as to whether the expenditure in question is on revenue account or capital account. The approach of the Commissioner (Appeals) that the expenditure in question was treated as deferred revenue expenditure and hence was capital in nature, cannot be termed to be a correct approach because in so far as the Income-tax Act is concerned, there is no such category of deferred revenue expenditure. Similarly, making of an entry or absence of an entry does not determine the allowability or otherwise of the item of expenditure 6 Hitz FM Radio India Pvt. Ltd. and the same cannot be considered to be a factor adverse, if the expenditure is otherwise of allowable nature. Every expenditure incurred by a business concern, if incurred for the purposes of business, is bound to result in some benefit, direct or indirect, immediate or after some time, but the benefit to the business cannot be termed capital or revenue only on the basis of the period for which the benefit is derived by the business. Any benefit resulting to a business need not be confined to the year of expenditure and this is an ordinary incident of a running business. In the case before the Allahabad High Court in Hindustan Commercial Bank Ltd., In re [1952] 21 ITR 353, the expenditure on advertisement had been incurred at the point of time when new branches of the bank had to be opened and inaugurated. It has been held by the Allahabad High Court that there is no proposition that the amount spent in a special campaign of advertisement must necessarily be capital expenditure.

The apex court decisions on which reliance has been placed by the Tribunal, namely, Empire Jute Co. Ltd. [1980] 124 ITR 1 (SC) and Alembic Chemical Works Co. Ltd. [1989] 177 ITR 377 (SC) specifically lay down that the nature of advantage has to be considered in a commercial sense and the test of enduring benefit is not a certain or conclusive test and cannot be applied blindly and mechanically without regard to the particular facts and circumstances of a given case. The expression "asset or advantage of an enduring nature" has been evolved to emphasise the element of a sufficient degree of durability appropriate to the 7 Hitz FM Radio India Pvt. Ltd. context. The idea of once for all payment and enduring benefit are not to be treated as something akin to statutory conditions.

Applying the aforesaid settled legal position to the facts of the case, it is not possible to agree with the appellant-Revenue that the advertisement expenses incurred by the respondent-assessee at the time of installation of additional machinery in the existing line of business resulted in any enduring benefit, so as to be treated as capital in nature.

Question No. 1 is, therefore, answered in the affirmative, namely, advertisement expenses incurred by the assessee to create brand image is allowable as revenue expenditure.” So, respectfully following the aforesaid referred to order, this issue is also decided against the department and in favour of the assessee.

In the result, appeal of the department is dismissed. (Order Pronounced in the Court on 08/05/2017)