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Income Tax Appellate Tribunal, ‘B’ BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI M. BALAGANESH
आदेश /O R D E R
PER N.R.S. GANESAN, JUDICIAL MEMBER:
All the three appeals of the Revenue are directed against the respective orders of the Commissioner of Income Tax (Appeals), Salem, dated 29.12.2016 and pertain to assessment years 2009-10, 2010-11 & 2012-13. Since common issue arises for and disposing of the same by this common order.
Smt. C. Yamuna, the Ld. Departmental Representative, submitted that the assessee incurred expenditure towards brand building. According to the Ld. D.R., the assessee clarified before the Assessing Officer that the brand building expenditures are related to advertisement with regard to brand promotion expenses.
After considering the nature of expenditure, according to the Ld. D.R., the Assessing Officer found that the owner of the brand collected royalty from the assessee for usage. The expenditure said to be incurred by the assessee for building brand name would definitely increase the value of brand. According to the Ld. D.R., brand value is an intangible asset. Since the assessee incurred expenditure, it is an addition to the fixed asset and value of which is significantly increased. According to the Ld. D.R., the expenditure incurred by the assessee would enhance the capacity and potentiality of the capital asset, therefore, the expenditure cannot be allowed as revenue expenditure. Since the brand value is a capital asset, according to the Ld. D.R., any expenditure incurred for enhancing the value of such capital asset has to be necessarily rightly disallowed the claim of the assessee.
On the contrary, Shri T.S. Subramaniam, the Ld. representative for the assessee, submitted that the expenditure incurred by the assessee is for advertisement and not for brand promotion. According to the Ld. representative, since the assessee has to necessarily make advertisement to sustain in the market, such expenditure has to be allowed as revenue expenditure under Section 37 of the Income-tax Act, 1961 (in short 'the Act'). Merely because in the books of account it was referred as brand building value, according to the Ld. representative, that cannot be construed as ground for treating the expenditure as capital in nature.
According to the Ld. representative, the advertisement expenditure for the product made and sold by the assessee under the brand “Jansons” has to be necessarily treated as revenue expenditure.
The Ld. representative for the assessee further submitted that while making advertisement, it is inevitable that the brand name needs to be displayed, therefore, there would be indirect promotion of brand. It does not mean that the expenditure is only for building the brand promotion. In fact, according to the Ld. representative, products and not for brand promotion. The consequential promotion of brand is inevitable since the assessee has to necessarily display the brand in all its advertisements. The Ld. representative placed his reliance on various judgments of the Apex Court, including Empire Jute Co. Ltd. v. CIT (1980) 3 Taxman 69 and Alembic Chemical Works Company Limited v. CIT (2002-TIOL 160) and the decision of Mumbai Bench of this Tribunal in Fine Jewellery (India)
Ltd. v. ACIT (2014) 151 ITD 385.
We have considered the rival submissions on either side and perused the relevant material available on record. Admittedly, the assessee incurred expenditure in advertisement. While making advertisement, the assessee has displayed the brand name “Jansons”. In the books of account the assessee referred the expenditure as brand promotion expenditure. The Revenue by taking clue from the books of account, found that brand promotion is a capital asset, therefore, the expenditure would result in value addition to the brand, hence, it has to be treated as capital expenditure. The assessee claims before this Tribunal that entry in the books of account is not a determining factor. When the expenditure was incurred for marketing the products by way of expenditure has to be treated as revenue in nature.
We have carefully gone through the judgment of Apex Court in Empire Jute Co. Ltd. (supra). In the case before the Apex Court, the assessee, a member of Indian Jute Mills Association, entered into an agreement for purchase of loom hours from other member of the association. The cost of loom hours was claimed as revenue expenditure while computing the taxable income. Initially, the Income Tax Officer disallowed the claim of the assessee treating the expenditure as capital nature. However, the Appellate Assistant Commissioner granted deduction on the ground that the assessee did not acquire any capital asset when it purchased the loom hours and the expenditure was incurred in running the business or working it with a view to producing day-to-day profits. The Tribunal also confirmed the order of the Appellate Assistant Commissioner.
However, on reference to High Court, the order of this Tribunal was reversed by the High Court placing reliance on the judgment of Supreme Court in CIT v. Maheshwari Devi Jute Mills Ltd. (1965) 57 ITR 36. On further appeal before Supreme Court, it was found that the judgment of Maheshwari Devi Jute Mills Ltd. (supra) cannot be regarded as an authority for the proposition that payment made by the entire case of Maheshwari Devi Jute Mills Ltd. proceeded on the commonly accepted basis that loom hours were a capital asset and the only issue debated was whether the transaction in question constituted sale of that asset or it represented merely exploitation of the asset by permitting its use by another while retaining ownership.
The Apex Court further found that the test for distinguishing whether the expenditure is capital or revenue is not a conclusive one. There is no all-embracing formula which can provide a ready solution to the problem. No touchstone has been devised. The Apex Court further observed that every case has to be decided on its own facts keeping in mind the broad picture of the whole operation in respect of which the expenditure has been incurred. The Apex Court further found that there may be cases where expenditure, even if incurred for obtaining advantage of enduring benefit, may, nonetheless, be on revenue account and the test of enduring benefit may break down. It is not every advantage of enduring nature acquired by an assessee that brings the case within the principle laid down in capital expenditure. What is material to consider is the nature of advantage, in a commercial sense, and it is only where the advantage is in the capital field that the expenditure would be merely in facilitating the assessee’s trading operations or enabling the assessee to conduct the business in more efficient and profitable manner leaving the fixed capital untouched, the expenditure would always be on revenue account.
In view of the above observation made by the Apex Court, it is obvious that when the assessee incurred expenditure in the course of earning profit, whether mere facilitating the assessee in carrying out trading operations or the business in a more effective manner, then the expenditure is only on the revenue account. A mere incidental benefit or enduring benefit or commercial advantage cannot result in disallowing the claim of the assessee. In the case before us, the assessee incurred expenditure in making advertisement in respect of the products made by it and sale of the same. While making advertisement, the assessee has to necessarily display the brand. Even though there is incidental increase in value of brand by way of advertisement made by the assessee, the real benefit is only to carry out the business in an effective and profitable manner. In other words, the expenditure incurred by the assessee is in the course of earning of profit without touching the capital asset. In view of the above, this Tribunal is of 8 to 615/Mds/17 the considered opinion that the expenditure incurred by the assessee is only revenue in nature. A similar view was taken by Apex Court in Alembic Chemical Works Company Limited (supra) and also Mumbai Bench of this Tribunal in Fine Jewellery (India) Ltd. (supra). In view of the above, we find no reason to interfere with the orders of the lower authority and accordingly confirm the same.
In the result, all the three appeals filed by the Revenue stand dismissed.