2011 (8) TMI 1058 - HC - Income Tax

Expenditure on Ad Films - Revenue or Capital Expenditure? - Contention was expenditure incurred on ad film is to be treated as capital or revenue in nature. Revenue stated that while deciding the case tribunal ignored the ratio of the judgment in Patel International Film Ltd - HELD THAT - The assessee has placed reliance on the case of CIT VERSUS M/S. GEOFFREY MANNERS CO. LTD. (NOW KNOWN AS WYETH LIMITED) 2009 (2) TMI 13 - BOMBAY HIGH COURT ; and on COMMISSIONER OF INCOME-TAX BOMBAY CITY I VERSUS PATEL INTERNATIONAL FILM LIMITED 1974 (7) TMI 30 - BOMBAY HIGH COURT . The case of Patel Engineering was also referred to and discussed in CIT v Geoffrey Manners. The undermentioned observations of the Bombay High Court in CIT v Geoffrey Manners with which we are in complete agreement and which distinguish the case of Patel International would be suffice to arrive at the conclusion that the appellant being engaged in the business of stock broking and share transactions the expenditure incurred on ad films by way of advertisements for promotion and marketing of its products being on the ongoing business would be of revenue in nature and thus allowable as revenue expenditure - Revenue Appeal dismissed.

Summary

Issues:
1. Nature of expenditure on advertisements, ad films, and website expenses.
2. Allowability of depreciation @ 60% on computer peripherals.

Analysis:
1. The primary issue in this case revolved around the nature of expenditure incurred by the assessee on advertisements, ad films, and website expenses. The Assessing Officer (AO) contended that these expenses were capital in nature as they resulted in earnings over multiple years. Consequently, the AO made additions to the total income of the assessee based on the original return filed by the company. However, the CIT(A) allowed the appeal filed by the assessee, leading to the deletion of all the additions made by the AO. The High Court, in its judgment, referred to previous decisions and held that the expenditure on advertisements and websites was revenue in nature. The Court relied on various judgments to support its decision, emphasizing that the expenditure was related to the ongoing business of the assessee and did not provide enduring benefits. Therefore, the Court dismissed the appeal, affirming that the expenditure in question was revenue expenditure.

2. Another significant issue in this case was the allowability of depreciation @ 60% on computer peripherals claimed by the assessee. The AO disallowed the depreciation on computer peripherals like printers and scanners, arguing that the 60% rate was only applicable to computers and computer software, not peripherals. However, the CIT(A) allowed the deduction, leading to a favorable outcome for the assessee. The High Court, in its judgment, relied on a previous decision to support the allowability of depreciation at the rate of 60% on computer peripherals. The Court emphasized that computer peripherals were entitled to depreciation at the specified rate, contrary to the AO's contention. Consequently, the Court dismissed the appeal, upholding the decision in favor of the assessee.

In conclusion, the High Court dismissed the appeal filed by the revenue, affirming that the expenditure on advertisements, ad films, and website expenses was revenue in nature and that depreciation @ 60% on computer peripherals was allowable. The judgment provided detailed reasoning supported by relevant legal precedents, ultimately leading to a favorable outcome for the assessee in both aspects of the case.