2013 (12) TMI 1353 - AT - Income Tax

Professional and consultancy fee Held that - Assessee s business model is concerned of providing various support services to its parent company located in USA - Service Agreement clearly provides that assessee company would be reimbursed the expenditure incurred with the markup of 8% - The assessee has availed the services of Control Risk Group, Singapore in order to carry out the due diligence and risk analysis with the target hotels, for rendering service to its parent company - These expenses are incurred in the normal course of the business of the assessee and accordingly are revenue in nature. Consultancy fee for office space Held that - The brokerage has been paid for arranging the office space - The premises were not purchased during the year - It was only a case of rental of office space for a limited period Decided against Revenue. Advertisement and sales promotion Held that - Following C.I.T. vs. Salora International 2008 (8) TMI 138 - DELHI HIGH COURT - There is no element of brand building or acquisition of brand by incurring such expenses - The concerned brands were not owned by the assessee, but it belongs to the assessee s overseas group entity - Assessee has been reimbursed the entire advertisement and sale promotion expenses by the overseas group entity on cost plus basis The total expenditure works out approximately 1.9% of the total expenditure - Decided against Revenue.

Summary

Issues:
1. Allowance of professional and consultancy fee as revenue expenditure.
2. Treatment of advertisement and sales promotion expenses as revenue expenditure.

Issue 1: Allowance of professional and consultancy fee as revenue expenditure

The Assessing Officer disallowed a portion of the professional and consultancy fee as capital expenditure, adding it to the assessee's income. The Ld. Commissioner of Income Tax (A) allowed the expenses as revenue expenditure, noting that the services were provided in the normal course of business and were reimbursed by the parent company with a markup. The Ld. Commissioner emphasized that the due diligence exercise did not provide enduring benefit as it was part of the service agreement. However, the TDS deduction failure was held to be disallowed. The Tribunal upheld the Ld. Commissioner's decision, stating that the expenses were incurred in the normal course of business and not capital in nature.

Issue 2: Treatment of advertisement and sales promotion expenses as revenue expenditure

The Assessing Officer treated the advertisement expenses as capital in nature, allowing only a portion for depreciation. The Ld. Commissioner of Income Tax (A) found that the expenses did not create an enduring benefit beyond the year under consideration. He noted that the brand names belonged to the overseas group entity and the expenditure was reimbursed on a cost-plus basis. Relying on relevant case law, the Ld. Commissioner held that the expenses were revenue in nature. The Tribunal agreed, emphasizing that the expenses did not contribute to brand building and were reimbursed by the overseas group entity. Therefore, the Tribunal dismissed the Revenue's appeal, upholding the Ld. Commissioner's decision to treat the advertisement and sales promotion expenses as revenue expenditure.

In conclusion, the Tribunal upheld the Ld. Commissioner of Income Tax (A)'s decisions regarding both issues, allowing the professional and consultancy fee as revenue expenditure and treating the advertisement and sales promotion expenses as revenue expenditure. The Tribunal found that the expenses were incurred in the normal course of business and did not create enduring benefits beyond the year under consideration. The Tribunal's decision resulted in the dismissal of the Revenue's appeal.