1951 (10) TMI 1 - SC - Income Tax

Whether on the facts of the case the expenditure incurred by the assessee company in registering for the first time its trade marks which were not in use prior to the 25th February 1937 is revenue expenditure and an allowable deduction under Section 10(2)(xv) of the Indian Income-tax Act ? Held that - In our opinion this is neither such an asset nor an advantage so as to make payment for its registration a capital expenditure. In this connection it may be useful to notice that expenditure incurred by a company in defending title to property is not considered expense of a capital nature. Where a sum of money is laid out for the acquisition or the improvement of a fixed capital asset it is attributable to capital but if no alteration is made in the fixed capital asset by the payment then it is properly attributable to revenue being in substance a matter of maintenance the maintenance of the capital structure or the capital asset of the company. In our opinion the advantage derived by the owner of the trade mark by registration falls within this class of expenditure. The fact that a trade mark after registration could be separately assigned and not as a part of the goodwill of the business only does not also make the expenditure for registration a capital expenditure. That is only an additional and incidental facility given to the owner of the trade mark. It adds nothing to the trade mark itself. Appeal dismissed.

Summary

Issues:
1. Whether the expenditure incurred by the assessee company in registering its trade marks for the first time is revenue expenditure and an allowable deduction under Section 10(2)(xv) of the Indian Income-tax Act.

Analysis:
The case involved an appeal from a judgment of the High Court at Bombay concerning the deductibility of expenses incurred by a textile mills company in registering its trade marks for the first time. The respondent claimed these expenses as revenue expenditure under Section 10(2)(xv) of the Indian Income-tax Act for the assessment years 1943-44 and 1944-45. The Tribunal allowed the claim based on a previous decision by the Bombay High Court. The central issue was whether the expenses constituted capital or revenue expenditure, with reference to the British Insulated and Helsby Cables Ltd. v. Atherton case. The House of Lords established that expenditure leading to the creation of an asset or advantage for enduring benefit is capital expenditure. The Court analyzed the relevant provisions of the Indian Trade Marks Act, 1940, to determine the nature of the expenditure. The Attorney-General argued that the Trade Marks Act enhanced the rights of trade mark owners, making the expenses capital in nature. However, the Court disagreed, stating that registration did not create a new asset but merely provided procedural benefits to the owner.

The Court further discussed the distinction between capital and revenue expenditure, emphasizing that capital expenditure is one that leads to the creation or improvement of a fixed capital asset. In this case, the registration of trade marks did not alter the trade mark itself but only provided procedural advantages to the owner. The Court cited precedents to support its position, highlighting that expenses incurred in defending title to property are not considered capital expenditure. Additionally, the Court rejected the argument that the limited duration of the benefit obtained through registration affected the classification of the expenses. Drawing on relevant case law, the Court concluded that the expenses for trade mark registration did not constitute capital expenditure, affirming the decision of the High Court and dismissing the appeal.

In conclusion, the Supreme Court upheld the decision of the High Court, ruling that the expenses incurred by the assessee company in registering its trade marks for the first time were not capital expenditure but rather revenue expenditure. The Court found that the registration of trade marks did not create a new asset and only provided procedural benefits to the owner, thus not meeting the criteria for capital expenditure. The appeal was dismissed, and costs were awarded to the respondent.