2013 (7) TMI 365 - HC - Income Tax

Deletion of disallowance on loyalty expenditure - Opening of new unit of business - Tribunal held that opening of business was for extension of business - Held that - In view of the findings recorded by the tribunal, no substantial question of law arises for consideration - Decided against Revenue.

Summary

Issues:
1. Deletion of disallowance on account of brand-building and dealer's loyalty expenditure.
2. Treatment of training expenses as capital expenditure.

Issue 1: Deletion of disallowance on account of brand-building and dealer's loyalty expenditure

The appeal under Section 260A of the Income Tax Act, 1961 raised the issue of deletion of disallowance on account of brand-building and dealer's loyalty expenditure. The decision in a previous case, ITA 98/2010, Commissioner of Income Tax Vs. Samsung India Electronics Ltd., was noted to be against the Revenue. The Tribunal held that the expenditure was essentially for the purpose of carrying on the existing business, which had commercial operations starting in 1996-1997, and the new manufacturing unit was an extension of the existing business. As a result, the appeal was dismissed based on the findings recorded by the tribunal, concluding that no substantial question of law arose for consideration.

Issue 2: Treatment of training expenses as capital expenditure

The second issue revolved around training expenses of Rs.29,30,950 incurred by the respondent-assessee. The Assessing Officer amortized the expenditure over a period of six years, allowing only 1/6th of the said expenditure for the year 1998-99. The CIT (Appeals) disallowed the entire expenditure, considering it as capital expenditure related to the "pre-setup period." However, the tribunal accepted the contention of the assessee that the expenditure was for carrying on the existing business, even though the manufacturing of color TV sets commenced later. The tribunal noted that the business setup was earlier, and the training expenses were for the purpose of the existing business. Referring to the case law of Commissioner of Income Tax v. Cement and Chemical Industries Ltd., the tribunal emphasized that the business commencement does not require all activities to start simultaneously. The appeal was dismissed based on the tribunal's findings, with the court concluding that no substantial question of law arose for consideration.

In summary, the High Court dismissed the appeal related to the assessment year 1998-99, as it found no substantial question of law arising from the issues of deletion of disallowance on account of brand-building and dealer's loyalty expenditure, as well as the treatment of training expenses as capital expenditure. The court upheld the tribunal's decision that the expenses were for the purpose of carrying on the existing business, and the commencement of manufacturing activities did not alter the nature of the expenditure.