2018 (2) TMI 1083 - AT - Income Tax

Allowability of expenditure in advertisement - nature of expenditure - revenue or capital expenditure - Held 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. 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 the considered opinion that the expenditure incurred by the assessee is only revenue in nature. See Alembic Chemical Works Company Limited 1989 (3) TMI 5 - SUPREME Court - Decided against revenue.

Summary

Issues:
Appeal against Commissioner of Income Tax (Appeals) orders for assessment years 2009-10, 2010-11 & 2012-13 regarding treatment of brand building expenditure as capital or revenue.

Analysis:
The Revenue contended that brand building expenditure is capital in nature as it enhances the value of the brand, making it a capital asset. The Departmental Representative argued that any expenditure to increase the value of a capital asset must be treated as capital expenditure, disallowing the claim of the assessee. The Revenue's stance was that brand value is an intangible asset, and therefore, the expenditure incurred for brand building is an addition to the fixed asset, justifying its treatment as capital expenditure.

On the contrary, the assessee's representative argued that the expenditure was for advertisement, necessary for sustaining in the market, and should be allowed as revenue expenditure under Section 37 of the Income-tax Act, 1961. The representative emphasized that the expenditure was for product advertisement, not specifically for brand promotion, and hence should be considered revenue expenditure.

The Tribunal analyzed the nature of the expenditure, considering the Apex Court's judgment in Empire Jute Co. Ltd. The Court emphasized that distinguishing between capital and revenue expenditure is not conclusive, and each case must be decided on its facts. The Tribunal noted that even if an expenditure provides an enduring benefit, it may still be revenue in nature if it facilitates trading operations or enhances business efficiency without affecting fixed capital.

Ultimately, the Tribunal concluded that the expenditure incurred by the assessee was revenue in nature. Even though there was an incidental increase in the brand value due to advertisement, the primary purpose was to conduct business effectively and profitably. The Tribunal found no reason to interfere with the lower authorities' decisions and dismissed all three appeals filed by the Revenue.

In summary, the judgment upheld the assessee's position that the brand building expenditure was revenue in nature, aligning with the principles laid down by the Apex Court in distinguishing between capital and revenue expenditure.