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2014 (8) TMI 353 - HC - Income TaxNature of franchise expenses – 25% expenses treated as capital expenses – Held that:- The rights under the agreement acquired by the assessee could be lost during the tenure of the agreement itself and the assessee was utilising the goodwill and the trademark, which was owned by a third party – CIT(A) has rightly relied upon CIT versus J.K. Synthetics [2008 (12) TMI 21 - DELHI HIGH COURT] – Tribunal was rightly of the view that no new asset came into existence on account of payment of franchise fee and the rights under the agreement were only for the tenure of the agreement and no enduring benefit was derived by the assessee - it was not an expenditure incurred for acquisition of source of profit, but enabled the assessee to run the business profitably - The fixed assets of the assessee remained untouched and no enduring asset came into existence - the brand or the trademark in question was not owned by the assessee - No facts were highlighted and stated to justify the conclusion – Decided against Revenue. Advertisement expenses u/s 37 – Whether 25% of the advertisement expenditure should be capitalized or not – Held that:- Following the decision in Commissioner of Income Tax versus Salora International Limited, [2008 (8) TMI 138 - DELHI HIGH COURT] - the expenditure on advertising was of revenue nature - Advertisement expenses when incurred to increase sales of products are usually treated as a revenue expenditure, since the memory of purchasers or customers - Advertisement are issued from time to time and the expenditure is incurred periodically, so that the customers remain attracted and do not forget the product and its qualities - Advertisements and sales promotion are conducted to increase sale and their impact is limited and felt for a short duration - Expenses for advertising consumer products generally are a part of the process of profit earning and not in the nature of capital outlay - expenses were not incurred once and for all, but were a periodical expenses which had to be incurred continuously in view of the nature of the business - It was an on-going expense – Decided against Revenue.
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