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TMI Blog2012 (6) TMI 256X X X X Extracts X X X X X X X X Extracts X X X X ..... , out of the total expenditure incurred on advertising and publicity, expenditure which was specifically attributed to the glow signs and neon signs (it was major component of advertising and marketing expenditure) was disallowed as the revenue expenditure. Instead treating this to be the capital in nature depreciation thereof was allowed. The CIT (A), however, reversed the aforesaid decision of the Assessing Officer holding it to be the business expenditure and assessee being entitled to deduction as per the provisions of Section 37 (1) of the Act. He was of the view that such expenditure was recurring expenditure and essential for running of the assessee's business. Further, this type of expenditure was incurred in future years as well and contention of the assessee was accepted by the AO in earlier assessment years as well. The CIT (A) took support of the judgments in the cases of the Empire Jute v. CIT, [1980] 124 ITR 1/3 Taxman 69 (SC), L.H. Sugar Factory & Oil Mills (P.) Ltd. v. CIT [1980] 125 ITR 293/4 Taxman 5 (SC) and Hindustan Times Ltd. v. CIT [1980] 122 ITR 977/4 Taxman 91 (Delhi) and few other judgments referred to by the assessee. The Tribunal vide its order dated 7th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the film, "Pomposh", could be regarded as an advertisement expenditure, and, in our view, it cannot be so regarded. By purchasing the film the assessee-company did not indulge in any advertisement at all, but advertisement was to be indulged in after the asset was acquired by the assessee-company was a capital asset to be used for the purpose of advertisement of the business that the assessee-company was going to carry on in future and, therefore, the expenditure will have to be regarded as a capital expenditure and not revenue expenditure." In the case of the assessee also the glow signs and neon signs are used by the assessee for promotion of its business. Once they are fixed they are of durable nature. Expenses on their maintenance may be terms as revenue expenditure but expenditure on installation of neon signs and glow signs fail in the domain of capital expenditure." 2. However, on application filed by the assessee under Section 254 (2) of the Act seeking rectification of the aforesaid order on the ground that a mistake had allegedly crept in the order, the Tribunal recalled the said order allowing the Misc. Application partly vide orders dated 7th November 2008. Vide impug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ividual custom designed and fabricated lamps. There are many dozens of colours available, determined by the type of glass tubing and the composition of the gas filling. It is the wide range of colours and the ability to make a tube that can last for years if not decades without replacement, that makes this an art. Since these tubes require so much custom labour, they would have very little economic viability if they did not have such a long lifetime when well processed. The intensity of neon light produced increases slowly as the tube diameter grows smaller, that is, the intensity varies inversely with the square root of the interior diameter of the tubing and the resistance of the tube increases as the tubing diameter decreases accordingly because tube ionization is greatest at the center of the tube, and the ions migrate to and are recaptured and neutralized at the tube walls. The greatest cause of neon tube failure is the gradual absorption of neon gas by high voltage ion implantation into the interior glass walls of the tubes which depletes the gas, and eventually causes the tube resistance to rise to a level that it can no longer light at the rated voltage, but this may take ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , whether it qualifies for deduction under Section 37 of the Act. When we examine the matter from this angle, we come to the conclusion that the expenditure of this nature needs to be allowed as the Revenue expenditure. It is not in dispute that the expenditure in question was in fact incurred. It is also not in dispute that it was in fact in furtherance of the business of the assessee and had thus direct nexus with the business of the assessee. Therefore, the provisions of Section 37 (1) of the Act are satisfied. In this scenario, whether it would make any difference if the expenditure is of enduring benefit. 6. The argument of the Revenue is based on the judgment of the Supreme Court in Madras Industrial Investment Corpn. Ltd. v. CIT [1997] 225 ITR 802/91 Taxman 340. The ratio of the aforesaid case was discussed in detail by the Division Bench of this Court in CIT v. Industrial Finance Corpn. of India Ltd. [2009] 185 Taxman 296. This very argument was rejected explaining the ratio of the said case in the following manner:- "Thus, the first thing which is to be noticed is that though the entire expenditure was incurred in that year, it was the assessee who wanted the spread over ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecuring a benefit for business expenditure would be capital expenditure. The Court added the caution in the following words:- "There may be cases where expenditure, even if incurred for obtaining advantage, of enduring benefit, may, none-the-less, be on revenue account and the test of enduring benefit may break down. It is not every advantage of enduring nature acquired by an assesses that brings the case within the principle laid down in this test. What is material to consider is the nature of the advantage in a commercial sense and it is only where the advantage is in the capital field that the expenditure would be disallowable on an application of this test. If the advantage consists merely in facilitating the assessee's trading operations or enabling the management and conduct of the assessee's business to be carried on more efficiently or more profitably white leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future. The test of enduring benefit is therefore not a certain or conclusive test and it cannot be applied blindly and mechanically without regard to the particular facts and circumst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laimed as on account of expenditure on advertisement the said deduction squarely falls within Sub- section (3) and that being so the question whether the said expenditure is of capital nature or of revenue nature falls wholly out of consideration. Deduction on account of expenditure on advertisement is qua advertisement and not qua its revenue or capital nature. The Tribunal seems to have missed this aspect of the matter. We, therefore, find that this expenditure falling under Sub-section (3) of Section 37 should be treated as expenditure on advertisement and deduction on that account should be given not on consideration of the question whether it is of revenue or capital nature but on considerations of the conditions and restrictions contemplated by Sub-section (3) itself." 11. The question was answered in favour of the assessee on the touch stone of the provisions contained in Section 37 of the Act in the following manner:- "After considering the rival submissions made by learned Counsel for the parties, we are of the opinion that the Tribunal was right in confirming the order of the QT(A) and treating the expenditure incurred on glow sign boards as of revenue nature. Section ..... X X X X Extracts X X X X X X X X Extracts X X X X
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