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TMI Blog2012 (10) TMI 238X X X X Extracts X X X X X X X X Extracts X X X X ..... es promotion expenses of Rs. 3,89,62,423/-, which was towards the payment to 'Diamond Trading Company Limited' (in short 'DTC') for its share on promotion of mark "Nakshatra". From the perusal of the copy of the invoice raised by the DTC for sum $57300 & $160000, he took note of the remark appearing in the invoice that it is a reimbursement of share contribution by the assessee on the actual marketing campaign expenditure incurred during the period for promotion of the mark "Nakshatra". In response to the query raised by the Assessing Officer as to why these expenses be not disallowed, it was submitted that the assessee company has entered into an agreement dated 8-11-2005 with the DTC and 'D'Beers Centenary AG' (in short 'DBC AG'), a Swiss based company which has licensed the mark of "Nakshatra" to DTC Ltd., London, who in turn has sub-licensed the mark to the assessee company. The DTC has devised and deployed a marketing campaign to grow consumer demand for diamond jewellery in India by promoting the mark "Nakshatra". The assessee's contention was that as per the agreement, the assessee company is using the mark "Nakshatra" for creating awareness in the market for highly standard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e creation of the Mark i.e. Nakshatra and the Brightest Circle of light. It is also abundantly clarified in the agreement that the DTC will also contribute to the promotion of the Mark and will take a certain portion of the money spent on the Mark from the appellant company. It is also clarified that entire rights and goodwill created through the advertisement are owned by the DTC or by DBCAG. The appellant has no right in the intellectual property right and goodwill. Further, it is also abundantly clear that the appellant is debarred from doing anything to damage the goodwill of the Mark or the DTC Mark. There is special Indemnity Clause (15) which has been specifically instituted to indemnify in case the appellant company does anything against the reputation of mark of DTC or DBCAG. Further, the appellant is also given an option in case if he wants to own the Mark of the DBCAG and DTC. In that event a elaborate procedure has been prescribed in clause 20 of the agreement which clearly provides that entire expenditure incurred in promoting and advertising the Mark upto the transfer date is to be mutually agreed by both the DTC as well as the appellant company and the percentage of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the A.O. has apparently erred in treating only 20% of such payments as capital expenditure for the reasons discussed in detailed in my appellate order supra. Accordingly, it is held that the entire expenditure spent by the appellant amounting to Rs. 3,89,62,423/- reimbursement to DTC as capital in nature and is not a permissible deduction u/s. 37(1). In the instant case since the appellant does not own the brand or the mark, the appellant is not entitled to capitalize the expenditure as intangible asset and is therefore, not even allowed to claim the depreciation as held by the Ld. A.O.. This ground of appeal is decided against the appellant and is dismissed." 7. Learned Senior Counsel appearing on behalf of the assessee submitted that by entering into the agreement with the international firms like 'DTC' and 'DBC AG', the assessee's endeavour was to create awareness to the potential buyers in the country for branded and quality products in diamond jewellery which otherwise in the country was in a very disorganised manner. She drew our attention to various clauses of the agreement whereby the DTC has devised and deployed a marketing campaign to utilize the mark "Nakshatra" and to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of her contentions, she relied upon the following case law :- (i) Glaxo Smith Kline Consumer Healthcare Ltd. v. Asstt. CIT [2007] 112 TTJ 94 (Chd); (ii) Gitanjali Gold & Precious Ltd. (supra); (iii) Modi Olivetti Ltd. (supra); and (iv) CIT v. Salora International Ltd. [2009] 308 ITR 199 (Delhi). 8. Per Contra, learned CIT DR also referred to the various clauses of the agreement in support his contentions that the assessee was in fact involved in the promotion of brand which is in the nature of capital expenditure as it amounts payment for a licence. He also drew our attention to various findings and observations of the CIT(A) as has been discussed by us in the foregoing paragraphs. His main contention is that the assessee has been using the licence for manufacturing and selling of jewellery under the brand "Nakshatra" and the use of licence comes within the arena of capital fee and, thus, entire expenditure is capital expenditure. 9. We have carefully considered the rival submissions, perused the material on record and the findings given in the impugned orders. The entire controversy revolves around as to whether the payment made by the assessee towar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... creation of an asset tangible or intangible to the assessee. The Hon'ble Supreme Court in the case of Empire Jute Co. Ltd. (supra), has held that no tests for distinguishing between capital and revenue expenditure is paramount or conclusive. There is no all embracing formula which can provide a ready solution to the problem, whether it is a capital expenditure or revenue expenditure. Their Lordships have held that even tests of enduring benefit at times gets failed as not each and every advantage of enduring nature can be of capital field. The most celebrated observations of their Lordships on this account are reproduced herein below :- "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 assessee 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 adva ..... X X X X Extracts X X X X X X X X Extracts X X X X
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