TMI Blog2014 (8) TMI 353X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure under Section 37 of the Income Tax Act, 1961 (Act, for short) or the Assessing Officer was right in holding that the 25% of the advertisement expenditure should be capitalised? 2. On the first aspect, the Assessing Officer had relied upon decision of the Madras High Court in Commissioner of Income Tax, Tamil Nadu-II versus Southern Switchgear Limited, (1984) 148 ITR 272 (Madras), which we feel is clearly distinguishable. In the said case, the assessee had entered into a collaboration agreement with a foreign company under which later had provided technical aid and information for manufacture of low tension and high tension switchgear etc. and the right to sell the said products. The foreign company had also agreed to post the Indian ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l. When we read the order of the tribunal and the factual findings recorded above, it is apparent that the respondent-assessee did not acquire any right in the trademark Dominos , which it was using for the purpose of selling their products/goods. The trademark was not owned and did not belong to the respondent-assessee. Upon termination of the agreement or on failure to pay franchise fee, the respondent-assessee would lose the right to use the said trademark, which was/is owned by M/s Dominos Pizza International, Inc. USA. It is, therefore, evident that the rights under the agreement acquired by the respondent-assessee could be lost during the tenure of the agreement itself and the respondent-assessee was utilising the goodwill and the tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tinction which is required to be drawn is, whether the expense has been incurred to do away with, what is a recurring expense for running a business, as against, an expense undertaken for the benefit of the business as a whole; (iv) an expense incurred for acquisition of a source of profit or income would in the absence of any contrary circumstance, be in the nature of capital expenditure. As against this, an expenditure which enables the profit making structure to work more efficiently leaving the source or the profit making structure untouched, would be in the nature of revenue expenditure. In other words, expenditure incurred to fine tune trading operations to enable the management to run the business effectively, efficiently and prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e; (vi) the fact that assessee could use the technical knowledge obtained during the tenure of the License for the purposes of its business after the Agreement has expired, and in that sense, resulting in an enduring advantage, has been categorically rejected by the courts. The Courts have held that this, by itself, cannot be decisive because knowledge by itself may last for a long period even though due to rapid change of technology and huge strides made in the field of science, the knowledge may with passage of time become obsolete; (vii) while determining the nature of expenditure, given the diversity of human affairs and complicated nature of business; the test enunciated by courts have to be applied from a business point of view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... econd issue is also covered against the appellant-Revenue by decision of the Delhi High Court in Commissioner of Income Tax versus Salora International Limited, (2009) 308 ITR 199 (Delhi) in which it was held that the expenditure on advertising was of revenue nature. In another decision of this Court in Commissioner of Income Tax versus Monto Motors Limited (ITA No. 978/2011 decided on 12th December, 2011) it has been observed:- 3. The CIT (A) deleted the said addition as it was pointed out that the expenses on advertisement, sales promotion were incurred after the assessee had already started marketing the product. It was pointed out that as the sales were sluggish and not up to the expectations and as business of selling motor bikes w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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