TMI Blog2011 (12) TMI 575X X X X Extracts X X X X X X X X Extracts X X X X ..... epreciation of ₹ 2,04,93,750/- on patents, trademarks and intellectual property rights acquired by it from Seil Aircon Ltd. 4. On the facts and circumstances of the case and in law, the Ld.CIT(A) has erred in allowing 1/3rd amount out of advertisement and publicity expenditure for launching a new product inspite of the fact that the AO has held the same as a capital expenditure. 5. The appellant craves to leave, to add, alter or amend any ground of appeal raised above at the time of the hearing. The grounds of assessee s appeal read as under :- 1. That the Ld. CIT (Appeals) has erred on facts and in law in not allowing deduction for expenses of ₹ 1,050,654 treating as prior period expenses. He has failed to appreciate that the liability for the above expenditure crystallized during the year and hence, the deduction should have been allowed in computing the income. 2. That the Ld. CIT (Appeals) has erred on facts and in law in not allowing deduction in respect of entire expenditure of ₹ 39,398,597 incurred on account of advertisement and publicity expenses and restricting the deduction to one third (1/3) of the expenses incurred by spreading the ded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts. He further pleaded that the exclusive business rights as defined in the agreement were represented as carrying on the business as successor to Usha International Ltd. which include all records of business including records of suppliers and customers; the benefit of the current orders; the benefit of all bids and proposals that have been made by Usha International Ltd. and all rights to Usha International Ltd. distribution network for the business excluding Usha International Ltd. s company shop. The consideration for exclusive business rights was payable of ₹ 1,73,00,000/-. For other business and commercial rights ₹ 27,00,000/- was paid. These amounts were capitalized as goodwill in books of accounts. These amounts were paid to Usha International Ltd. during the period relevant to assessment year 2001-02. These amounts were capitalized as Goodwill in the books of account. For computing the taxable income, depreciation was claimed @ 25% as prescribed in schedule of depreciation rates in respect of the intangible assets. The depreciation in the year 2001-02 was claimed at ₹ 50,00,000/- and in assessment year 2002-03 at ₹ 37,50,000/-. For the assessment yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... circumstances, therefore, the order of the CIT (A) may be upheld. 6. We have heard both sides and perused the material on record. Since the assessee has got the relief from ITAT in the preceding year, on the same facts. The issue remains the same, therefore, respectfully following the decision of ITAT, we dismiss this ground of revenue s appeal. 7. Ground No.3 in revenue s appeal is regarding deleting the disallowances on account of depreciation of ₹ 2,04,93,750/- on patents, trademarks and intellectual property rights acquired by its from SIEL Aircon Ltd. 8. The assessee company has purchased manufacturing business of M/s. SIEL Aircon Ltd. as a going concern vide agreement dated 08.08.2000. As a part of this agreement, the assessee company also acquired intellectual property rights which include patents, trademarks, etc. etc. and paid ₹ 10,93,00,000/-. The amount was capitalized in books as patent and trademark and the same is treated as intangible assets. These intellectual property rights have not been registered in the name of assessee company. The assessee company claimed depreciation as per section 32 of Income-tax Act read with Schedule for depreciation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing Officer has held the same as a capital expenditure. Ground No.2 of assessee s appeal is also related to this issue wherein the assessee has claimed that whole of the expenditure of ₹ 3,93,98,597/- incurred on account of advertisement and publicity expenses should have been allowed and the CIT (A) is not justified in restricting the deduction to 1/3rd only. Ground No.3 in assessee s appeal also deals with the confirming the addition of ₹ 1,31,98,642/- on account of opening balance of advertisement and publicity expenses deferred in the books of account which was not claimed in the return of income. 10. During the year, the assessee has claimed ₹ 3,93,98,597/- on account of advertisement and publicity. In the books, the assessee has claimed as deferred revenue expenditure, the details of which were provided before the authorities below are as under :- Opening Balance Rs.1,31,98,642 Add : Incurred during the year Rs.3,93,98,597 Less : Written off during the year ₹ 65,22,822 Closing Balance Rs.4,60,74,41 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st decision of Hon'ble jurisdictional High Court in the case of CIT vs. Citi Financial Consumer Finance India Ltd. wherein the Hon'ble High Court has decided the issue as under :- 10. We are unable to persuade ourselves by the aforesaid submission of the learned counsel for the Revenue. Identical argument was taken by the Revenue in IFCI (supra). Explaining the ratio of Supreme Court in Madras Industrial Investment Corpn. Ltd. (supra), the argument of the Revenue was rejected in the following manner:- The judgments on which reliance is placed by the learned Counsel for the Revenue would be of no avail in the instant case. The learned Counsel for the Revenue had strongly argued that matching concept is to be applied, as per which part of the expenditure had to be deferred and claimed in the subsequent years and, therefore, approach of the AO was correct. However, this argument overlooks that even in Madras Industrial Investment Corporation (supra), on which the reliance was placed by Ms. Bansal, the general principle stated was that ordinarily revenue expenditure incurred wholly and exclusively for the purpose of business can be allowed in the year in which it is in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iscount is another such instance where, although the assessee has incurred the liability to pay the discount in the year of issue of debentures, the payment is to secure a benefit over a number of years. There is a continuing benefit to the business of the company over the entire period. The liability should, therefore, be spread over the period of the debentures. 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. The Court was conscious of the principle that normally revenue expenditure is to be allowed in the same year in which it is incurred, but at the instance of the assessee, who wanted spreading over, the Court agreed to allow the assessee that benefit when it was found that there was a continuing benefit to the business of the company over the entire period. 11. This Court, thus, explained in no uncertain terms that the normal rule accepted by the Supreme Court in the said judgment was that the expenditure is to be allowed in the year in which it was incurred. Only at the instance of the assessee who wanted to spread over, the court had agreed to allow the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 circumstances of a given case. 13. Applying the aforesaid principle to the facts of this case, it clearly emerges that the expenditure on publicity and advertisement is to be treated as revenue in nature allowable fully in the year in which it was incurred. Concededly, there is no advantage which has accrued to the assessee in the capital field. The expenditure was incurred to facilitate the assessee s trading operations. No fixed capital was created by this expenditure. We may also add here that in the Income-Tax laws, there is no concept of deferred revenue expenditure. Once the assessee claims the deduction for whole amount of such expenditure, even ..... X X X X Extracts X X X X X X X X Extracts X X X X
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