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2017 (3) TMI 140 - ITAT KOLKATA

2017 (3) TMI 140 - ITAT KOLKATA - TMI - Advertisement and selling expenses - treatment of the expenses in the books of SCL and the Assessee cannot be different - Held that:- As rightly contended by the assessee, the treatment of the expenses by SCL was not conclusive in the matter. Admittedly the sum capitalized by SCL in its books of account had been reimbursed to the assessee and to this extent the parties agreed that the expenditure created brand enhancement of brand SPENCERíS of SCL. The exp .....

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e question whether expenditure promoted the brand of SCL or was incurred to promote the sales of the Assessee becomes academic. The decision of the Honíble Mumbai Bench of ITAT in the case of Brightest Circle Jewellery (P)Ltd., (2012 (10) TMI 238 - ITAT, MUMBAI ) clearly supports the plea of the assessee that the expenditure incurred by a person who is not the owner of the trade mark but which is used by an assessee had to be regarded only as a revenue expenditure. We are therefore satisfied tha .....

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713 - CALCUTTA HIGH COURT]- Decided in favour of assessee - I.T.A No. 96/Kol/2014 - Dated:- 1-3-2017 - Sri N.V.Vasudevan, JM and Shri Waseem Ahmed, AM For the Appellant : Shri D.S.Damle, FCA For the Respondent : Shri Anand Kumar Singh, JCIT ORDER Per N.V.Vasudevan, JM This is an appeal by the Assessee against the order dated 29.10.2013 of CIT(A)- VI, Kolkata relating to AY 2008-09. 2. Grounds No.1 raised by the assessee read as follows :- 1. The Commissioner of Income Tax (Appeals) erred in uph .....

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ng under specific brand name SPENCER S at various locations in India. SCL s brand had its business and popularity only in South India. The assessee wanted to use the brand name spencers for its retailing business in respect of various products through its supermarkets at various locations in India. SCL and the assessee entered into an agreement dated 15.09.2005 whereby SCL permitting use of Spencers trade mark of SCL by the assessee on a licence basis. Article 7 of the agreement which is relevan .....

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03 The Licensor shall benefit from such advertisement and publicity expenditure likely to be incurred by the Licensee on pan India basis. 7.04 The Licensor therefore agrees to co-share the advertisement and publicity expenses likely to be incurred by the Licensee over a period of 5 years from 1/4/2006 for an amount not exceeding ₹ 50 (fifty )Crores in totality. 7.05 The Licensor hereby gives an option to the Licensee to purchase the said Spencer's Brand at the end of the 5 years from t .....

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nd name of SCL, the Assessee was given a right to use SCL s brand name SPENCER S and agreed to spend considerable amount of money on advertising and publicity to popularize SCL s brand. SCL agreed to share advertisement expenses as those expenses will go to increase it s brand value for 5 years from 1.4.2006. The Assessee had a right to purchase the brand name from SCL on the expiry of 5 years on the basis of valuation. 5. In pursuance of the said agreement the assessee incurred certain expenses .....

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as towards advertisement and selling expenditure of music division in the business of music retailing known as Music World. There is no dispute that this expenditure had to be allowed as deduction and was allowed as deduction by the AO. Now the dispute between the revenue and the assessee was with regard to allowing deduction of the remaining advertisement expenditure which was claimed as deduction by the assessee in the profit and loss account. The plea of the assessee was that though huge expe .....

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ecovered charges from Spencers by way of reimbursement of advertisement expenditure from SCL, those expenses could be said to be brand building expenditure which benefitted only SCL and therefore the same was claimed as deduction by the assessee. The undisputed fact was that SCL had treated the expenditure incurred by the assessee which was reimbursed to the assessee as towards its brand building cost was claimed as a capital expenditure and depreciation on the intangible asset was claimed by SC .....

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nd Co. It is to be noted that the said company Spencer and Co. had treated the brand as an intangible asset and has also claimed depreciation on the same. The issue to be noted is that the assessee company, Spencer's Retail Ltd. has been a party to the agreement for building a brand which has been claimed as an asset by the company i.e. Spencer and Co. It is seen that the parties of the same agreement are treating the same expenditure differently i.e. Spencer & Co. treating it as capital .....

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d amount of expenditure is to the tune of ₹ 2,13,90,251/- other than expenditure incurred for music division is treated as capital expenditure. 6. Before CIT(A) the assessee submitted that similar expenditures incurred in A.Y. 2006-07 was allowed by the AO and the details of the expenditures claimed in this year were given by the assessee as follows :- Details of Advertisement expenses incurred by SRL and reimbursement claimed from SCL Sl.No. Financial Year Total of advertisement & sel .....

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te label apparel, brands i.e. Assessee s own brands and for various promotion offers/price offers in the store/catchment area for selling the merchandise in the normal course of business of the Assessee and did not in way directly help in creating value for the brand of SCL. The same was charged as revenue expenses in the Profit and Loss Account of the Assessee. The broad nature of these expenses incurred by the Assessee for its own retailing business was given as under : Print Media Leaflet pri .....

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entire money spent for the advertisement and publicity is only to popularize the Spencers brand name which is owned by the SCL. No evidence was furnished to prove that balance expenditure was incurred for private apparel brands i.e company s own brands. Since the AR of the assessee did not give the basis for allocation of the expenditure and also did not furnish any evidence on the extent of benefit accrues to the assessee company, the entire expenditure incurred by the assessee is treated as ca .....

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capital expenditure cannot be sustained. In this regard it was submitted by him that SCL was the owner of the brand Spencers and therefore expenditure incurred towards brand building was capitalised in their books of account. It was submitted that as far as the assessee is concerned it was only a licencee entitled to use the brand spencers and that too in a later assessment year. It was submitted by him that the AO had not disputed the fact that the expenses claimed by the assessee to the extent .....

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g judicial pronouncements in support of its claim that advertisement expenditure incurred to maintain corporate image to increase sale of products was to be allowed revenue expenditure. In this regard he drew our attention to the decision of the Hon ble Bombay High Court in the case of CIT vs Asian Paints (India) Ltd (2016) 75 Taxmann.com 152 (Bombay). Attention was also drawn to the decision of the Hon ble Delhi High Court in the case of CIT vs Spice Distribution Ltd. (2015) 54 Taxmann.com 325( .....

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the owner of the trade mark incurred advertisement expenditure which was reimbursed by the assessee(sub-licencee). The revenue took the stand that the reimbursement of advertisement expenditure for promoting brand name Nakshatra as capital expenditure. The Tribunal however held that the expenditure was revenue in nature and was to be allowed as deduction. It was held in this case that the expenses even if considered the promoting brand name Nakshatra was capital only in so far as the owner of t .....

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question had to be allowed as a deduction and as a revenue expenditure. The chart giving the details of similar payment to CESC (successor in interest of SCL) by the assessee which was allowed as deduction in the assessment of the Assessee is given as Annexure to this order. The ld.DR placed reliance on the order of CIT(A). 11. We have given a very careful consideration to the rival submissions. The case of the AO was that the expenses on Advertisement and Publicity to the extent reimbursed by S .....

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ue expenditure. The AO had not disputed this claim of the assessee and proceeded only on the basis that the nature of the expenditure had to be capital because of the treatment by SCL of the same expenditure in its books of account. This approach of the AO in our view is not proper. As rightly contended by the ld. Counsel for the assessee, the treatment of the expenses by SCL was not conclusive in the matter. Admittedly the sum capitalized by SCL in its books of account had been reimbursed to th .....

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the assessee and its relevance in the line of business carried on by the assessee. In the present case we are satisfied that the expenditure to the extent claimed by the assessee had helped its sale and not creating any brand value for SCL and only such expenditure was claimed as deduction by the assessee. 12. As far as the conclusion of CIT(A) that because the Assessee failed to give basis of classification of expenditure that were reimbursed by SCL to the Assessee, the entire expenditure had t .....

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iture claimed by the Assessee should also be regarded as capital expenditure. The case of the CIT(A) that the expenditure claimed by the Assessee did not promote the sales of the Assessee. This conclusion of the CIT(A) is not correct because the nature of expenses incurred by the Assessee was given (though it was a general description) and not disputed by the AO. The conclusion of the CIT(A) in this regard is not based on any material. Even otherwise, the question whether expenditure promoted th .....

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ves to be accepted. 13. Apart from the above we also notice that the revenue at no point of time in either A.Y.2007-08 or A.Y. 2009-10 to 2015-16 disallowed the claim of the assessee for deduction of similar item of expenditure as given in the chart given as annexure to this order. Thus based on the rule of consistency the claim of the assessee ought to have been allowed by the revenue. For the reasons given above we direct that the deduction claimed by the assessee should be allowed as revenue .....

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