Case Law Details
Advocate Akhilesh Kumar Sah
Section 32 of the Income Tax Act, 1961(herein referred to as ‘the Act’) deals with the depreciation. The Appendix I to the Income Tax Rules, 1962 classifies in two parts the assets entitled to depreciation. Part A describes assets in respect of tangible assets mentioned therein while Part B provides depreciation @ 25% in respect of intangible assets mentioned as know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature.
Recently, in SWAWS Credit Corporation (P) Ltd., Hyderabad vs. DCIT [ITA.No.24/Hyd/2013 A.Y.2009-2010, decided on 21.10.2016], the issue in the appeal was with reference to claim of depreciation/deferred revenue expenditure on the lump sum consideration paid for creation of client base as an intangible asset.
In the above-mentioned appeal, briefly, the assessee company in the previous year 2008-09 relevant to the A.Y. 2009-10 had acquired micro finance business consisting of loan portfolio of existing clients from the S.Society by paying a lump sum consideration of Rs.6 crore consisting of two parts- Rs.4 crore paid as a client creation cost @ Rs.400 per customer and Rs.2 crore paid towards brand, logo, intellectual property, internal control systems, and related procedure based recovery systems. The assessee treated the same as deferred revenue expenditure as per the accounting policy stated at 2 (g) – of the Significant Accounting Policies in Schedule 17 Annexed to the Annual Financial Statements i.e., Balance Sheet as on 31.03.2009, Income and Expenditure Account for the Year ended 31.03.2009 and cash flow statement for the year ended 31.03.2009. Accordingly, assessee followed the policy of treating the same as deferred revenue expenditure by grouping the same under “Miscellaneous Expenditure (to the extent not written off or adjusted) in the Balance Sheet and followed the policy of writing off the same to the extent either Rs.120 Lakhs or 30% of the Profit Before Interest and Tax(PBIT) whichever is less. Accordingly, the assessee charged Rs.56,19,306 being 30% of the PBIT to the profit and loss account of the relevant Previous Year. The assessee in the computation of income added back the amount of Rs.56,19,306 being the amount debited to P& L Account and claimed Rs.1,20,00,000 as deduction which was 20% of the total amount of Rs.6 crore paid being 1/5th of the expenditure.
Before the AO, the assessee claimed that the same was a revenue expenditure and that the deferred revenue expenditure was allowable. The assessee relied on:
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Under the Incometax Act Intangible Asset are entitled for depreciation @25%. When Revenue
expenditure are deferred for reasons that the
expenditure incurred for marketing the products
and other one time expenditure were deferred since the benefits are enduring in nature. Please
clarify whether Expenditure such as Advertisment
sales promotion which are treated as deferred can be treated as intangible asset ?