The expenditure incurred on corporate advertisement on television was in respect of ongoing business and for promotion of a corporate brand, as it facilitated the business of the assessee and resulted in increased sales and profitability. Further, the expenditure for advertisement was in the nature of maintaining the brand and/or corporate image and it was not for creation of a brand, therefore, was to be allowed as revenue expenditure.
Held by Bombay High Court
(a) The Respondent-Assessee incurred expenditure on advertisement on television aggregating to Rs. 29.99 crores. This expenditure related to advertisements published on television relating not only to individual products manufactured by it but also towards corporate advertisement to the extent of Rs. 5.47 crores.
(b) The assessing officer disallowed the expenditure claimed towards corporate advertisement amounting to Rs. 5.47 crores on the ground that the same is on capital account as corporate advertisement helps in building the company’s brand value. The benefit of such build up of brand value would endure over a period of years and therefore fall in the capital field. This view was taken by the assessing officer in his final order after his draft Assessment order taking an identical view was upheld by the D.R.P.
(c) On appeal to the Tribunal, the impugned order allowed the Respondent-Assessee’s appeal by inter alia holding that the expenditure is revenue in nature, even if the same is incurred for promotion of a corporate brand, as it facilitates the business of the assessee and results in increased sales and profitability. The impugned order further holds that the enduring benefit, if any, on account of brand building would not be in the capital field.
(d) Mr. Malhotra, learned Counsel for the Revenue, urges that an expenditure incurred to create/improve a brand would be on capital account. This is in view of the enduring benefit available to the Respondent-Assessee in relation to its brand. It is particularly submitted that amounts received on sale of brand is on capital account and not taxed as Revenue receipts. As also, amount paid to purchase a brand is regarded on capital account. Therefore, the expenditure incurred on brand advertisement cannot be allowed as Revenue expenditure.
(e) We find that an identical issue had arisen before this Court in case of CIT v. Jeoffrey Manners & Co. Ltd. (2009) 315 ITR 134 (Bom.), wherein the Court was considering a question whether the expenses incurred by the Respondent-Assessee therein for making advertisement films is to be treated as a capital or revenue expenditure. This Court opined that the correct test to be applied in respect of expenditure incurred for making advertisement films was that when the same was incurred in respect of an ongoing business of the assessee, it is Revenue. On the other hand, when the expenditure is incurred in respect of a brand which is to be used in a business which is yet to be commenced, it is capital expenditure. In this case also, the expenditure on corporate advertisement films is in respect of ongoing business. The expenditure for advertisement of a brand or corporate name of an existing ongoing business is in the nature of maintaining the brand and/or corporate image and it is not for creation of a brand. Further, the test of enduring benefit urged by the Revenue was considered by the Apex Court in Empire Jute Co. Ltd. v. CIT (1980) 124 ITR 1 to hold that it is not a conclusive test in all cases so that such expenditure is always on capital account. The Court observed that what is to be examined is the nature of advantage obtained in the commercial sense by incurring the expenditure. If the expenditure consists of merely facilitating the assessee to carry on business more profitably leaving the fixed capital untouched, it would be on revenue account. The entire expenditure, the Court observed, has to be looked at from a businessman’s point of view. In the present facts, the expenditure on account of corporate advertisement is to essentially maintain the corporate image and not create a corporate image. Further, the impugned order holds on facts that the corporate advertisement expenditure facilitates the business having a direct impact on sales and profitability of the Respondent-Assessee.