1946 (9) TMI 3 - HC - Income Tax

Trademark registration fees held revenue expenditure, not capital, under Section 37(1); costs awarded in favour of assessee

HC held that the assessee company's expenditure of Rs. 16,707 on initial registration of its existing trade marks constituted revenue, not capital, ... - Issues Involved:1. Whether the expense of Rs. 16,707 incurred by the assessee company for the initial registration of its 'old' trade marks was rightly held to be expenditure attributable to revenue.2. If it was revenue expenditure, whether it was incurred wholly and exclusively for the purposes of the assessee company's business.Issue-wise Detailed Analysis:Issue 1: Nature of Expenditure (Revenue vs. Capital)The primary question revolves around whether the expenditure of Rs. 16,707 for the initial registration of trade marks, which had been in continuous use since before February 25, 1937, should be considered revenue expenditure or capital expenditure. The court examined the Trade Marks Act, 1940, and its implications on the nature of trade marks and their registration. The Act was enacted to provide for the registration and more effective protection of trade marks. The court noted various sections of the Act, particularly focusing on the definitions and the effects of registration under Sections 20 and 21.Mr. Setalvad, representing the Commissioner, argued that the trade mark is a capital asset, and the expenditure for its registration is to preserve and make it more effective, thereby altering its nature. He cited the case of British Insulated and Helsby Cables Limited v. Atherton, where it was held that expenditure made to bring into existence an asset or an advantage for the enduring benefit of a trade should be considered capital expenditure.However, the court distinguished the current case by noting that the registration fees only preserve the trade mark for specified periods (initially seven years, and subsequent renewals for fifteen years). The court emphasized that the payments are recurrent and not made once and for all, thus aligning more with revenue expenditure. The court also referenced Southern v. Borax Consolidated Ltd. and Central India Spinning, Weaving and Manufacturing Co. v. Commissioner of Income-tax, which supported the view that legal expenses to protect a capital asset without altering its original character are revenue expenditures.In conclusion, the court held that the registration fees did not create a new asset or alter the nature of the existing capital asset. The periodic nature of the payments and the fact that they do not bring into existence an enduring benefit led the court to determine that the expenditure was attributable to revenue.Issue 2: Purpose of ExpenditureThe second question addressed whether the expenditure was incurred wholly and exclusively for the purposes of the assessee company's business. The court noted that the trade marks were used exclusively for the company's business, and the expenditure was incurred solely for the purpose of registering these marks. This was supported by the Advocate-General's argument that even before the Trade Marks Act, the company had the right to sue for infringement under the Specific Relief Act, indicating that the trade marks were integral to the business operations.The court also referenced the test laid down by the Privy Council in Tata Hydro-Electric Agencies Ltd. v. Commissioner of Income-tax, which emphasized that expenditure should be for the purpose of producing profits in the conduct of the business. The court concluded that the registration fees were indeed part of the company's working expenses and were incurred wholly and exclusively for the purpose of the business.Conclusion:The court answered both questions in the affirmative, holding that the expenditure of Rs. 16,707 was revenue expenditure and was incurred wholly and exclusively for the purposes of the assessee company's business. The Commissioner was ordered to pay the costs.