2014 (6) TMI 77 - AT - Income Tax

Tax Tribunal: Brand Label Expenses Deemed Revenue, Not Capital. Renewal Costs Upheld as Recurring.

The Tribunal upheld the Commissioner of Income Tax (Appeals) decision to allow the expenditure on brand label and registration charges as revenue in ... Deletion of disallowance of expenses - Brand lab and registration charges – Capital expenses or not – Held that:- The expenses are not for registering of any new brand or product but it was the annual renewal fee/charges of the already registered brands and further for putting the brands on record in other states for the purpose of more convenient and better business activities - the expenses incurred were not for registering new brand I level but were either renewal of fees paid or to get the said brands being put on record in other states in, the country so that assessee's right in respect of said brand /levels even in those states get protected from being copied - the expenses incurred are either renewal fees paid or to get the said brands being' put on record in other states in the country so that assessee's right in respect of said brand / level even in those states get protected from being copied - CIT(A) rightly was of the view that the expenditure is revenue in nature as it does not bring into existence any new asset or benefit of enduring nature but these are recurring annual charges/renewal fee - thus, there is no reason to interfere in the order of the CIT(A) – Decided against Revenue. Issues:Disallowance of expenditure representing brand label and registration charges being capital in nature.Analysis:The appeal pertains to the disallowance of expenditure amounting to Rs. 8,55,800 by the Assessing Officer (AO) on the grounds that it was capital in nature. The assessee, engaged in the business of manufacturing liquor, had paid annual fees for the renewal of brand registration in various states. The AO contended that this expenditure was capital in nature. However, the Commissioner of Income Tax (Appeals) [CIT(A)] allowed the claim of the assessee, stating that the expenditure was revenue in nature.During the proceedings, it was established that the expenses were incurred for renewing the registration of existing brands in different states to protect the assessee's rights and facilitate business activities. The CIT(A) emphasized that the expenses were not for registering new brands but for annual renewal fees and putting the brands on record in other states for better business operations. The CIT(A) concluded that the expenditure was revenue in nature and had been consistently allowed in previous years.The Tribunal noted that the AO had accepted similar expenditure in prior and subsequent years, indicating a pattern of treating such expenses as revenue in nature. As the expenditure did not create any new asset or enduring benefit and considering the principle of consistency, the Tribunal upheld the CIT(A)'s decision to allow the expenditure as revenue. The appeal by the revenue was dismissed, affirming the CIT(A)'s order.In conclusion, the Tribunal affirmed that the expenditure on brand label and registration charges was revenue in nature, as it was recurring annual charges for renewing existing brand registrations and did not result in the creation of any new asset. The decision was supported by the consistent treatment of such expenses in previous assessments, leading to the dismissal of the revenue's appeal.