Capitalization of Signages

[JOHN SHANNEL]

Our organisation is displaying signages in retail outlets and pays monthly rent to the retailers for the space provided. Can i capitalise the signages since these has a life of 3 years.

[KASTURI SETHI]

Signage is not an immovable property -----held by Madras High Court in the case of VIRGO INDUSTRIES (ENGINEERS) PVT. LTD.Versus COMMR. OF C.EX., CHENNAI-II reported as 2015 (4) TMI 247 - MADRAS HIGH COURT. So no question of capital expenditure. It is revenue expenditure.

[ABHISHEK TRIPATHI]

Another judgment by Hon'ble Punjab & Haryana High Court in the case of CIT Vs. Liberty Group Marketing Division 2008 (4) TMI 219 - PUNJAB AND HARYANA HIGH COURT. Relevant para as below:

13. Considering the above principle of law, in the present case, it is to be seen as to whether the expenditure incurred by the assessee on glow sign boards was with a view to bringing into existence an asset or an advantage for the enduring benefit of the business. In our opinion, the expenditure incurred by the assessee on glow sign boards does not bring into existence an asset or advantage for the enduring benefit of the business, which is attributable to the capital. The glow sign board is not an asset of permanent nature. It has a short life. The materials used in the glow sign boards decay with the effect of weather. Therefore, it requires frequent replacement. The Tribunal has also recorded a finding that the assessee has to incur expenditure on glow sign boards regularly in almost each year. This fact itself shows that the advantage accrued from the use of the glow sign boards is not of enduring nature. Thus, the expenditure by the assessee on these glow sign boards did not bring into existence any asset or advantage for the enduring benefit of the business. The assessee has spent the expenditure on the glow sign boards with an object to facilitate the business operation and not with an object to acquire asset of enduring nature. Therefore, the said expenditure was of revenue nature and the Tribunal has rightly treated the same as of revenue nature.

[DR.MARIAPPAN GOVINDARAJAN]

You cannot capitalize.

[JOHN SHANNEL]

Thanks for the reply, still would like to ask for further clarification.

How this will be treated in IND AS and as per Companies Act 2013.

[KASTURI SETHI]

Q. How this will be treated in IND AS and as per Companies Act 2013 ?

This is the field of Dr.Govindarajan, Sir.

I humbly request Dr.Govindarajan, Sir to reply this question for enrichment of my knowledge.

AI Summary

Revenue expenditure: Signage costs treated as non-capital expenditure under precedents, not capitalisable for accounting and tax purposes.
Signage costs are treated as revenue expenditure, not capital, because signages are not immovable property and do not create an asset of enduring benefit due to limited useful life and frequent replacement; contributors conclude these costs cannot be capitalised, and a query as to specific IND AS and Companies Act 2013 treatment remained unanswered.