Expenditure Incurred On Trademark Registration Is A Revenue Expenditure: ITAT Allows Deduction

The two-member bench of Suchitra Kamble (Judicial Member) and B.M. Biyani (Accountant Member) has ruled that the amendment in section 32 of the Income Tax Act from A.Y. 1999-2000 which allows deprecation on various intangible assets (including trademarks) is applicable only when the cost incurred in respect of a trademark is in the nature of capital expenditure.

The respondent/assessee is a private limited company. The assessee filed a return on 26.09.2010, declaring a total income of Rs. 5,14,90,540. The case was selected under scrutiny and statutory notices were issued. Finally, the AO completed an assessment under section 143(3) at a total income after making various disallowances and additions.

During assessment proceedings, the AO observed that the assessee had incurred an expenditure of Rs. 7,96,041 on the registration of trademarks of its products in different countries and claimed it as a deduction. The AO disallowed deduction on three counts. Firstly, the expenditure gives the assessee enduring rights and, therefore, it's a capital expenditure. Secondly, the decision in Finlay Mills was rendered prior to the amendment made in Section 32 of the Act from A.Y. 1999-2000 whereby Parliament started allowing depreciation on trademarks. Thirdly, most of the expenses included in the sum of Rs. 7,96,041 are related to the earlier years and not to the current year under consideration.

During the appellate proceedings, the CIT(A) acknowledged that the expenditure was incurred for the registration of various trademarks in various foreign countries solely to protect the assessee's business interests and not for the acquisition of any trade-mark. The CIT (A) held that the amendment made in section 32 from A.Y. 1999-2000 envisages a case where the trade-mark is acquired for a price and not a case where the assessee has simply taken registration of his own trade-marks. The CIT (A) deleted the disallowance made by AO. The CIT (A), however, did not make any comment on the finding of AO that most of the expenses included in the sum of Rs. 7,96,041 were related to the earlier years.

The ITAT held that the expenditure incurred by the assessee on registration of trade-mark is a revenue expenditure and therefore allowable as a deduction. However, the ITAT observed that a sum of Rs. 6,46,200 does not relate to the year under consideration. Therefore, the ITAT upheld the disallowance to the extent of Rs. 6,46,200.

Case Title: Add. CIT Versus M/s Precision Bearing Pvt. Ltd.

Citation: ITA No.1048/Ahd/2015 with CO No. 109/Ahd/2015

Dated: 29.06.2022

Counsel For Appellant: Sr. DR S.S. Shukla/ CIT-DR Vijay Kumar Jaiswal

Counsel For Respondent: AR S.R. Shah

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