ACIT 6(3), MUMBAI V. GOVIND RUBBER LTD, MUMBAI

ITA 5740/MUM/2009

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9120 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 1 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-12-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 05-12-2012
• Assessment Year: 2003-2004
• Appeal Filed On: 27-10-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMARD EEP
• Assessee Lawyers: SANJIV M SHAH
• Keywords: Capital asset; Depreciation; Revised return; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH G , MUMBAI BEFORE SHRI RAJENDRA SINGH, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ITA NO. 5740/MUM /2009 ASSESSMENT YEAR : 2003-04 ASSTT. COMMISSIONER OF INCOME TAX , CIRCLE-6(3) ROOM NO.522, 5 TH FLOOR AAYAKAR BHAVAN, M.K. ROAD MUMBAI-400 020. VS. M/S. GOVIND RUBBER LTD. DURGA TRADING BUILDING, 1 ST FLOOR N.M. JOSHI MARG, LOWER PAREL MUMBAI-400 011. PAN NO.AAACG 3682 P (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI AMARDEEP RESPONDENT BY : SHRI SANJIV M. SHAH DATE OF HEARING : 05.12.2012 DATE OF PRONOUNCEMENT : 14.12.2012 O R D E R PER RAJENDRA SINGH, AM: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDE R DATED 18.8.2009 OF CIT(A) FOR THE ASSESSMENT YEAR 2003-04. T HE ONLY DISPUTE RAISED BY THE REVENUE IN THIS APPEAL IS REGARDI NG ALLOWABILITY OF DEPRECIATION ON TRADE MARK/BRAND NAME GRL INTERNATI ONAL DEVELOPED BY THE ASSESSEE. ITA NO.5740/M/09 A.Y. 03-04 2 2. FACTS IN BRIEF ARE THAT THE AO DURING THE ASSESSMENT P ROCEEDINGS NOTED THAT THE ASSESSEE HAD ORIGINALLY RETURNED LOSS OF RS.6,07,42,458/- WHICH WAS REVISED TO RS.6,71,42,441/- IN THE REVISED RETURN FILED ON 30.10.2004. REASON GIVEN FOR REVISING THE RETURN WAS TO CLAIM DEPRECIATION ON EXPENDITURE OF RS.3,51,65,308/- INCURRED BY THE ASSESSEE ON CREATING THE BRAND NAME GRL INTERNATIONAL WHICH HAD BEEN OMITTED TO BE CLAIMED IN THE ORIGINAL RETURN. T HE ASSESSEE CLAIMED DEPRECIATION OF RS.43,95,664- WHICH WAS 50% OF N ORMAL DEPRECIATION ALLOWABLE ON INTANGIBLE ASSETS @ 25%. THE AO ASKED THE ASSESSEE TO EXPLAIN AS TO WHY CLAIM OF DEPRECIATION SHOULD NOT BE DISALLOWED AS THE ASSESSEE HAD NOT ACQUIRED ANY INTANGIBL E ASSET. THE ASSESSEE SUBMITTED THAT IT HAD DEVELOPED THE BRAND BY IN CURRING CERTAIN EXPENDITURE OVER A PERIOD OF TIME WHICH AMOU NTED TO ACQUISITION OF BRAND AND, THEREFORE, THE DEPRECIATION SHOULD BE ALLOWED. 2.1 THE AO HOWEVER DID NOT ACCEPT THE EXPLANATION GIV EN. IT WAS OBSERVED BY HIM THAT THE ASSESSEE HAD NOT ACQUIRED THE BR AND. THE ASSESSEE HAD INCURRED THE EXPENDITURE ON BRAND ADVERTISEM ENT WHICH WAS NOTHING BUT ADVERTISEMENT EXPENDITURE TO ENCOURAGE SALE OF PRODUCT. SUCH EXPENDITURE WAS INCURRED EARLIER ALSO. TH EREFORE, CAPITALIZATION OF EXPENDITURE COULD NOT BE CONSIDERED A S ACQUISITION OF INTANGIBLE ASSET. THE AO ALSO OBSERVED THAT, SINCE EXPEND ITURE WAS ITA NO.5740/M/09 A.Y. 03-04 3 INCURRED SINCE ASSESSMENT YEAR 2001-02, IT COULD NOT BE SAID THAT IT HAD BEEN USED IN THE YEAR UNDER CONSIDERATION. THE AO, THEREFORE, DISALLOWED THE CLAIM OF DEPRECIATION. THE AO ALSO REJECT ED THE ALTERNATE CLAIM OF THE ASSESSEE TO AMORTIZE ADVERTISEMENT EXPENDITURE OVER A PERIOD OF TIME ON THE GROUND THAT THERE WAS N O SUCH PROVISION IN THE INCOME TAX ACT. 2.2 THE ASSESSEE DISPUTED THE DECISION OF AO AND SUBMITTED BEFORE CIT(A) THAT THE BOARD OF DIRECTORS VIDE RESOLUTION DAT ED 25.10.2000 DECIDED TO SPEND AN AMOUNT NOT EXCEEDING RS.4.00 CRORES O VER A PERIOD OF 2-3 YEARS TO DEVELOP THE BRAND IMAGE UNDER THE NAME OF GRL INTERNATIONAL IN ORDER TO SUSTAIN COMPETITION IN THE MARKET. THE BOARD VIDE ANOTHER RESOLUTION DATED 31.1.2001 HAD DE CIDED TO ENGAGE ADVERTISING AGENCIES AND TO CAPITALIZE THE EXPENDITURE SO AS TO CLAIM DEPRECIATION ON INTANGIBLE ASSET. THIS EXPENDITURE HAD BEEN INCURRED DURING THE FINANCIAL YEARS 2000-01 TO 200-03. IT WAS P OINTED OUT THAT THE BRAND NAME WAS ALSO REGISTERED W.E.F. 28.4.2003. I T WAS ARGUED THAT DEPRECIATION ON INTANGIBLE ASSETS LIKE TRADE MARK , BRAND WAS AVAILABLE IF ACQUIRED AND PUT TO USE AFTER 1.4.1998. IT WAS NOT NECESSARY THAT THE BRAND SHOULD BE ACQUIRED BY WAY OF PU RCHASES ONLY. EVEN THE BRAND DEVELOPED IN-HOUSE HAS TO BE CONSIDERED FOR DEPRECIATION. THE CIT(A) WAS SATISFIED BY THE EXPLANATI ON GIVEN AND OBSERVED THAT THE ASSESSEE WAS ELIGIBLE FOR DEPRECIATION. ACCORDINGLY ITA NO.5740/M/09 A.Y. 03-04 4 HE DIRECTED THE AO TO ALLOW DEPRECIATION AGGRIEVED BY WHICH THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 3. BEFORE US, THE LD. DR APPEARING FOR THE REVENUE A SSAILED THE ORDER OF CIT(A). IT WAS ARGUED THAT THE EXPENDITURE HAD NOT BEEN INCURRED FOR ACQUISITION OF A CAPITAL ASSET. IT WAS BASICAL LY ADVERTISEMENT EXPENDITURE INCURRED SINCE THE LAST TWO Y EARS WHICH COULD HAVE BEEN CLAIMED AS REVENUE EXPENDITURE IN THE RESPECTIVE YEARS. THE PRIOR PERIOD EXPENSES COULD NOT BE ALLOWED IN THIS YEAR. RELIANCE FOR THIS PROPOSITION WAS PLACED ON THE JUDGMENT OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF MADRAS FERTILIZE R LTD. (209 ITR 174) AND ON THE DECISION OF THE TRIBUNAL IN THE CA SE OF IMP POWER LTD. (9 SOT 156). IT WAS FURTHER SUBMITTED THAT EVEN IF THE TRADE MARK WAS CONSIDERED AS AN INTANGIBLE ASSET, THE SAME HAD BEEN R EGISTERED BY THE REGISTERING AUTHORITIES ONLY W.E.F. 28.4.2003 AND, THEREFORE, THE ASSET IF ANY CAME INTO EXISTENCE ONLY IN THE NEXT YEAR A ND NOT THIS YEAR. IT WAS THUS ARGUED THAT THE CLAIM OF DEPRECIATIO N COULD NOT BE ALLOWED EVEN ON THIS GROUND. 3.1 THE LD. AR ON THE OTHER HAND, ARGUED THAT THE A SSESSEE HAD INCURRED EXPENDITURE WHICH WAS DULY APPROVED BY BOARD RESOLUTION FOR CREATION OF THE BRAND NAME OVER A PERIOD OF THREE YE ARS. THE EXPENDITURE HAD RESULTED INTO CREATION OF AN ASSET OF ENDURING NATURE, ITA NO.5740/M/09 A.Y. 03-04 5 WHICH WAS REGISTERED AS A TRADE MARK BY THE REGISTRAR OF TRADE MARK W.E.F. 28.4.2003. IT COULD NOT THEREFORE, BE SAID TH AT EXPENDITURE HAD NOT RESULTED INTO CREATION OF ANY INTANGIBLE ASSET. IT WAS ALSO ARGUED THAT THE REGISTRATION ONLY ABSOLVED THE ASSESSEE FROM OBL IGATION TO PROVE OWNERSHIP OF TRADE MARK AS HELD BY THE HONBLE S UPREME COURT IN THE CASE OF CIT VS. FINLAY MILLS LTD. (20 ITR 475). IT HOWEVER DID NOT MEAN THAT THE ASSESSEE BECAME OWNER ONLY FROM 28.4.2 003. IT WAS POINTED OUT THAT THE ASSESSEE BECAME OWNER OF THE BRA ND NAME IN THE ASSESSMENT YEAR 2003-04 IN WHICH PROCESS OF DEVELOPMENT OF BRAND WAS COMPLETE. SINCE IN THE PROCESS OF DEVELOPMENT, THE BRAND NAME WAS WIDELY PUBLICIZED, THE SAME WAS DEFINITELY USED FOR THE PURPOSE OF BUSINESS AND DEPRECIATION WAS THEREFORE, ALLO WABLE. THE LD. A.R ALSO ARGUED THAT FOR OWNERSHIP OF AN ASSET, IT WAS NOT NECESSARY THAT THE SAME SHOULD BE REGISTERED IN THE NAME OF THE ASSESSEE. RELIANCE FOR THIS PROPOSITION WAS PLACED ON THE J UDGMENT OF HONBLE SUPREME COURT IN THE CASE OF MYSORE MINERALS LTD . (239 ITR 775) IN WHICH IT WAS HELD THAT IN CASE THE ASSESSEE HAD PAI D PART OF THE PRICE AND TAKEN POSSESSION OF THE HOUSE WHICH WAS USED F OR THE PURPOSE OF BUSINESS, DEPRECIATION COULD NOT BE DISALLOWED ONLY ON THE GROUND THAT THE BUILDING WAS NOT REGISTERED IN THE NA ME OF THE ASSESSEE. REFERENCE WAS ALSO MADE TO THE JUDGMENT OF HON BLE HIGH COURT OF BOMBAY IN THE CASE OF CIT VS. MIRZA ATAULLAHA BAIGAND ANR. ITA NO.5740/M/09 A.Y. 03-04 6 (202 ITR 291) IN WHICH IT WAS HELD THAT DEPRECIATION ON VEHICLE WAS ALLOWABLE EVEN IF THE SAME WAS NOT RECORDED IN THE NAM E OF THE ASSESSEE UNDER MOTOR VEHICLES ACT. THE LD. AR ALSO POINTED OUT THAT DEPRECIATION HAD BEEN ALLOWED BY THE AO IN RESPECT OF THE SAME ASSETS IN 2007-08. 4. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING ALLOWA BILITY OF DEPRECIATION IN RESPECT OF BRAND NAME / TRADE MARK G RL INTERNATIONAL DEVELOPED BY THE ASSESSEE. THE ASSESSEE IN PURSUANCE OF BOARD RESOLUTION HAD INCURRED AN EXPENDITURE OF RS. 3,51,61,308/- DURING THE FINANCIAL YEARS 2000-01 TO 2002-03 FOR DEV ELOPMENT OF BRAND NAME GRL INTERNATIONAL. THE ASSESSEE IN ASSESSMENT YEAR 2003-04 CLAIMED DEPRECIATION @ 50% OF NORMAL DEPRECIAT ION OF 25% ALLOWABLE IN RESPECT OF INTANGIBLE ASSETS AS DEVELOPMENT OF THE BRAND NAME BECAME COMPLETE ONLY IN THE LATER HALF OF THE Y EAR. THE DEPRECIATION CLAIMED WAS AT RS.43,95,664/-. THE CLAIM O F DEPRECIATION HAD BEEN DISALLOWED BY THE AO ON THE GROUND THAT THE RE WAS NO ACQUISITION OF INTANGIBLE ASSET. THE ASSESSEE HAD INCURRE D ONLY CERTAIN PUBLICITY / ADVERTISING EXPENSES WHICH COULD HAVE BEEN CLAIMED AS REVENUE EXPENDITURE IN THE RELEVANT YEARS. CIT(A) HAS HOWEVER ACCEPTED THE CLAIM OF THE ASSESSEE THAT IT HAD ACQUIRED BR AND NAME / TRADE MARK BY INCURRING EXPENDITURE OVER A PERIOD OF TIME WHICH HAS ITA NO.5740/M/09 A.Y. 03-04 7 BEEN DULY CAPITALIZED AND BRAND NAME HAS ALSO BEEN RE GISTERED W.E.F. 28.4.2003. 4.1 ON CAREFUL CONSIDERATION OF THE VARIOUS ASPECTS OF TH E CASE, WE SEE NO INFIRMITY IN THE ORDER OF CIT(A). THERE IS N O DISPUTE THAT THE BUSINESS OF THE ASSESSEE WAS ALREADY IN EXISTENCE DURING THE COURSE OF WHICH ASSESSEE HAD INCURRED EXPENDITURE FOR DEVELOPMENT O F BRAND NAME. SUCH EXPENDITURE HAD DEFINITELY RESULTED INTO CREATION OF AN ASSET OF ENDURING NATURE. HOWEVER EACH AND EVERY EXPEN DITURE GIVING AN ENDURING BENEFIT WHICH DOES NOT RESULT INTO AUGMENT ATION OF PROFIT EARNING OPERATIONS COULD NOT BE CONSIDERED AS CAPITAL EXP ENDITURE AND SUCH EXPENDITURE, THEREFORE, ORDINARILY ARE ALLOWABLE AS REVENUE EXPENDITURE IN VIEW OF THE JUDGMENT OF HONBLE SUPRE ME COURT IN THE CASE OF EMPIRE JUTE CO. LTD. VS. CIT (124 ITR 1). HOWE VER, THIS POSITION UNDERWENT A CHANGE BY INSERTION OF CLAUSE (II) TO SECTION 32(1) BY FINANCE ACT OF 1998 AS PER WHICH CERTAIN INTANGIBLE ASSETS SUCH AS KNOW-HOW, PATENTS, TRADE-MARK ETC. HAVE BEEN MADE EN TITLED FOR DEPRECIATION IF ACQUIRED ON OR AFTER 1.4.1998. THE ACQ UISITION OF SUCH ASSETS NEED NOT NECESSARILY BE BY WAY OF PURCHASE. IN CASE A SSESSEE DEVELOPS A BRAND NAME IN HOUSE ON WHICH DEFINITE AND I DENTIFIABLE EXPENDITURE HAD BEEN INCURRED AND CAPITALIZED, THIS AM OUNT WOULD BE ELIGIBLE FOR DEPRECIATION APPLICABLE IN CASE OF INTANGI BLE ASSETS. THE ITA NO.5740/M/09 A.Y. 03-04 8 ASSESSEE HAD INCURRED SUBSTANTIAL EXPENDITURE ON DEVELOPME NT OF BRAND NAME OVER A PERIOD OF TIME WHICH HAD BEEN CAPIT ALIZED. THE BRAND NAME DEVELOPED BY THE ASSESSEE HAD ALSO BEEN REGIST ERED AS TRADE MARK W.E.F. 28.04.2003 WHICH MEANS THAT IT HAD BEEN RECOGNIZED AS INTANGIBLE ASSET BY THE REGISTRAR OF TRADE MARK. THOUGH TRADE MARK WAS REGISTERED FROM 28.4.2003, THE ASSESSEE BE CAME OWNER OF THE BRAND NAME AS SOON AS THE EXERCISE BECAME COM PLETE WHICH WAS IN THE SECOND HALF OF THE FINANCIAL YEAR 2002 -03 AS THE ENTIRE EXPENDITURE HAD BEEN INCURRED BEFORE 31.3.200 3. THE REGISTRATION AS HELD BY HON'BLE SUPREME COURT IN CASE OF FINLAY MILLS(SUPRA) MERELY ABSOLVES THE ASSESSEE FROM OBLIGAT ION TO PROVE THE OWNERSHIP AND REGISTRATION DATE, THEREFORE, CANNOT BE CONSIDERED AS DATE FROM WHICH THE ASSESSEE BECAME OWNER. IN THIS CASE A S MENTIONED EARLIER ASSESSEE HAD ACQUIRED BRAND NAME IN TH E FINANCIAL YEAR 2002-03 AND SINCE THE EXERCISE WAS COMPLETED IN THE LATER HALF OF THE YEAR, DEPRECIATION ON THE ENTIRE AMOUNT WHICH WAS CAPITALIZED HAS TO BE ALLOWED @ 50% OF NORMAL DEPRECIATION OF 25% A PPLICABLE IN CASE OF INTANGIBLE ASSET. IT MAY ALSO BE NOTED THAT THE AO IN ASSESSMENT YEAR 2007-08, HAS HIMSELF ALLOWED DEPRECIATION AND THUS ALLOWABILITY OF DEPRECIATION HAS BEEN ACCEPTED BY THE DEPARTMENT. T HE ASSESSEE IN THE PRESENT YEAR IN WHICH BRAND NAME WAS CREATED HAS CLAI MED DEPRECIATION ONLY @50% ON NORMAL DEPRECIATION WHICH IN OUR VIEW IS ITA NO.5740/M/09 A.Y. 03-04 9 ALLOWABLE. WE, THEREFORE, SEE NO INFIRMITY IN THE O RDER OF CIT(A) IN ALLOWING THE CLAIM AND, SAME IS THEREFORE, UPHELD. 5. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 14.12.2012. SD/- SD/- (AMIT SHUKLA) JUDICIAL MEMBER (RAJENDRA SINGH) ACCOUNTANT MEMBER MUMBAI, DATED: 14.12. 2012. JV. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.