The two-member bench of Suchitra Kamble (judicial member) and BM Biyani (accounting member) ruled that the amendment to Section 32 of the Income Tax Act of AY 1999-2000 which allows depreciation of various intangible assets (including trademarks) is applicable only when the cost incurred for a trademark is in the nature of a capital expenditure.

The Respondent/Assessed is a limited liability company. The assessee filed a return on 26.09.2010, declaring a total income of Rs. 5,14,90,540. The case was selected after review and statutory opinions were issued. Finally, the AO made an assessment under Section 143(3) at full income after making various denials and additions.

During the assessment procedure, the AO observed that the assessee incurred an expense of Rs. 7,96,041 on trademark registration of his products in different countries and claimed it as a deduction. The AO denied the deduction on three counts. First, the expenditure confers on the valued lasting rights and, therefore, it is a capital expenditure. Second, the decision in Finlay Mills was made before the amendment to section 32 of the 1999-2000 Act by which Parliament began to allow the deprecation of trade marks. Thirdly, most of the expenses included in the sum of Rs. 7,96,041 relate to prior years and not the current year under consideration.

During the appeal process, the CIT(A) acknowledged that the expenses were incurred for the registration of various marks in various foreign countries solely to protect the business interests of the assessee and not for the acquisition of a trademark. The CIT(A) ruled that the amendment to Article 32 of YY 1999-2000 contemplated a case where the mark is acquired for a price and not a case where the assessee simply took the registration of his own brands. CIT(A) removed AO’s disavowal. The CIT(A), however, did not comment on AO’s finding that most of the expenses included in the sum of Rs. 7,96,041 related to previous years.

The ITAT has held that the expenses incurred by the assessee for the registration of the trademark are revenue expenses and therefore deductible. However, ITAT observed that a sum of Rs. 6,46,200 does not relate to the year under consideration. Therefore, ITAT upheld the rejection to the extent of Rs. 6,46,200.

Case title: Add. CIT v M/s Precision Bearing Pvt. ltd.

Reference: ITA n° 1048/Ahd/2015 with CO n° 109/Ahd/2015

Dated: 29.06.2022

Counsel for the Appellant: Sr. DR SS Shukla/ CIT-DR Vijay Kumar Jaiswal

Counsel for the Respondent: AR SR Shah

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