Brand expenses are revenue expenses

By | July 27, 2015

Question :Whether the brand registration expenses and other expenses upon development of brand incurred by assessee are in the nature of revenue expenditure ?

Held  :Yes, Brand expenses  are revenue expenses and can be debited in profit and loss account and reduced from the income.

Brand Expenses are revenue expenses

Brand Expenses

M/s Seagram Distilleries Pvt. Ltd. Vs. Jt. Commissioner of Income Tax, I.T.A. No. 4278/Del/2010, Date of Order: 10.07.2015, ITAT – Delhi

In the profit and account, the appellant debited an amount of Rs. 30,18,52,870/- under the head advertising, sales promotions and rebates. Out of the same the appellant had shown expenses of Rs. 10,16,10,577/- as brand expenses. The appellant explained that these expenses were incurred for advertising, sales promotion, cost and distribution etc. The Assessing Officer held that the brand expenses were incurred for enhancing the image of the brand and as such it was resulting in an enduring benefit. Therefore, he disallowed the same holding to be capital expenditure. The issue whether the advertisement expenditure is revenue or capital is adjudicated by the Hon’ble Jurisdictional High Court in the case of CIT Vs. Monto Motors, 206 TAXMAN 43 (Del.) vide para 4, wherein

  • “Advertisement expenses when incurred to increase sales of products are usually treated as a revenue expenditure, since the memory of purchasers or customers is short. Advertisements are issued from time to time and the expenditure is incurred periodically, so that the customers remain attracted and do not forget the product and its qualities. The advertisements published/displayed may not be of relevance or significance after lapse of time in a highly competitive market, wherein the products of different companies compete and are available in abundance. Advertisements and sales promotion are conducted to increase sale and their impact is limited and felt for a short duration. No permanent character or advantage is achieved and is palpable, unless special or specific factors are brought on record. Expenses for advertising consumer products generally are a part of the process of profit earning and not in the nature of capital outlay. The expenses in the present case were not incurred once and for all, but were a periodical expenses which had to be incurred continuously in view of the nature of the business. It was an ongoing expense. Given the factual matrix, it is difficult to hold that the expenses were incurred for setting the profit earning machinery in motion or not for earning profits.”

Following the above ratio laid down by the Hon’ble Jurisdictional High Court, we allow this ground of appeal filed by the assessee.

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