Case: The Commissioner of Income Vs. M/S. Geoffrey Manners & Company Limited

Oral Judgment: F.I. Rebello, J.These Appeals are in respect of assessment years 2001-2002 and 1996-97. The common question of law which would arise in both these Appeals reads as under:-"Whether on the facts and circumstances of the case and in law the Honble Tribunal was right in deleting the disallowance made by the Assessing Officer for the expenses incurred by the assessee for promotion films, slides, advertisement films and treating the same as capital expenditure The principal contention based on which the Revenue has preferred this appeal is that the Tribunal while passing the judgment ignored the ratio of the judgment of this Court in Commissioner of Income Tax Vs. Patel International Films Ltd., 102 ITR 219 . 2. The Respondent assessee has incurred expenditure on film production by way of advertisement for the marketing of products manufactured by them. It was their submission that these expenses are purely of revenue nature and they derive no enduring benefit to the company. They only will help the company to make the customer aware of the existence of its products, including improvement, if any, in the market which may or may not result in sales. The Assessment Officer disallowed the expenditure by holding that it is capital in nature. In Appeal preferred by the Assessee before the C.I.T. (A), the C.I.T. (A) was pleased to hold that considering that these are films in the form of advertisement whose life term cannot be ascertained they could not be held as capital expenditure even if resulted in benefit for more than one accounting year. Revenue being aggrieved preferred an Appeal before the Tribunal. The Tribunal relied on its own judgment in the case of Deputy Commissioner of Income Tax vs. Metro Shoes P. Ltd., 268 ITR 106 (AT). In that case the Tribunal in respect of advertisement film was pleased to hold that no capital or right or benefit of enduring nature had been created or acquired by the assessee by production of the advertisement film. The Tribunal noted that the assessee to keep mass interest in its products has to continuously strive to keep on advertising its products in ever increasingly novel ways and methods, through the media and as such the expenditure incurred on the production of the advertisement film was in the nature of revenue expenditure.3. The only ground based on which the Revenue has approached this Court is as pointed out earlier that the Tribunal ignored the ratio of the judgment in Patel International Films Ltd. We may point out, that on facts there the assessee company was in the business of processing and printing movie films in a processing and printing laboratory purchased by them. It subsequently purchased a film processor in the laboratory to serve as a model for exhibition to induce confidence in its customers by way of advertisement and claimed the amount spent on the purchase as business expenditure. After considering the facts a learned Bench of this Court noted as under:-"In other words, the asset that was acquired by the assessee-company was a capital asset to be used for the purpose of advertisement of the business that the assessee-company was going to carry on in future and, therefore, the expenditure will have to be regarded as a capital expenditure and not revenue expenditure." It would, thus be clear that the machinery purchased was not in respect of an on going business of the assessee, but in respect of the business which was going to be carried out in the future.In the instant case as the facts bear out, the advertisement was in respect of an ongong business of the assessee herein.4. A similar issue had come up for consideration before the Division Bench of the High Court of Punjab & Haryana in Commissioner of Income Tax vs. Liberty Group Marketing Division, 2008 (8) DTR Judgments, 28. In that case the assessee had claimed expenditure incurred on glow sign boards as also T.V. Films. The expenditure was held to be revenue in nature.5. In our opinion the correct test to be applied in such a case would be, that if the expenditure is in respect of an ongoing business of the assessee and there is no enduring benefit it can be treated as revenue expenditure. If, however, and if it is in respect of business which is yet to commence then the same cannot be treated as revenue expenditure as expenditure is on a product yet to be marketed. Considering the above, in our opinion the judgment in Patel International Films Ltd. (supra) is clearly distinguishable. The C.I.T. (A) and the Tribunal on the facts of this case were clearly within their jurisdiction in holding that the expenditure was by way of revenue expenditure as it was in respect of promoting ongoing products of the assessee herein.

Decision reasoning: 0[ds]It would, thus be clear that the machinery purchased was not in respect of an on going business of the assessee, but in respect of the business which was going to be carried out in the future.In the instant case as the facts bear out, the advertisement was in respect of an ongong business of the assessee herein.4. A similar issue had come up for consideration before the Division Bench of the High Court of PunjabHaryana in Commissioner of Income Tax vs. Liberty Group Marketing Division, 2008 (8) DTR Judgments, 28. In that case the assessee had claimed expenditure incurred on glow sign boards as also T.V. Films. The expenditure was held to be revenue in nature.5. In our opinion the correct test to be applied in such a case would be, that if the expenditure is in respect of an ongoing business of the assessee and there is no enduring benefit it can be treated as revenue expenditure. If, however, and if it is in respect of business which is yet to commence then the same cannot be treated as revenue expenditure as expenditure is on a product yet to be marketed. Considering the above, in our opinion the judgment in Patel International Films Ltd. (supra) is clearly distinguishable. The C.I.T. (A) and the Tribunal on the facts of this case were clearly within their jurisdiction in holding that the expenditure was by way of revenue expenditure as it was in respect of promoting ongoing products of the assessee herein.