In a significant ruling in favour of United Breweries, the Bangalore bench of the Income Tax Appellate Tribunal ( ITAT ) has held that advertisement expenses for brand promotion are revenue in nature and are allowable as deduction.
The assessee is engaged in the business of manufacturing and sale of beer under different brands like “Kingfisher” and “UB”. The return of income was filed on 30.11.2012 declaring total income at `Nil’ under the regular provisions of the Income Tax Act and book profit of Rs.245,93,47,150 u/s 115JB of the Income Tax Act.
The return was subsequently revised on 07.02.2014 and the total income of Rs.132,92,94,900 was declared after the set off of losses of Rs.84,49,20,104.The assessment was completed u/s 143(3) r.w.s. 92CA of the Income Tax Act vide order dated 31.03.2016 with certain disallowances/additions to the returned income of the assessee
The A.O. also made an addition of Rs.140.49 crore and treated the amount transferred to UBL Trust to the assessee as “long-term capital gain” and assessed the same to tax. The A.O. raised the demand of Rs.80,38,85,646 (including interest) in the said assessment order. The CIT(A) vide the impugned order dated 20.12.2017 partly allowed the appeal.
The assessee had entered into a brand promotion agreement dated 04.02.2011 with Force India Formula One Team Limited, a company registered in England (“Force India”). The assessee made a payment of Rs.13,76,00,000 to Force India in the form of advertisement expense to make the assessee’s logo and brand name more visible in the international market and claimed the same as business expenditure under section 37(1) of the Act.
The AO held that ‘brand’ being an intangible asset, any expense incurred towards the development of a brand or brand promotion leads to an enduring benefit and should be capitalized. The AOdisallowed an amount of Rs.13,76,00,000 and added the same to the returned income of the assessee. The CIT(A) upheld the addition made by the AO in the assessment order treating the brand promotion expense as capital in nature.
It was contended that payment of advertisement expenses to Force India isa brand promotion expenditure which isrevenue in nature and allowable as an expenditure.
It was observed that in the case of United Spirits Limited, the Tribunal held that “merely because the advantage may endure for an indefinite future would not mean that the expenditure would be on capital account and not revenue.”
In light of the Order of the Tribunal in the case of United Spirits Limited (supra), a Coram comprising of Shri George George K, JM & Ms Padmavathy S, AM allowed the deduction in respect of brand promotion expenses.
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