Recently in Deputy Commissioner of Income Tax vs. Pan India Food Solutions (P) Ltd., it was held that the legal expenses incurred to acquire a brand which was in existing line of business shall be treated as revenue expense.

Facts of the case:

The assessee was in the business of running a chain of restaurants and food joints. While assessment proceedings, the Assessing Officer noticed that out of total amount of expenditure debited on account of legal and professional fees a sum was shown to be incurred on consultation fees paid to ‘JS’ Associates. Further it was found that the assessee had acquired a “brand” from Blue Foods which was capitalised in the books of account and on which depreciation was claimed in the block “trademarks and patents”. The fees paid to ‘JS’ Associates, advocates and solicitors was on account of rendering legal and professional services to the assessee in connection with acquisition of Blue Foods. The AO was of view that since the assessee had capitalised acquisition of Blue Foods, the said professional fees shall also be capitalized. Thus, AO after granting benefit of depreciation at the rate of 12.5 per cent, the balance amount was disallowed on account of the same being capital expenses and added the same to the total income of the assessee.

On this, the assessee appealed to the Commissioner (Appeals). It was observed that the expenditure was in relation to obtain feasibility report connected with the acquisition of the brand. The Commissioner (Appeals) had allowed the claim of the assessee on the basis that the expenses incurred in investigation, research and feasibility studies were only revenue expenditure and not capital.

The Revenue aggrieved by the aforesaid decision and thus, appealed to the Tribunal.

It was held that

The Tribunal observed that the assessee is in the line of chain of restaurants and food joints. The expenses incurred on the feasibility report are the legal expenses to ensure the proper acquisition of the “brand”. This is in the nature of consultancy. The acquisition relating to “brand” of Blue Foods P. Ltd. is also with respect to a food chain. Thus, the brand acquired was in the existing line of its business. In a case, Delhi High Court held that the consultancy expese incurred shall be treated as the revenue expense. The Tribunal upheld that the decision of the Commissioner (Appeals). Thus, the expenditure incurred for the consultancy in regard to acquisition of a brand shall be treated as revenue expense.

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