By TIOL News Service

MUMBAI, OCT 11, 2018: THE ISSUE IS - Whether legal and professional charges paid for registration with the European Regulatory Authority which enables the marketing of products in Europe, is an expense of Revenue nature. YES IS THE VERDICT.

Facts of the case

The assessee company, engaged in the business of reclaiming of rubber from waste rubber punch and split products, had filed its return of income for the relevant AY. In order to market its products in the European Countries, the assessee company had to get itself registered with the Registration, Evaluation, Authorisation and Restrictions of Chemicals (Reach) which was the European Regulatory Authority. After getting the registration, the assessee would be entitled to Export product in the European Countries. For the registration purpose, the assessee paid the aggregate sum of Rs.1,08,69,332/- for the registration with the Reach. Thereafter, the assessee paid the renewal charges in subsequent years, the assessee took the help of M/s. Intertek India Pvt. Ltd. for registration and paid a sum of Rs.14,74,991/- being professional charges. The assessee claimed these expenses paid to Reach as revenue in nature. During assessment AO disallowed these legal and professional charges u/s 40(a)(i) of the Act. On appeal, CIT(A) partly allowed the claim of the assessee but the assessee was not satisfied and filed further appeal before Tribunal.

On appeal, Tribunal held that,

++ nature of expenses are not in dispute. However, it is required to be seen whether the same is in nature of revenue or capital in nature. The similar issue has come up before the ITAT in the case of ITA. No.241/Ahd/2008. The finding of this case was that "these are the expenses incurred for obtaining registrations in foreign country for the product which the assessee-company proposes to market in overseas market and without registration of the products, the assessee-company would not be able to market the products in the overseas market. The exports over the years have increased from Rs 26 crores in financial year 1998-99 to Rs.160 crores in financial year 2005-06 - an increase of more than 600%. Accordingly, these expenses are rightly allowed by the CIT(A) and we confirm the same. This issue of Revenue's appeal is dismissed";

++ Mumbai ITAT in the case of USV Ltd. Vs. DCIT, also decided such type of issue and the relevant finding were that "in the absence of such registration, the assessee may not be able to sell its products without hindrance. Such expenditure has been incurred by the assessee for the purpose of its business which is to be allowed as revenue expenditure.";

++ in the instant case, the assessee has also incurred similar type of expenses for marketing his product in European Countries after getting the certification from Reach and after making the necessary payment to the association as well as making the payment to the firm who assisted in the registration. Both the expenses are correlated with each other. These expenses are revenue in nature.

(See 2018-TIOL-1784-ITAT-MUM)