AMP expenses allowable as revenue instead of being amortised under section 35D of the Income-tax Act, 1961 – Mumbai bench of the Tribunal

In brief

In a recent ruling1 of the Mumbai bench of the Income-tax Appellate Tribunal (Tribunal), it was concluded that the advertisement, marketing and promotion (AMP) expenses are allowable as revenue expenditure in the year of incurrence instead of being amortised and claimed over five years as per section 35D of the Income-tax Act, 1961 (the Act). 

The taxpayer acquired an already operational streaming and gaming platform, and during the relevant year, incurred AMP expenses to promote and expand the platform, and enhance user engagement. The taxpayer claimed such expenditure as a revenue expenditure, which was contested by the Revenue as capital in nature, arguing that it entails an enduring benefit. The Tribunal affirmed the taxpayer’s position and concluded the expenditure to be revenue in nature and not subject to amortisation under section 35D of the Act. It observed that the enduring benefit test is not conclusive where any expenditure facilitates efficient business operations without creating a capital asset.

The Tribunal also upheld the deletion of a disallowance for not deducting tax at source (TDS) in respect of subscription-based payments to foreign software-as-a-service (SaaS) and cloud service providers, following the Supreme Court decision in the case of Engineering Analysis Centre of Excellence Pvt. Ltd.2 , to conclude that such payments were not taxable as royalty in India.