A) ABSTRACT / HEADNOTE
The case Commissioner of Income Tax, Bombay v. Finlay Mills Ltd. adjudicates the nature of expenditure incurred by an assessee-company on the registration of its trademarks under the Indian Trade Marks Act, 1940, and whether such expenditure qualifies as revenue expenditure deductible under Section 10(2)(xv) of the Indian Income Tax Act, 1922. The respondent, a textile manufacturing company, sought to deduct registration expenses as revenue expenditure for the assessment years 1943–44 and 1944–45. The Revenue contended that the registration created an enduring advantage and thus amounted to capital expenditure.
The Supreme Court, affirming the Bombay High Court’s judgment, held that such expenditure was indeed revenue in nature, as registration merely facilitated enforcement and recognition of pre-existing rights without creating a new asset. It did not result in the acquisition of a fresh capital asset nor add any new value to the trademark. Rather, the registration merely provided procedural convenience in proving ownership and protecting existing commercial symbols.
The case establishes a significant precedent in the distinction between capital and revenue expenditure, particularly in the context of intellectual property rights. It draws upon principles from English law, including decisions in British Insulated and Helsby Cables Ltd. v. Atherton and Southern v. Borax Consolidated Ltd., while approving the Bombay High Court’s earlier ruling in Commissioner of Income-tax v. Century Spinning and Weaving Co. Ltd. [1947] 15 ITR 105. The Court concluded that registration expenses are deductible as revenue expenditure under Section 10(2)(xv).
Keywords: Revenue Expenditure, Capital Expenditure, Trademark Registration, Section 10(2)(xv), Indian Income Tax Act, Intellectual Property, Tax Deduction, Enduring Benefit, Commercial Asset, Trademark Law.
B) CASE DETAILS
i) Judgement Cause Title
Commissioner of Income Tax, Bombay v. Finlay Mills Ltd.
ii) Case Number
Civil Appeal No. 103 of 1950
iii) Judgement Date
October 1, 1951
iv) Court
Supreme Court of India
v) Quorum
Harilal Kania C.J., Mehr Chand Mahajan J., Chandrasekhara Aiyar J.
vi) Author
Chief Justice Harilal J. Kania
vii) Citation
[1952] SCR 12; [1951] AIR 1951 SC 264; [1951] 20 ITR 475 (SC)
viii) Legal Provisions Involved
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Section 10(2)(xv) of the Indian Income-tax Act, 1922
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Sections 14, 20, 21, 28, and 29 of the Indian Trade Marks Act, 1940
ix) Judgments Overruled by the Case (if any)
None explicitly overruled
x) Case is Related to which Law Subjects
Taxation Law, Intellectual Property Law, Corporate Law, Commercial Law
C) INTRODUCTION AND BACKGROUND OF JUDGEMENT
The dispute originated from the classification of an expense made by the Finlay Mills Ltd., a textile manufacturing company. It had registered its trademarks—used for marketing textile goods—for the first time under the Indian Trade Marks Act, 1940. The expenditure for this registration was claimed as a revenue expense under Section 10(2)(xv) of the Indian Income Tax Act, 1922, which permits deductions for expenses incurred wholly and exclusively for business purposes.
The Income Tax Officer disallowed this deduction, categorizing the registration cost as capital expenditure—as it allegedly conferred an enduring benefit to the company. The Appellate Tribunal, however, allowed the claim based on the earlier Bombay High Court decision in Commissioner of Income-tax v. The Century Spinning and Weaving Co. Ltd. [1947] 15 ITR 105. Dissatisfied, the Commissioner of Income Tax referred the question to the High Court. The High Court affirmed the Tribunal’s view, leading to the present appeal before the Supreme Court.
This case raised a core question on the interpretation of revenue versus capital expenditure—a long-standing controversy in tax jurisprudence.
D) FACTS OF THE CASE
The respondent, Finlay Mills Ltd., is a textile manufacturing company that engages in the production and sale of textile goods. During the accounting years 1941 to 1943, the company spent money on registering its trademarks for the first time under the Indian Trade Marks Act, 1940. These trademarks were not in use prior to 25th February 1937, making their registration imperative to enjoy protection and recognition under the Act.
The company claimed these registration expenses as revenue expenditure deductible under Section 10(2)(xv) of the Indian Income Tax Act, 1922. The Income Tax Department disallowed this deduction, reasoning that registration conferred a capital advantage—it gave the trademark legal recognition and certain rights under the Act, such as assignability and presumptive ownership.
The Tribunal allowed the deduction, relying on the Bombay High Court ruling in Century Spinning and Weaving Co. The Commissioner then took the matter to the Bombay High Court, which agreed with the Tribunal. Unwilling to accept this view, the Commissioner of Income Tax, Bombay, appealed to the Supreme Court for a final determination.
E) LEGAL ISSUES RAISED
i) Whether the expenditure incurred by the assessee company in registering trademarks not previously in use is revenue expenditure or capital expenditure under Section 10(2)(xv) of the Indian Income-tax Act, 1922?
F) PETITIONER/ APPELLANT’S ARGUMENTS
i) The counsels for the Petitioner submitted that the registration of trademarks under the 1940 Act conferred a long-term advantage, which made the expenditure capital in nature. They relied on the test laid down in British Insulated and Helsby Cables Ltd. v. Atherton ([1926] AC 205), where Lord Cave LC held that expenditure resulting in the creation of an asset or enduring benefit should be classified as capital expenditure[1].
They contended that by virtue of Section 21 of the Trade Marks Act, the registered trademark acquired legal enforceability, and under Sections 28 and 29, it became assignable independently of goodwill—a feature absent under the common law. Hence, registration altered the character of the trademark, and the expense resulted in a new commercial asset.
The Attorney-General also invoked Henriksen v. Grafton Hotel Ltd. ([1942] 2 KB 184), where expenses incurred in acquiring or renewing licenses were held to be capital expenses due to the monopoly-like advantage conferred.
G) RESPONDENT’S ARGUMENTS
i) The counsels for the Respondent argued that registration of a trademark did not create a new asset but only enhanced enforceability. The underlying goodwill already existed. Registration merely provided procedural convenience by shifting the burden of proof in legal proceedings and granting evidentiary presumption of ownership.
They stressed that this was not a once-and-for-all expenditure conferring any permanent structural change to the company’s capital framework. The benefit of registration was not permanent but lasted only seven years, subject to renewal. Thus, it lacked the enduring character essential to qualify as capital expenditure.
They also cited Commissioner of Income-tax, Bombay v. Century Spinning and Weaving Co. Ltd. ([1947] 15 ITR 105), where the Bombay High Court had held similar registration expenses to be revenue in nature.
H) RELATED LEGAL PROVISIONS
i) Section 10(2)(xv), Indian Income-tax Act, 1922
Permits deduction of “any expenditure (not being in the nature of capital expenditure)” incurred wholly and exclusively for the purposes of the business.
ii) Indian Trade Marks Act, 1940:
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Section 14: Enables registration of a trademark by its proprietor.
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Section 21: Effects of registration—provides statutory presumption of ownership.
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Sections 28 & 29: Makes the trademark assignable independently of the goodwill.
I) JUDGEMENT
a. RATIO DECIDENDI
i) The Supreme Court ruled that the registration of trademarks did not create any new capital asset or enhance the value of an existing asset. The registration served only to simplify enforcement of an existing right. Thus, registration expenses are revenue expenditure, deductible under Section 10(2)(xv)[2].
The Court clarified that the “enduring benefit” test must be interpreted in the context of whether a new asset is created. If not, then the expense, even if benefiting future operations, can remain revenue in nature. Registration merely confirmed and simplified an existing right.
b. OBITER DICTA
i) The Court observed that expenses such as defending title to a property or procedural enhancements do not alter the asset’s nature and therefore do not qualify as capital expenditure. The Court emphasized that even assignability of a trademark post-registration did not transform it into a capital asset—it was an incidental feature, not central to its value.
c. GUIDELINES
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Registration of pre-existing rights does not constitute capital asset creation.
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Expenditure must be judged by whether it creates or enhances an asset.
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Mere procedural or legal facilitation of business rights is revenue in nature.
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Duration of advantage is not the sole test—context matters.
J) CONCLUSION & COMMENTS
This case plays a pivotal role in Indian tax jurisprudence by refining the line between capital and revenue expenditure. It adopts a functional approach—looking at the purpose and effect of the expenditure rather than its form. The judgment promotes commercial pragmatism, recognizing that modern businesses frequently incur legal and registration expenses that, while beneficial, do not necessarily alter their capital structure.
K) REFERENCES
a. Important Cases Referred
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Commissioner of Income-tax, Bombay v. The Century Spinning and Weaving and Manufacturing Co. Ltd. [1947] 15 ITR 105.
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British Insulated and Helsby Cables Ltd. v. Atherton [1926] AC 205.
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Southern v. Borax Consolidated Ltd. [1942] 10 ITR Supp. 1.
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Henriksen v. Grafton Hotel Ltd. [1942] 2 KB 184.
b. Important Statutes Referred
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Indian Income-tax Act, 1922, Section 10(2)(xv)
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Indian Trade Marks Act, 1940, Sections 14, 20, 21, 28, 29
