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2018 (2) TMI 1654 - HC - Income TaxAddition made of royalty paid for the use of the brand name ‘phoneytune.com' to one Tarun Mohan, a director of the assessee - whether Tribunal is not perverse in holding that the transaction was not a colorable devise to reduce the tax liability of the company in which the Managing Director was none other than the beneficiary Proprietor of royalty? - Held that:- Questions (i) and (ii) are answered in the assessee's favour in view of the judgment of this Court in the assessee's case Pt. Commissioner of Income Tax -2 Vs. M/s Mobisoft Tele Solutions P. Ltd. [2015 (8) TMI 426 - PUNJAB AND HARYANA HIGH COURT] as held that the AO and CIT (Appeals) erred in holding that Tarun Mohan had entered into an agreement with himself. The authorities ignored the fundamental concept that the assessee being a Company incorporated under the Companies Act, 1956 is a separate legal juristic entity. It was held that the assessee Company was entitled to use the trade mark as licensee thereof and that the payment of royalty for the same is nothing unusual. Applicability of the provisions of section 47 (xiv) read with section 47A (3) - Held that:- The issue raised has no foundation to stand. There are no findings of fact recorded that the provisions of section 47 were invoked for claiming exemption from capital gains while making transfers from the sole proprietary concern to the assessee company. The applicability of section 47A would arise only if it is established that section 47 was pressed into service. In absence thereof, the deeming provision of sub-section (3) of section 47A cannot be invoked. There is another angle. From the reading of Article 3 of the agreement, it is evident that Tarun Mohan received a consideration of ₹ 5,81,231/- and royalty for the use of the brand name. This itself shows that exemption of section 47 was not available, as proviso (c) to clause (xiv) of section 47 had not been complied with. The appellant has not contended or established that the assessee availed the benefit of Section 47. Copyright fee paid to M/s Phonographic Performance Ltd. - nature of expenditure - revenue expenditure or a capital expenditure - Held that:- ‘Copyrights' find mention in section 32. The depreciation of copyright etc. can be claimed subject to two conditions viz. it must be owned wholly or partly by the assessee and it must be used for the purpose of business or profession. The word “and” between the two conditions establishes that both the conditions must subsist for the applicability of Section 32. It has been held in the present case that the assessee company did not own the copyright. It was only granted a license to use the same. Such a case would not be covered under section 32. The finding recorded by the Tribunal that only usage of the license was transferred is neither perverse nor irrational.
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