TMI Blog2006 (6) TMI 266X X X X Extracts X X X X X X X X Extracts X X X X ..... g. Ltd. v. CIT [1991] 192 ITR 633 and the decision of the Hon ble Supreme Court in the case of Madras Industrial Investment Corpn. Ltd. v. CIT [1997] 225 ITR 802. 3. Coming to the cross objection by the revenue, it is directed against the order of the CIT(A) in allowing the claim of the assessee that the payment made to Shri Amitabh Bachchan (Rs. 15 crores) and Smt. Jaya Bachchan (Rs. 3 crores) to the tune of Rs. 18 crores, treating it as revenue expenditure. 4. In this case, the assessee filed the return showing loss of Rs. 17,74,85,826 on 30-11-1995. The case was selected for scrutiny. 5. Assessee was running business in the name and style of "M/s. Sopan Leasing Pvt. Ltd.". Subsequently the name was changed to "M/s Amitabh Bachchan Corporation Limited" ( ABCL for short). On 1-10-1994, pursuant to amalgamation, another Private Limited company owned by Shri Bachchan in the name of M/s. Saraswati Auto Visual Pvt. Ltd. was amalgamated with ABCL. This was approved by the jurisdictional High Court vide order dated 31-8-1995 on application No. 79 of 1995 filed by the assessee. 6. While framing the assessment order, Assessing Officer noticed, an amount of Rs. 18 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... curred every year whereas the payments to both the stars are for once and for all and it is therefore a payment of enduring nature and also a source itself. By making this payment the assessee acquired a brand. It is the tool of the assessee and a new means of access for earning the income. He held, a new source acquisition is payment of capital nature. For the above proposition, he relied upon the decisions in the case of V. Vicks Ltd., 3 KB 267; Sum News Papers Ltd. and Associated Newspapers Ltd. v. Federal Commission of Taxation [1938] 61 CLR 337; Tata Hydro Electric Agencies Ltd. v. CIT [1937] 5 ITR 202 (PC); Robert Iddi Sons Collieries Ltd. v. IRC , TC 671, C76 (CSS). Assessing Officer further held, in the instant case, the source to earn income is the brand of the artist, by exploiting which the assessee earned income, for which assessee paid Rs. 18 crores to actors Shri Amitabh Bachchan and Smt. Jaya Bachchan. He relied on the decisions in the case of Alianz Co. Ltd. v. Bell B 666 KB; Pingle Industries Ltd. v. CIT [1960] 40 ITR 67 (SC); R.B. Seth Moolchand Suganchand v. CIT [1972] 86 ITR 647 (SC) and CIT v. S.L.M. Maneklal Industries Ltd. [19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 11. The contention of the assessee that the artist is not prevent totally in carrying on their profession as artist was also rejected by the Assessing Officer, holding that in fact, by virtue of clause 7 of the agreement, assessee has an exclusive control over the services of the artists. 12. Assessee s contention that the assessee has not acquired any asset but only acquired the right to use the name of artist, i.e., the brand, was also rejected. In the light of the decision of the Hon ble Supreme Court in the case of Mewar Sugar Mills Ltd. v. CIT [1973] 87 ITR 400 , Assessing Officer held that the payment made for monopoly rights is a capital expenditure. In the instant case, the assessee has acquired a monopoly right of the brand for ten years. During this period no other person can utilise the brand. He held, from the business point of view also it is a capital expenditure. Assessee has not acquired anything relating to existing business of the assessee but acquired new asset, which is a tool/source of income. 13. Reliance placed by the assessee on the decision of the jurisdictional High Court in the case of CIT v. Cinceita (P.) Ltd. [1982] 137 ITR 652 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e incurred on acquisition of Brand Equity is a capital expenditure and accordingly the same is not deductible under section 37. Therefore Rs. 18 crores is disallowed." Aggrieved by the above order, assessee approached the first appellate authority. 15. It was submitted before the CIT(A) that if the payment is made not for bringing into existence an asset or advantage but for running the business or working with a view to produce profit, it is revenue expenditure. If the asset or advantage for enduring benefit of the business is thus acquired or brought into existence, it would be immaterial whether the source of payment was capital or income of the concern or whether the payment was made once for all or was made periodically. The source of manner of payment is of no consequence. It is only in those cases where this test is of no use that one may go to the test of fixed or circulating capital and consider whether the expenditure incurred was part of the fixed capital of business or part of the circulating capital, it would be in the nature of revenue expenditure. The tests are mutually exclusive and have to be applied to the facts of each particular case. The commercial expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years. The CIT(A) distinguished the decision particularly for the reason that in the instant case of the assessee the assessee is engaging artists for doing job work and it is not the same duty of a Managing Director. He also distinguished the decision of the Hon ble Supreme Court in the case of Mewar Sugar Mills Ltd. ( supra ). Getting clue from the decision of the Hon ble Supreme Court in the case of Coal Shipments (P.) Ltd. ( supra ), wherein enduring benefit has been discussed, CIT(A) held that in the instant case of the assessee the artists have agreed to perform the diverse acts for the assessee whereby the assessee can generate revenues from them and also copyrights on the products. Thus he held, it is the user of brand equity that obtained by the assessee and not any capital asset as such. He further held that the expenditure incurred in acquiring goodwill of course is capital expenditure but the payment made towards user of goodwill is of revenue nature and allowable as such. He particularly noted the observation, "where, however, the transaction is not one for acquisition of the goodwill, but for the right to use it; the expenditure would be revenue expenditure" as o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sanction accorded by the Hon ble Bombay High Court, the business and undertaking of the erstwhile Saraswati Audio Visuals Pvt. Ltd. (for short Saraswati ) got transferred to the company from 1-10-1984, being the appointed date. 21. The learned DR submitted, the reasoning of the learned CIT(A) given at Page 13, Para 12, that the Hon ble Supreme Court in the case of Mewar Sugar Mills Ltd. ( supra ) has not discussed at all the aspect of payment in respect of monopoly rights is incorrect. The finding given in this Para is contrary and self-defeating to his own finding given at Paras 10 and 11. The learned DR further submitted, the finding given at Page 14, Para 13, particularly the observation "the artists have agreed to perform the diverse acts for the appellant-company whereby the appellant-company can generate revenues from them and also hold copyrights on the products of such engagements. Thus; in my opinion; the user of brand equity for 10 years cannot be hit by the above observations" is self-defeating. The learned DR submitted, the finding of the Assessing Officer that it is a new business, has not been discussed by the CIT(A) at all before coming to the above conclusio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dancer ( iv )a commentator or a compare of live or recorded shows that may be performed or broadcast, telecast terrestrially or otherwise howsoever ( v )a live stage performer ( vi )a model for still and video photography ( vii )a part of any programme organised by the Corporation for the benefit of tourists and fans or fan clubs of the Artist and/or their members ( viii )responding to telephone calls during promotion programmes arranged by the corporation such as premium ratelines ( ix )endorser of any brand of any product or service, permitting use of the artist s trademark, ideogram, logogram, monogram and name as a user, promoter of such brand or service, or otherwise howsoever save and except brands, products or engagements which the Artist in his reasonable opinion finds derogatory, offensive, unethical or otherwise objectionable ( x )facilitating autography on photographs, articles, writings, voice recording for use in telephone answering machines and generally for merchandising products and engagements. ( xi )facilitating and promoting, at the reasonable discretion of the Corporation all or any article, service, product not offensive to public morality or d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hereunder shall become due and payable only after receipt of such approval. Any reference in the Agreement to any statute or statutory provision shall be construed as including a reference to that statute or statutory provision as from time to time amended modified and extended or re-enacted whether before or after the date of this Agreement and to all statutory instruments, orders and regulations for the time being made pursuant to it or deriving validity from it. All rights hereby granted to the Corporation are granted solely and exclusively to the Corporation. 1.7 It is expressly understood that nothing contained in this Agreement shall restrict the right of the Artist to pursue his professional career as an actor, whether in a principal role or otherwise, in Feature Films that the Artist may in his personal capacity sign up or enter into a contract to act in a Feature Film, with any third party/person having no interest whatsoever in the Corporation or its activities. Provided that the artist shall not sign for any role in any feature film in cases where the Corporation has obtained from the Artist a prior commitment in relation to a Feature Film similar to the one contempla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been paid Rs. 3 crores. Smt. Bachchan would, as per the arrangement, also be entitled to share 1 per cent of the profit before tax earned by your company before taxation. ( iv )In the same fashion, an agreement has been entered into by and between Shri Amitabh Bachchan and your Company, whereas the company is entitled to exploit his name as Brand name for various purposes as are mentioned specifically in the agreement. For this purpose, Shri Amitabh Bachchan would be entitled to receive Rs. 15 crores and share in profit before tax to the tune of 4 per cent." The learned DR submitted that in Schedule 13 1( h ), Item No. ( iii ), the assessee has treated the expenditure as a deferred revenue payment. 28. Relying upon the decision of the Hon ble Supreme Court in the case of Assam Bengal Cement Co. Ltd. v. CIT [1955] 27 ITR 34 , learned DR submitted, it is laid down in this decision that purpose, aim and object is to be seen before coming to the conclusion. 29. Inviting our attention to several clauses of the agreement defining the term "engagement" learned DR submitted, assessee is acquiring for the first time brand equity. It is new source of income. He brought our ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gton Glass Works [1983] 139 ITR 581 (Cal.) (2) Grover Soap (P.) Ltd. v. CIT [1996] 221 ITR 299 (MP) (3) Hawlett Packard India Ltd. v. Dy. CIT [2003] 85 ITD 455 (Delhi) (4) Shaw Wallace Co. Ltd. v. Asstt. CIT [2003] 86 ITD 315 (Kol.) (5) Ramakrishna Co. v. CIT [1973] 88 ITR 406 (Mad.) Hence the learned DR submitted, the order of the learned CIT(A) is liable to be set aside. 32. In reply to the above, Shri A.V. Sonde, learned counsel for the assessee submitted, the essential features of the agreement ought to be considered. Learned counsel submitted, the assessee entered into two separate agreements dated 10-1-1995 with Shri Amitabh Bachchan and Smt. Jaya Bachchan for procuring their services and the right to use their brand equity for the agreed period, to enhance the business prospects of the assessee. Certain terms of the aforesaid agreements were modified by a supplementary agreement dated 11-2-1995 (placed at Pages 152 to 185 and Pages 186 to 215 of the Paper Book). 33. Learned counsel submitted, clause 2 defines "contractual engagement"; clause 3 defines "assignment" and clause 4 defines "payment", which read as under : "2. Contractual Enga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the time being capable of being assigned together with all renewals reversions and extensions throughout the world. 3.2 In consideration of the Guaranteed payment as above; 3.2-1 The Artist irrevocably and unconditionally grants and confirms to the Corporation all consents required and contemplated by the law relating to copyright, designs, patents and trademarks and all other laws now or in future in force in any part of the world which may be required in respect of the engagement for the exploitation by the corporation of the engagements and the product of the engagements whether or not by means now known or developed in future for the full duration of the rights acquired by the Corporation pursuant to this agreement and pursuant to the laws in force in any part of the world. 3.2-2 The artist irrevocably and unconditionally waives all rights in the engagements to which the artist is now or may in the future be entitled pursuant to the provisions of the law relating to copyright, designs, patents and trademarks and any other rights to which the Artist may be entitled under any legislation now existing or in future enacted in any part of the world and surrenders such right to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall pay to the artist in each year a sum not exceeding 7.5 (Seven and a half) per cent of the Profit earned by the Corporation before Taxation. 4.2 In addition to what is provided for in clause 4.1 above, in the event of the Corporation producing or co-producing a feature Film in each year as contemplated in clause 2.1-2 the Corporation shall pay to the artist a sum not exceeding Rupees three crores. 4.3 All sums payable pursuant to this agreement, shall as the artist irrevocably directs be payable in favour of Amitabh Bachchan and the Artist s receipt shall be full and sufficient discharge to the Corporation of the Corporation s liability to make such payments. 4.4 The consideration payable to the Artist under this Agreement is and represents full and final consideration for the rights hereby assigned, the engagements and all products of the engagements and shall include any and all residual, repeat, re-run, foreign use and exploitation. No further or additional payment shall be due from the Corporation. 4.5 The Artist expressly authorises the Corporation to deduct and withhold from all sums due to the Artist under this agreement any sums which may be deductible in acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the engagements of the artists and obtained their services for 120 days for each year for the next ten years, whether such consolidated payment becomes capital or revenue. The consolidated payment draws its colour, nature and characteristic from the recurring payment, which the assessee got rid of by this consolidated payment. 35. Learned counsel submitted, the principle first came up for consideration in the case of BW Noble Ltd. v. Metchell [1927] 11 TC 372 (CA). The principle was applied by the Hon ble Supreme Court in the case of CIT v. Ashok Leyland Ltd. [1972] 86 ITR 549 for the first time. In this case the continuance of a managing agency became superfluous owing to a change in certain circumstances. The assessee, to get rid of its liability to pay office allowance as well commission to the managing agency, lump sum payment was made to avoid the recurring expenditure. The question was whether this is a benefit acquired in the nature of enduring benefit or not. The Hon ble Supreme Court held "that the compensation paid for termination of the services of the managing agents was a payment made with a view to save business expenditure in the accounting period as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ove case should be restricted to the facts which had come up for consideration and that the principle enunciated in B.W. Noble s case and in Commissioner of Income-tax v. Ashok Leyland Ltd. should be restricted to payment made to employees, agents, directors or managing agents. In my view the principle enunciated is much wider and it appears to have been held that a payment made or expenditure incurred to remove the possibility of a recurring disadvantage (as is the case before us) cannot be considered as payment made to acquire an enduring advantage in the sense that it would be within the test laid down by Viscount Cave L c in Atherton s case." When the matter was carried before the Hon ble Supreme Court in the case of CIT v. Associated Cement Companies Ltd. [1988] 172 ITR 257 , Their Lordship observed as under : "If this principle is applied to the facts of the case before us, what we find is that the advantage which was secured by the assessee by making the expenditure in question was the securing of absolution or immunity from liability to pay municipal rates and taxes under normal conditions for a period of fifteen years. If these liabilities had to be paid, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned counsel submitted, assessee-company taken on lease land and building in Bangalore for housing its branch and assessee entered into an agreement with the landlord whereby assessee agreed to demolish the building and construct a new one. The expenditure incurred for demolishing the existing structure and construction of new building was claimed by the assessee as revenue expenditure. This claim was rejected by the revenue authorities on the ground that the expenditure was incurred to obtain a lease and therefore, capital in nature. The Tribunal, instead of looking the expenditure from this angle, noted that what assessee saved was a recurring expenditure. When the matter reached before the Hon ble High Court, the view taken by the Tribunal was upheld following the principles laid down by the Hon ble Supreme Court in the case of Ashok Leyland Ltd. ( supra ), which reads as under : "The ruling of courts on this point is but an extension of the principle that whatever substitutes or surrogates a revenue expenditure is also revenue expenditure. The surrogated expenditure may be a lump sum payment. It may be laid out at any stage. But if it saves the taxpayer from incurring in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is not determinative of the nature of payment. For the above proposition, learned counsel relied upon the following observation of the Hon ble Supreme Court in the case of Empire Jute Co. Ltd. ( supra ): "It is not a universally true proposition that what may be a capital receipt in the hands of the payee must necessarily be capital expenditure in relation to the payer. The fact that a certain payment constitutes income or capital receipt in the hands of the recipient is not material in determining whether the payment is revenue or capital disbursement qua the payer." The same principle, learned counsel submitted, has been taken by the Hon ble Supreme Court in the case of CIT v. Ciba of India Ltd. [1968] 69 ITR 692 and the Hon ble Andhra Pradesh High Court in the case of CIT v. Warner Hindusthan Ltd. [1986] 160 ITR 217 . Learned counsel submitted, in the hands of Shri Amitabh Bachchan, the agreement entered into with the assessee is restrictive, and hence, in his hands the receipt is capital in nature. But in the case of the assessee, the agreement with Shri Amitabh Bachchan is not restrictive one as the assessee can approach many others with the same proposal. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be, a decisive test in every case. There are many cases where a payment though made "once and for all" would be properly chargeable against the revenue receipts for the year. 44. Further, learned counsel brought our attention to the decision in the case of Anglo-Persian Oil Co. Ltd. v. Dale 16 TC 253, 274, wherein Romer LJ laid down that by "enduring" is meant "enduring in the way that fixed capital endures" and it does not connote a benefit that endures in the sense that for a good number of year it relieves the assessee of a revenue payment or a disadvantage. Learned counsel further brought our attention to the decision of the Hon ble Supreme Court in the case of Assam Bengal Cement Co. Ltd. ( supra ), wherein Justice Bhagwati elucidated that the expression "once and for all" in Viscount Cave s test does not mean that the payment should be made in a single sum and at one time; i.e. to say, "the expression once and for all is used to denote an expenditure which is made once and for all for procuring an enduring benefit to the business as distinguished from a recurring expenditure in the nature of operational expenses". Learned counsel also relied upon the decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undergone a change due to the novation and hence the entire amount becomes deductible under section 37 of the Income-tax Act, 1961. Therefore, we are unable to accept the alternative submission of the revenue. In the circumstances, we find that the expenditure of Rs. 1,80,000 was an admissible deduction under section 37 and we direct the ITO to allow the same in computing the total income." Learned counsel submitted, it is a settled proposition that where the payment is made for the right to use an asset (premises, goodwill, brand, etc.) and not for the acquisition of the asset itself, it is revenue expenditure. 45. Assailing the contention of the learned DR that what the assessee acquired is brand equity and not the right to use, learned counsel submitted, it is not borne out of record. The amount paid to Shri Amitabh Bachchan and Smt. Jaya Bachchan under the agreements dated 10-1-1995, as modified by supplementary agreements dated 11-2-1995, is for acquisition of right to use brand equity of their names, for diverse purposes and the right to contract with third parties in relation to the engagements meaning the acts, deeds and performances of these artists within India as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and one time payment is for augmentation of income in the revenue field as the object and effect of agreements show and statistics of year-wise earnings therefrom. It is an advantage from services to be rendered by human beings, which can never be of enduring nature, as submitted hereinabove. Hence, the payments are allowable in full in the year of payment itself. Learned counsel submitted, the assessee only procured services to be rendered by the artists during the agreed period and would have the right to use their brand equity during such period; as such it is not a case of purchase of brand equity of the artist. Learned counsel further submitted, lump sum payment made is not refundable and the period of user is totally uncertain due to various factors such as popularity of the artists, health of the artists, etc. 48. Coming to the contention of the learned DR that the payment is made for a new and distinct business, learned counsel submitted, assessee and M/s. Saraswati Audio Visuals Pvt. Ltd. (transferor-company) amalgamated with effect from the appointed date, i.e. 1-10-1994. This company was already in the business of production etc. of stage plays and entertainment. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sicians materials and other facilities, in India and elsewhere." [The above clause 128 has been amended pursuant to the resolutions passed at the extraordinary General Meeting held on 25-2-1995 and to Order of the Company Law Board dated 30-8-1996] "128A. To carry on the businesses of circus, concert hall, cinema, ballroom, night-club, supper-club and as theatre proprietors and agents; box-office keepers, ticket agents, showmen and exhibitors, song, music, play, programme and general publishers and printers scene, proscenium and general painters and decorators; theatrical and musical agents and caterers for public and private amusements and entertainments of every description. 128B. To carry on the business of proprietors, managers and renters of theatres, dance halls, discotheques, film-producing studios, video and sound recording studios and radio and televisions studios; 128C. To carry on the businesses of Celebrity promotion and management, entertainment promotion and management, Artistes promotion and management and generally as promoters, managers and representatives in all or any spheres of entertainment and sports; 128D. To provide on such terms as may seem expedi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ainments, performances and amusements of any kind; 128J. To acquire and dispose of copyrights, licences and any other rights or interests in any literary, dramatic or musical work, and any poem, play, song, composition (musical or otherwise), cinematograph films, television programmes, picture, drawing, work of art or photograph, and to print, publish or cause to be printed or published anything of which the company has a copyright or right to print or publish, and to sell, distribute and deal with any matter so printed or published, and to grant licences or rights in respect of any property of the company to any other person, firm or company." Learned counsel submitted, in the light of the above objects, it is true, though the main objects of the assessee, formerly known as M/s. Sopan Leasing Pvt. Ltd. did not have these object clauses, but at the same time was specifically allowed and permitted under the scheme. The amalgamation does not leave any doubt that the business was not a new business or that it is not one of the main objects. 50. Coming to the decisions cited by the learned DR, learned counsel submitted that all these cases can be classified into two categories. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee were financial and it was never in the business of entertainment, etc. is irrelevant inasmuch as M/s. Saraswati Audio Visual Pvt. Ltd. which was amalgamated resulting in its incorporation into assessee-company, was very much in the field of entertainment industry and in fact the amalgamation specifies clearly that the activities carried on by M/s. Saraswati Audio Visual Pvt. Ltd. would be deemed to be carried on by the assessee-company. Learned counsel submitted that the payment being made to get rid of recurring payment constitutes revenue payment and ought to be allowed as such. 54. Replying to the above, learned DR submitted that it is true, M/s. Saraswati Audio Visual Pvt. Ltd. amalgamated with ABCL. The business of M/s. Saraswati Audio Visual Pvt. Ltd. was never the same as that of ABCL. In the scheme of amalgamation only assets and liabilities were passed over to the assessee-company and not the objects. M/s. Sopan Leasing Pvt. Ltd. was only doing financing business. He particularly brought our attention to Page 39 of the Paper Book. M/s. Sopan Leasing Pvt. Ltd. was never in the entertainment business. He submitted, this is so as there is a clear finding by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a payment once for all, yet not capital in nature. Coming to the instant case of the assessee, we have already hereinabove mentioned that M/s. Saraswati Audio Visual Pvt. Ltd. was in the field of entertainment business. As such, it is difficult to hold that assessee was also not in the field after the amalgamation, as approved by the jurisdictional High Court. It is true, as contended by the learned DR that the Assessing Officer stated at Page 4, assessee s only source of income was dividend and interest, but this finding of the Assessing Officer does not bring out the facts in entirety. 59. Learned counsel for the assessee has rightly distinguished the decisions and the same have been already reflected in the arguments of the learned counsel. In the case of Ramakrishna Co. ( supra ), the assessee acquired right, title and interest by virtue of certain lease deeds in respect of cinema theatre and made payments. Undoubtedly the payment to acquire right, title and interest exclusively of cinema theatre can only be treated as acquisition of source itself; whereas the payment to Shri Amitabh Bachchan and Smt. Jaya Bachchan, artists, in our view, is a payment for use of their ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disadvantage. His Lordship held that the payment made to remove such disadvantage is not a payment made to acquire an enduring advantage. In reverse the same principle is applicable here. Here the assessee made the payment to avail the performance of the artists when it is expedient to get the artists in the interest of trade and therefore the same is deductible expenditure. The payment made to avail the possibility of an advantage should be considered as a payment made to remove a possible disadvantage and it is not a payment to acquire an enduring advantage. 63. The same principle was reiterated by the Hon ble Bombay High Court in the case of Champion Engg. Works Ltd. ( supra ). The observation of the Hon ble High Court has been quoted hereinabove vide Para 38. 64. In view of the above, we are of the opinion that the cross objection by the revenue is liable to be dismissed. 65. Coming to assessee s appeal, it is directed against the order of the CIT(A) in directing the Assessing Officer to assess the amount of Rs. 18 crores (Rs. 15 crores to Shri Amitabh Bachchan and Rs. 3 crores to Smt. Jaya Bachchan), paid as per the agreement, as revenue expenditure, but sprea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the Hon ble Supreme Court further continues "However, the facts may justify an assessee who has incurred expenditure in a particular year to spread and claim it over a period of ensuing years. In fact, allowing the entire expenditure in one year might give a very destorted picture of the profits of a particular year. Issuing debentures is an instance where, although the assessee has incurred the liability to pay the discount in the year of issue of debentures, the payment is to secure a benefit over a number of years. There is a continuing benefit to the business of the company over the entire period. The liability should, therefore, be spread over the period of the debentures." 70. Learned counsel submitted, the first four lines of the Para, omitted by the CIT(A), clearly lays down that any revenue expenditure which is incurred wholly and exclusively for the purpose of business must be allowed in its entirety in the year in which it is incurred. It cannot be spread over a number of years even if the assessee has written it off in his books, over a period of years. The CIT(A) relied upon the portion of the judgment which under certain circumstances gives an option to the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n any work in which a copyright subsists or may come into existence, whether now known or in the future created, to which the artist is now or may at any time after this agreement but during the period of ten years entitled to, belong to the assessee-company and not to the artists. The assignment is absolute and complete in respect of the aforesaid rights of the artists now and will be entitled to during the ten years duration, the period of the agreement. Whatever copyrights whether existing or will come into existence in future are given away today including something which may or may not happen in future. As such, the assignment is here and now of events, which may or may not come into existence in future. 73. Learned counsel further submitted, clause 4 of the agreement (Page 166 of the Paper Book) provides for the payments in addition to the guaranteed payment for all other rights, which are defined in clause 6 "Artist s warranties and obligations" (Page 169 of the Paper Book). These payments represent full and final consideration for the rights assigned (as per clause 6), the engagements and all products of engagements and shall include any or all residual, repeat, re-run, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lly over a period of ten years, does not hold good. He submitted, this is because, in this case the assignment is here and now of events which may come into existence in the future. Hence, the assignment is completed now; it is for the events, which may occur during ten years after the agreement. Learned counsel submitted, for e.g., in case of annuity policy of life insurance, the lump sum amount paid for receiving annuity over a period of ten years. The contract is complete when the lump sum payment is made. Similarly, in the instant case also the assignment is complete in the year of agreement and it is the events, which may happen or arise during the period of ten years. 76. Learned counsel further submitted, in the case of Madras Industrial Investment Corpn. Ltd. ( supra ), the decision was rendered in the context of discount on issue of debentures. The expenditure incurred in granting discount on issue of debentures is to enable the issuing company to enjoy benefits of the funds raised through debenture issue for the period of the debentures. Thus, the intention is to secure a benefit over the life of the debentures, as observed by the Hon ble Supreme Court at page 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not provide for deferment for expenditure, as can be observed from the decision of the Hon ble Supreme Court in the same case of Madras Industrial Investment Corpn. Ltd. ( supra ), wherein it was held as under : "Ordinarily, revenue expenditure which is incurred wholly and exclusively for the purpose of business must be allowed in its entirety in the year in which it is incurred. It cannot be spread over a number of years even if the assessee has written it off in his books, over a period of years". Learned counsel submitted, however, the Hon ble Supreme Court created an exception to the above rule in the case of Madras Industrial Investment Corpn. Ltd. ( supra ), keeping in view the peculiar facts of the case, which are very different from the facts of the instant case of the assessee. Learned counsel further submitted that the entire sum paid by assessee to the artists, being revenue expenditure, should be entirely allowed as a deduction in the year in which it was incurred. 79. Learned counsel further submitted, when a debenture is issued, the risk is reflected in pricing or in the rate of interest at which the debentures are issued. In the instant case, the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irrespective actual cash inflow, is required to be compared with expenses incurred during the said period, irrespective of actual out-flow of cash. In this case, the assessee is following the mercantile system of accounting. This matching concept is very relevant to compute taxable income particularly in cases involving DRE." Learned counsel further submitted, on the very same Page 116, while referring to the decision of the Hon ble Supreme Court in the case of Calcutta Co. Ltd. v. CIT [1959] 37 ITR 1 , the jurisdictional High Court observed as under : "...It was held by the Supreme Court that the expression profits or gains in section 10(1) of the Indian Income-tax Act, 1922, should be understood in its commercial sense and there can be no computation of such profits and gains until the expenditure, which is necessary for the purposes of earning the receipts is deducted therefrom. Accordingly, the Supreme Court took the view that since the assessee was following the mercantile system of accounting and since the assessee had credited the full sale price of lands in its accounts amounting to Rs. 43,692, the assessee was entitled to estimate the expenditure because without ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity; and to concrete the main road from factory to station in consideration of non-payment of Municipal rates/taxes for a period of 15 years was allowed. It was held that since the assets were of Municipality and since the advantage obtained by the assessee was absolution of immunity from liability to pay Municipal rates/taxes for a period of 15 years, which liability would have been allowed on revenue account if they had to be paid and therefore, the advantage secured was in the field of revenue and hence allowable." Learned counsel submitted, in the instant case also the advantage obtained by the assessee is in the field of revenue as it has paid in lump sum, for partial user of brand equity for ten years instead of what would have been paid by the assessee transaction-wise during that period with added risk of hike in rates by the artists. Such payments if paid from year to year would have been allowable as revenue expenses; as such the advantage secured is in the field of revenue and hence the lump sum payment is also on revenue account and allowable in the year of payment itself. In the case of Associated Cement Co. Ltd. ( supra ), even 15 years were not considered by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue field. Even if it is considered a case of advantage of enduring benefit, the benefit obtained by the assessee is in commercial field and not in capital field. The services of the artists are obtained for ten years only for facilitating the assessee s business operations and for increasing its profitability. He further submitted, the services of artists were available only for 120 days in a year and they were free to work elsewhere on other days. Thus, the payment made is only for partial user of brand equity of the artists and not for acquisition thereof and hence it is allowable as revenue expenditure in the year of payment itself as it is clearly on revenue account, incurred with a view to increasing profits of the assessee. "(3) CIT v. Ciba of India Ltd. 69 ITR 692 (SC) In this case payment made by the assessee for non-exclusive user of patents trademark and for access to technical knowledge experience in pharmaceutical field of the Swiss Company for a period of five years was allowed as revenue expenditure as the assessee had obtained only right to draw upon the technical knowledge of Swiss company for a limited period, for the purposes of its business. Neith ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he all products of the engagements. 13.3 The Artist shall be entitled only to such consideration as shall have accrued due and become payable, payable pro rata on the date of termination." Learned DR submitted, reading of the above clause makes it clear that Shri Amitabh Bachchan and Smt. Jaya Bachchan are perpetually bound by this agreement. The artists are allowing the Corporation to exploit. The risk is of the Corporation and not of the artists. In addition to the lump sum payment, there are annual payments and separate payment for the films. In other words, payment is for nothing but to give a right to the Corporation to exploit them. Again the learned DR brought our attention to the decision of the Hon ble Calcutta High Court in the case of Hindustan Aluminium Corpn. Ltd. v. CIT [1983] 144 ITR 474 , 480, the portion reads as under : "As mentioned hereinbefore, on behalf to the revenue two main contentions were urged before the Tribunal and those were repeated before us, viz., that by entering into the agreement in question in respect of which the payments were claimed as deduction in the year in question, the assessee had secured the capital assets and, therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... low, is required to be compared with expenses incurred during the period irrespective of actual out-flow of cash. This matching concept is very essential to compute taxable income, particularly in cases involving deferred revenue expenditure. 89. The learned DR again brought our attention to the decision of the Tribunal in the case of Asstt. CIT v. Amtrex Appliances Ltd. [2005] 94 TTJ (Ahd.) 396, wherein the Tribunal spread over the expenditure claimed over a period of five years since it was in accordance with the accepted accounting practice, which was also not contrary to any of the provisions of the Income-tax Act. Hence, the learned DR submitted, the order of the CIT(A) is to be upheld because the spread over is to be seen on the basis of the facts in each and every case and there is no general principle that it should be allowed in the very same year. 90. Inviting our attention to Paper Book page 24, which is the Profit and Loss Account for the year ended 31st March, 1995, learned DR submitted, in this year assessee had a large profit and the assessee is claiming the entire deduction of Rs. 18 crores. If this deduction of Rs. 18 crores is allowed as assessee s exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e s liability to pay tax may get a distorted picture. In the instant case of the assessee, there is no evidence before us to show that this is actually the intention of the assessee. In the year under consideration the expenditure is incurred and the assessee is claiming it. The case relied upon by the revenue was in connection with issuing debentures at a discount. The Hon ble Supreme Court held that the payment is to secure a benefit over a number of years and the assessee was getting a continuing benefit to the business for the entire period. The decision went against the assessee on particular facts. 93. The decision of the Hon ble Supreme Court relied upon by the learned counsel, in the case of Associated Cement Companies Ltd. ( supra ) supports the assessee s case. In this case the assessee had an agreement with Government and Municipality for providing water pipelines, for providing transmission lines and to concrete the road from factory to station in consideration of non-payment of Municipal rates spread over for a period of 15 years. The Hon ble Supreme Court held that this is an advantage secured but in the field of revenue; hence allowable. As rightly contended by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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