TMI Blog2013 (10) TMI 744X X X X Extracts X X X X X X X X Extracts X X X X ..... ights are revenue in nature – Decided against the Revenue. - IT Appeal No. 1921 (Mds.) of 2012 - - - Dated:- 15-1-2013 - N.S. SAINI AND VIKAS AWASTHY, JJ. For the Appellant : Shaji P. Jacob. For the Respondent :M. Karunakaran. ORDER:- PER : N.S. Saini This is an appeal filed by the Revenue and the cross-objection filed by the assessee against the order of the Commissioner of Income-tax (Appeals)-VI, Chennai, dated July 26, 2012, passed for the assessment year 2004-05. 2. The Revenue has raised the following grounds of appeal : "1. The order of the Learned CIT(Appeals) is contrary to lawand facts of the case. 2. The Ld CIT(Appeals) erred in holding that expenditure of Rs. 1.11 crores incurred on copyrights acquired by the assessee towards mechanical reproduction of sound recordings in the form of audio cassette tapes, compact discs is to be treated as revenue expenditure ; 2.1 The learned Commissioner of Income-tax (Appeals) failed to appreciate the fact that according to the amended provisions of section 32(2), with effect from April 11, 1999, know-how, patents, copyrights, trade marks, licences, franchises or any other business or com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d." 3. The DR submitted that the only issue involved in this appeal by the Revenue is that the Commissioner of Income-tax (Appeals) erred in holding that the expenditure of Rs. 1.11 crores incurred on copyrights acquired by the assessee towards mechanical reproduction of sound recordings in the form of audio cassette tapes, compact discs is to be treated as revenue expenditure. 4. The brief facts of the case are that the Assessing Officer treated the cost of purchase of audio rights of Rs. 92,00,875 as capital expenditure as against revenue claimed by the assessee and allowed depreciation at 25 per cent. thereon. The reasons for doing so are as under : "Purchase of audio rights ; During the previous year the assessee has purchased copyright for mechanical reproduction of sound recordings in the form of audio cassette tapes, compact discs or any other format of various films to the tune of Rs. 1,11,01,001. As per the agreements entered (all these agreements are similar with respect to terms and conditions) the assessee acquires a master plate containing the agreed sound track with copyright to commercially exploit the same. The assessee has claimed the cost of purc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s observed that the soul of estoppel is equity, not facility for inequity and that estoppels against the statute is not permissible because public policy animating a statutory provision may then become the casualty. In the case of Mathra Parshad and Sons v. State of Punjab AIR 1962 SC 745 it has been held that there is no estoppels against a statute. Further, it has been observed by the apex court that if the law requires that a certain tax is to be collected, it cannot be given up, and any assurance that it would not be collected, would not bind the State Government, whenever it chose to collect it. 2. The character of expenditure has to be decided on the facts and circumstances of each case. Any payment or expenditure for ensuring source of stock-in-trade is capital whereas the payment or expenditure for obtaining stock-in-trade from known source is revenue. The payment made by the assessee is to obtain stock-in-trade. The assessee's contention is considered. It is not accepted for the following reasons : Para No. 3.3.1 of the agreement entitles the assessee to use, exploit and produce, duplicate and or reproduce the works for marketing and/or sales of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he quality and music value of the sound track. These constrains are always taken into account before the cost fixed/agreed for the master plate with copyright. These propositions in any way, does not affect the nature and treatment of transaction." 5. On appeal, the Commissioner of Income-tax (Appeals) allowed the claim of the assessee observing as under: "5. Ground Nos. 6 and 7 deals with disallowance of Rs. 1,11,01,001 being assignment of copyright and master plate claimed as revenue expenditure. The Assessing Officer has summarised the arguments of the appellant and his stand in pages 2 to 5 of the assessment order and rejected the contention and treated it as capital expenditure and allowed depreciation. During the appeal proceedings the authorised representative relied on the statement of facts and grounds of appeal and submitted a copy of order of jurisdictional Income-tax Appellate Tribunal in the case of Star Music v. Dy. CIT [2013] 22 ITR (Trib) 700 (Chennai) (I. T. A. No. 910/Mds/2011 dated March 30, 2012) and submitted that the facts of the case of the appellant are covered by the said decision wherein the claim of the appellant relating to revenue expenditure w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o copyrights and CD, DVD rights and debited profit and loss account with entire expenditure towards acquisition of copyrights. The Assessing Officer should have capitalised the expenditure of Rs.82,55,000, (Rs. 51,85,000 + Rs. 30,70,000) and allowed depreciation on it instead of allowing depreciation of Rs. 20,63,750 the Assessing Officer allowed the entire expenditure which has resulted in under-assessment. On account of this, the assessment order is erroneous and prejudicial to the interests of the Revenue. Therefore the provisions of section 263 of the Income-tax Act, 1961 are invoked.' 4. The assessee filed reply dated March 16, 2011 to the show-cause notice stating that treatment of rights as capital and providing depreciation on the same is not correct. If the purchases have to be capitalised, in the same manner, the receipt also needs to be capitalised. As per rule 9A the entire expenses of a movie/production could be written off if the same is released within three months before the end of the financial year. The Commissioner of Income-tax did not accept the contentions of the assessee and held as under : 'The assessee has purchased the end product from a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to appreciate the rules laid down in rule 9A/9B of the Income-tax Rules for write off or expenses.' 6. Shri T. Banusekar, authorised representative for the assessee submitted that the expenses incurred by the assessee in purchasing audio copyrights and CD and DVD rights are revenue in nature. He contended that the Commissioner of Income-tax has failed to appreciate that expenditure towards acquisition of copyrights were allowed as revenue expenditure to the assessee/appellant in the earlier years also. He further contended that it is a well settled law that expenditure towards acquisition of copyrights is revenue in nature and is not to be capitalised. He submitted that the case of the assessee/ appellant is squarely covered by the orders of the other Benches of this Tribunal in the cases of : (i) Super Cassettes Industries P. Ltd. v. CIT [1992] 41 ITD 530 (Delhi) (ii) M. Subramaniam v. Dy. CIT [1992] 42 ITD 676 (Mad) ; (iii) Gramophone Co. of India Ltd. v. Dy. CIT [1994] 48 ITD 145 (Cal) ; (iv) Venus Records and Tape Mfg. Co.; and (v) Tips Cassettes and Record Co. v. Asst. CIT [2002] 82 ITD 641 (Mum). 7. On the other hand, the learned D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l held in paragraph 12 as under : '12. The facts of the present case indicate that the song which the assessee was permitted to record in the cassette was in the nature of a basic raw material. The recorded cassette consisted of the cassette and tape on which the music was recorded. Therefore, the production of the recorded cassette cannot be complete unless the music is recorded in the cassette and together it forms the finished product. The royalty is paid on the price of each cassette sold and is therefore the price paid for the raw material embedded in the cassette. Thus the royalty paid goes into the cost of production and varies with the quantity of cassettes produced. Even though the licence has been given for the duration of the copyright, the manufacture and sale of the cassettes itself will depend upon the popularity of the songs which in the case of film songs may not last even a year. Thus the recurring payment of royalty is dependent upon the production and sale of cassettes recording that particular song and the liability is therefore uncertain and variable. Such an uncertain and variable payment cannot be regarded as a capital expenditure. Even if we apply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as erred in coming to the conclusion that the expenditure incurred by the assessee/appellant in acquisition of audio copyrights and CDs and DVD rights are not revenue expenditure and have to be capitalised. 12. The Commissioner of Income-tax has further invoked the provisions of section 263 of the Act on the premise that the assessment order dated October 30, 2008 for the assessment year 2006-07 passed by the Assessing Officer is erroneous and prejudicial to the interests of the Revenue. After going through the facts of the case and following the view taken by the co-ordinate Benches of the Tribunal, we find that Commissioner of Income-tax was not correct in holding that the assessment order is erroneous. For invoking the provisions of section 263, the twin conditions, namely :- (i) The order of the Assessing Officer sought to be revised is erroneous ; and (ii) The order of the Assessing Officer is prejudicial to the interests of the Revenue. have to be satisfied. If one of the above conditions is absent, the provisions of section 263(1) cannot be invoked. In the instant case the first condition as mentioned above is not satisfied. The order passed by th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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