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2015 (9) TMI 898 - ITAT DELHI

2015 (9) TMI 898 - ITAT DELHI - [2015] 44 ITR (Trib) 318 (ITAT [Del]) - Capitalization of license fee and royalty expenditure - CIT(A) deleted the addition - Held that:- The ratio laid down in case of G4S Securities India Pvt. Ltd. [2011 (7) TMI 65 - DELHI HIGH COURT] is clearly applicable in the present case wherein held the expenditure incurred by the assessee as royalty is revenue expenditure and is therefore, relatable under Section 37 (1) of the Act. In the case of Empire Jute Co. Ltd. v. C .....

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itating the assessee’s trading operations or enabling the management and conduct of the assessee’s business to be carried on more effectively or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future. The license fee and the royalty fee to the Government of India is on a year to year basis and this fact was never disputed by the Revenue at any point of time and thus the same has to be h .....

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the assessee in this regard.- Decided against revenue.

Invoking Section 41 (1) - AR submitted that he was was contractually liable to pay consultancy fee AMSIPL for various services as received by it from AMSIPL the amount was contractually and legally payable in full to AMSIPL by the assessee and hence Section 41 (1) could not be invoked - Held that:- since profits were not generated the company could not pay to the creditor and creditor could also not enforce the payment of date til .....

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d Storage Vs. CIT [1990 (12) TMI 3 - SUPREME Court ] held that the entries in the books of account of the assessee would amount to an acknowledgment of the liability within the meaning of section 18 of the Limitation Act, 1963, and extend the period of limitation for the discharge of the liability as debt. Thus, the CIT(A) has rightly deleted this addition.- Decided against revenue.

Capitalization of brand development expenditure - Held that:- Even that the assessee made for classifie .....

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ted as Revenue in nature allowable fully in the year in which it was incurred. - Decided against revenue. - I.T.A. No. 3685/Del/2013, I.T.A. No. 2129/DEL/13, I.T.A No. 3689/DEL/2013 - Dated:- 8-9-2015 - Shri N. K. Saini And Smt. Suchitra Kamble, JJ. For the Appellant : Sh. T. Vasanthan, SR. DR For the Respondent : Sh. Sanjeev Sapra, FCA ORDER Per Suchitra Kamble, JM I.T.A .No.-3685/Del/2013 (ASSESSMENT YEAR-2007-08) This appeal is filed by the Revenue against the order of CIT(A) XV, New Delhi da .....

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e assessee company had paid amount of ₹ 48,58,967/- (Rs.3,000/- License Fee, ₹ 6,08,765/- RCS Fee, ₹ 27,19,446/- Prasar Bharati Fee and ₹ 15,27,756/- Broadcast Fee) to the Govt. of India, Department of Telecommunication (Prasar Bharati etc.) and a royalty of ₹ 1,08,000/- in consideration for grant of licence to operate and provide the services. The assessee claims it to be revenue expenses. 3. The Assessing Officer held that the expenditure on account of licence fee .....

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nsferable right to use scheduling and broadcast software. Through this agreement, the assessee could get only the limited right to use the software of RCS for the purpose of scheduling the assessee company s content on its FM Station. Thus, the nature of such license was no difference than the license any user gets for use of any other computer software, such as the license for the use of MS-Windows, which is available to all users simultaneously without any exclusivity involved and there is no .....

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rastructures facility, which is no different than the annual rental for use of such facilities. Regarding the broadcast license fee, the assessee was required to pay an annual license fee to the Government of India for operating the license issued by Government of India in this regard. The assessee had already paid one-time entry fee for obtaining the license to move from Phase-I to Phase-II FM Broadcasting Regime, which was capitalized by assessee in its books of account. After obtaining that l .....

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such rights, no enduring benefits were received by it and the payment in respect of such agreements/athorisation was on a year to year basis, which is linked to the gross revenue receipts of the assessee. Thus the CIT (A) granted the relief of ₹ 37,25,225/- to the assessee. 6. The Ld. DR submitted that the law has been amended as relate to Section 32(1) (ii) of the Income Tax Act, 1961 and the case laws will not be applicable in the present case but the DR could not distinguish the said ca .....

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n 37 (1) of the Act….. The AR further submitted that the CIT(A) has taken correct view and the appeal of the Revenue be dismissed. 8. We have gone through all the records and perused the arguments of both the counsels. The ratio laid down in case of G4S Securities India Pvt. Ltd. is clearly applicable in the present case. In the case of Empire Jute Co. Ltd. v. CIT, (1980) 124 ITR 1, the Supreme Court observed that there may be cases where expenditure, even if incurred for obtaining an adv .....

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ore effectively or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future. The license fee and the royalty fee to the Government of India is on a year to year basis and this fact was never disputed by the Revenue at any point of time and thus the same has to be held as revenue in nature keeping in mind the decisions of the Supreme Court as well as the Delhi High Court. 9. Thus, the appe .....

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ting the disallowance of ₹ 81,29,043/- on account of fees held as capital. 3. On the facts and circumstances of the case the Ld. CIT(A) has erred in deleting the disallowance of ₹ 1,08,000/- u/s 40(a)(ia) of the IT Act. 4. On the facts and circumstances of the case the Ld. CIT(A) has erred in deleting the addition of ₹ 1,23,94,225/- made u/s 41 (1) of the IT Act. 11. Ground No. 1 in this year is general in nature and Ground No. 2 is already decided against the Revenue in earlie .....

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d therefore, the assessee was not required to deduct TDS and action of Assessing Officer of invoking the Section 40(a)(ia) of the Income Tax Act, 1961 is unjustified. 13. The DR relied solely on the Assessment Order and the AR submitted that annual amount payable to DOT, Govt. of India towards royalty for wireless operation for frequency allocation and FM broadcasting and as per Section 196 of the Act, TDS was not required to be made on interest or dividend or other sums payable to Government of .....

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al services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid, on or before the due date specified in sub-section (1) of section 139: Provided ........................................................... Provided further ....................... .....

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tax shall be made by any person from any sums payable to- (i) the Government, or (ii) the Reserve Bank of India, or (iii) a corporation established by or under a Central Act which is, under any law for the time being in force, exempt from income-tax on its income, or (iv) a Mutual Fund specified under clause (23D) of section 10, where such sum is payable to it by way of interest or dividend in respect of any securities or shares owned by it or in which it has full beneficial interest, or any oth .....

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ing & Sales India Pvt. Ltd. (AMSIPL). As per the said agreement it has been observed that M/s AMSIPL is responsible for generation of revenue for the assessee. The assessee has thus agreed to pay to this consultant 15% of net revenue or $2,50,000/- plus 74% of the net profit arisen to the assessee. As per clause 6 and Schedule to the agreement, all the business operation has to be conducted by M/s AMSIPL and even the account has to be maintained by M/s AMSIPL. In addition to this M/s AMSIPL .....

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e operation on behalf of assessee. This agreement with M/s AMSIPL has resulted into Sundry Creditor of ₹ 5,41,27,375/- (Payable to M/s AMSIPL). The unique feature of the agreement was that M/s AMSIPL is sole responsible for generating the revenue like bringing the advertisement to the assessee, convincing customers etc. on behalf of assessee and for that M/s AMSIPL is charging from the assessee. Since M/s AMSIPL is not able to generate the revenue for the assessee, he is not claiming/forci .....

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essee on a profit sharing basis and the assessee has to pay the expenses incurred by M/s AMSIPL in case positive revenue generation. Since the second condition was not fulfilled, the first condition will not be satisfied, meaning thereby that the assessee has not to pay the liability to M/s AMSIPL if he has failed to generate the revenue for the assessee. Further the outstanding liabilities are clearly bared by limitation, since more than three years has been lapsed and the creditor in not claim .....

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l be free from discharging the liability to the said party and therefore, it is not correct to assume that such liability has ceased to exist. The liability exists in the books of account of both the debtor and creditor which implies that it exists in view of Limitation Act, 1963 as parties have confirmed the same. 17. The DR solely relied upon the Assessing Officers order in this particular case. 18. The AR submitted that the copy of consultancy agreement dated 21/7/2006 with M/s Airtime Market .....

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; 5,41,27,375/- was payable to them by the assessee against various services as taken. 19. We have gone through the records and perused the arguments of both the counsels. The assessee has given the details for last 3 years and it can be seen that the treatment of credit balance in respect of AMSIPL amounting to ₹ 1,23,94,225/- held as seized liability that was made chargeable to tax u/s 41(1) was outstanding in the assessee s books in respect of liabilities incurred before 1/4/2004. The A .....

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lso not enforce the payment of date till profits and generated. However, the agreement does not prescribe any time limit beyond which the appellant will be free from discharge the liability to the said party and, therefore, it is not correct to assume that such liability has seized to exist. Such liability remained unpaid does not amply that it has seized to exist in view of Limitation Act 1963. The aforesaid liability exist in the books of accounts of both the debtor and the creditor. The Hon b .....

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09-10) 21. This appeal is filed by the Revenue against the order of CIT(A) XV, New Delhi dated 28/03/2013 for Assessment Year 2009-10.. The grounds of appeal raise herein, is as follows:- 1. Whether Ld. CIT(A) was correct on facts and circumstances of the case and in law in deleting the addition of ₹ 38,15,742/- made by the AO on capitalization of license fee and royalty expenditure? 2. Whether Ld. CIT(A) was correct on facts and circumstances of the case and in law in deleting the additio .....

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needs to be capitalize. The same being intangible assets depreciation of ₹ 25% is being allowed and the balance amount of ₹ 5,54,170/- is disallowance and added back to the total income of the assessee but for this there was no reason given by the Assessing Officer by deciding this issue. The CIT(A) held that relating to disallowance its advertisement expenses of ₹ 5,54,170/-. The expenses classified as Brand Development Expenses and the same are capital in nature. The CIT(A) h .....

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xpenses on hoardings, pamphlets, advertisement behind buses expenses relating to promotional events etc. The Hon ble Delhi High Court in the case of CIT Vs. Casio India Ltd [2011] 335 ITR 196 (Del) and CIT Vs. CITI FINANCIAL CONSUMER FIN. LTD. [2011] 335 ITR 29 (Del) hold that the expenditure on publicity and advertisement is to be treated as Revenue in nature allowable fully in the year in which it was incurred. The assessee s case is squarely covered by these judgments as well as the judgment .....

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(Appeals) that the expenditure in question was treated as deferred revenue expenditure and hence was capital in nature, cannot be termed to be a correct approach because in so far as the Income-tax Act is concerned, there is no such category of deferred revenue expenditure. Similarly, making of an entry or absence of an entry does not determine the allowability or otherwise of the item of expenditure and the same cannot be considered to be a factor adverse, if the expenditure is otherwise of al .....

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