TMI Blog2015 (9) TMI 898X X X X Extracts X X X X X X X X Extracts X X X X ..... ied 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 held as revenue in nature keeping in mind the decisions of the Supreme Court as well as the Delhi High Court. - Decided against revenue. Non deduction of TDS - royalty paid to the Government of India - CIT(A) deleted the disallowance - Held that:- As per Section 196 of the Act, no deduction of tax shall be made by any person from any sums payable to government. In this regard the AO has overlooked the provisions of Section 196 of the Act and CIT(A) has rightly allowed the deduction to 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) cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of ₹ 37,25,225/- made by the AO on capitalization of license fee and royalty expenditure. 2. The assessee company is engaged in business of FM Radio Broadcasting. Assessee filed return of income declaring loss of ₹ 1,12,82,860/-. The records before the Assessing Officer shows that the 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 and Royalty is held to be capital expenditure incurred for acquisition of intangible asset in form of licence which is for the tenure of 10 to 20 yrs. And gives enduring benefit to the assessee. After allowing 25% of the depreciation whch comes to ₹ 12,41,742/- (25% of ₹ 49,66,967/-) the remaining amount of ₹ 37,25,225/- was added to the income of the assessee by the As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 case law. 7. The AR submitted that the jurisdictional Delhi High Court in the case of CIT Vs. G4S Securities India Pvt. Ltd. (2011) 338 ITR 46 has held that ..The payment of royalty was also to be on year to year basis on the net sales of the assessee and at no point of time the assessee was entitled to become the exclusive owner of technical knowhow and the trademark. Hence, the expenditure incurred by the assessee as royalty is revenue expenditure and is therefore, relatable under Section 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 obta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and disallowed as per provisions of Section 40(a)(ia) of the Income Tax Act, 1961. The CIT(A) held that payment was made to the Government of India and 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 India. 14. After going through the records and arguments of both the counsels, first we have to look into the aspect of Section 40(a)(ia) of the Act: Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head profits and gains of business or profession (a) In the case of any assessee (i) ----------------- (ia) any interest, commission or brokerage, rent, royalty fees for professional services or fees for technica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 is providing various services, equipments, assets to the assessee company for which it is charging from the assessee. These expenses includes 1)Transmitter site maintenance Rs. 6,00,000/-; Lease finance charges-Rs.9,07,488/-; Retainer ship Fee- ₹ 6,40,000/-; Consultancy Fee: ₹ 68,45,155/- Studio maintenance Studio Permission Charges ₹ 8,92,811/- (Totaling 98,85,454/-). In addition to this the assessee has to pay the actual cost incurred by M/s AMSIPL ., for conducting the 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/forcing the assessee to pay the outstanding debt. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 377; 1,23,94,225/- was payable while as on 31st March 2008 ₹ 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 AO passed his assessment order on the detail furnished by the assessee including the agreement with AMSIPL and was of the view that the assessee shall not be able to discharge the said liability until and unless such party in terms of the agreement brings revenue for the assessee in such manner that profit arises from the operation when such party could be paid its dues . It was informed by the AR that since profits were not generated the company could not pay to the creditor and creditor could also not enforce the payment of date till profits and generated. However, the agreement does not prescribe any time limit beyond whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aken into account the decision of the Hon ble Gujrat High Court in the case of DCIT Vs. CORE HEALTHCARE LTD. [2009] 308 ITR 263 24. The DR relied upon the Assessment Order and the AR relied upon the CIT(A) s order. 25. We have perused the records and submissions made by both the counsels and come to the conclusion that even that the assessee made for classified part of advertisement as Brand Development Expenses the real nature is no more than a normal advertisement expenses as it includes expenses 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 of Gujrat High Court in case of DEPUTY COMMISSIONER OF INCOME-TAX v. CORE HEALTHCARE LTD. [2009] 308 ITR 263 (Guj) which held as under: 14. In relation to the first item, namely, advertisement ..... X X X X Extracts X X X X X X X X Extracts X X X X
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