TMI Blog2018 (2) TMI 1654X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the circumstances of the case and in law, the Hon'ble ITAT was correct in not appreciating the applicability of the provisions of section 47 (xiv) read with section 47A (3)? ( iv) Whether on the facts and in the circumstances of the case and in law, the Hon'ble ITAT was right in treating the copyright expense' as a revenue expense when the Income Tax Act, 1961 alongwith the Income Tax Rules, w.e.f. A.Y. 1999-2000, has explicitly mentioned copyrights as an intangible asset? ( v) Whether on the facts and in the circumstances of the case and in law, the Hon'ble ITAT was right in treating the copyright expense' as a revenue expense relying on the decisions of Hon'ble Supreme Court in the case of CIT Vs. IAEC (pumps) Ltd. 232 ITR 316 (SC) which was delivered prior to amendments in section 32 (1) (ii) of the Income Tax Act, 1961 and in Rule 5 (1) of the Income Tax Rules, 1962, w.e.f. A.Y. 1999-2000, whereby intangible assets, inter-alia, copyrights have been included in the appendix I prescribing intangible assets as a separate block of assets on which depreciation is applicable @ 25%? ( vi) Whether on the facts and in the circumstances o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eals before the Tribunal. The Tribunal by the impugned order dated 03.07.2015 partly allowed the appeal of the assessee and dismissed the appeal of the revenue. 9. The assessee company filed its return for the relevant assessment year. In the return, among other things, the amount of royalty paid to Shri Tarun Mohan was claimed as a business expenditure. The licence fee paid to M/s Phonographic Performance Ltd. was claimed to be a revenue expenditure. The case was taken up in scrutiny. The AO sought an explanation from the assessee on various issues, including on the issues of royalty and the licence fee paid. The assessee filed a reply. The AO was not satisfied with the reply filed. 10. One Tarun Mohan carried on business in the firm's name and style of phonytunes.com as the sole proprietor thereof. The assessee company entered into an agreement dated 18.02.2003 to take over the business of the proprietory concern of Tarun Mohan. The agreement was signed by Shri Tarun Mohan as proprietor of the selling concern and as a director of the assessee i.e. the purchaser. He had invented a technology from which ring tones could be created of songs. It appears that he had register ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sets etc. by the sole proprietor was against consideration of 5,81,231/-. Shri Tarun Mohan also acquired shareholding in the assessee company. 11. As we noted earlier, question No. (iii) is also covered in the assessee's favour by virtue of the judgment dated 07.08.2015 in ITA Nos. 193, 194 and 197 of 2015. Mrs. Dhugga however contended that the judgment does not consider Sections 47 (xiv) and 47A (3) which read as under :- 47. Nothing contained in section 45 shall apply to the following transfers :- (i) to (xiii) x x x ( xiv) where a sole proprietary concern is succeeded by a company in the business carried on by it as a result of which the sole proprietary concern sells or otherwise transfers any capital asset or intangible asset to the company : Provided that - ( a) all the assets and liabilities of the sole proprietary concern relating to the business immediately before the succession become the assets and liabilities of the company; ( b) the shareholding of the sole proprietor in the company is not less than fifty per cent of the total voting power in the company and his shareholding continues to remain as such for a period of five y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xiv) of section 47. The result of violation would be that the amount of profits or gains arising from the transfer will be treated as deemed profits and gains of the successor company chargeable to tax in the previous year in the hands of the company. 14. 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. 15. 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. 16. The question is, therefore, answered a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (45) seconds in polyphonic format; 2.1.6.3 the Ring Tones shall not be copied or stored by any other third party onto whatever media except onto the a. Licensee's/Sub Licensee Computer Servers b. End Users Cellular phone, hand held Devices or such wireless devices. 2.1.6.4 the Licensee shall not itself or indirectly through any other person in respect of any copying pursuant to this Agreement segue, mix or re-mix or overlap, edit, change or otherwise manipulate the sounds of any Licensed Works, other than as otherwise authorized herein; 2.1.6.5 the substantial identity of any Licensed Work or relevant part thereof shall not be changed in the corresponding Ring Tone; 2.1.6.6 Licensee shall not incorporate any voice-over of any kind or interview or other commentary during the playing of any Licensed Works; 2.1.6.7 Any use by Licensee of the Ring Tones for a purpose other than in furtherance of the Licensee's Service (s) shall be subject to separate negotiation and agreement between the parties. 2.2 Notwithstanding the rights granted under 2.1.1, 2.1.2 2.1.3 the Licensor reserves the right to store the Licensed Works (as Ring T ..... 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