TMI Blog2017 (2) TMI 1394X X X X Extracts X X X X X X X X Extracts X X X X ..... f assessee. Disallowance of excess depreciation claimed treating the superstructure as temporary structure - Held that:- The said opening WDV has been satisfactorily explained by the assessee as having been on account of the fact that part of the expenditure was incurred in the preceding year which was shown as opening WDV of the temporary structure and the assessee has rightly claimed depreciation in the impugned year when the said temporary construction was completed and the asset put to use. Moreover, we find that there is no basis with the Revenue to hold that the construction of the said structure was prohibited by law and was an offence as rightly pointed out by the CIT (Appeals). The Ld.CIT(Appeals) has rightly pointed out that even as per the Assessing Officer there was a bar on building/constructing "permanent" structures in the area where the assessees office was located. The said structure, undisputedly, was a "temporary" structure and thus there was no breach of law by the assessee by creating it. Therefore, we agree with the CIT(Appeals) that no disallowance could have been made u/s 37 (1) of the Act also. We concur with the CIT (Appeals) that the temporary struc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant by : Shri Manjit Singh, DR Respondent by : Shri Rohit Goel O R D E R PER ANNAPURNA GUPTA, A.M. : These three appeals filed by the Revenue are directed against separate orders of Commissioner of Income Tax (Appeals)-2, Chandigarh dated 18.01.2016, 18.01.2016 and 29.7.2016 pertaining to assessment years 2008-09, 2011-12 and 2012-13 respectively. Since both the parties conceded that certain issues involved in all the appeals was common identical, the appeals were heard together and are being disposed off by this consolidated order. 2. We shall first be dealing with the appeal of the Revenue in ITA No.300/Chd/2016. ITA No.300/Chd/2016: A.Y-2008-09 3. Ground No.1 raised by the Revenue is general in nature and needs no adjudication. 4. Ground Nos.2, 3 and 4 pertain to the deletion of addition of ₹ 3,57,46,928/- made by treating copyright expenses as revenue in nature. The said ground raised by the Revenue are as under : 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs,3,57,46,928/- treating the 'copyright expense'-as a revenue expense when the Income T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said case also the assessee had claimed copyright expenses and justified the claim stating that the same was paid for the purpose of use of copyright of products like songs, images video clips, games etc. for development of value added services for the telecommunication companies. The ITAT after going through the relevant clauses of the copyright agreement, concurred with the assessee and held that the assessee had merely acquired the right to use the copyrights and had not become the owner of the copyrights/license and thus the expenses were revenue in nature. The relevant findings of the ITAT at para 13 and 14 of the order have been reproduced in the CIT(A) order at para 9.3 of the order as follows: 9.3 The submission of the appellant were considered. Ld. AR filed copy of the order dated 03.07.2015 of Hon'ble ITAT, Chd Bench in the case of the appellant for AY 2009-10 in ITA No 1217/Chd/2012 and ITA No 1274/Chd/ 2012. I have perused the order and from the order it is seen that additions on similar issue were made in the case of the appellant in AY 2009-10 which were deleted by Hon,ble ITAT in its order dated 03.07.2005 in ITA No. 1217/Chd/2012 and ITA NO 1274/Chd/2012 whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccount of disallowance of depreciation of ₹ 4,38,750/-, being 100% of temporary structure erected by the assessee. 13. Brief facts relating to the issue are that the assessee had erected a temporary structure of wooden cabin with PVC profile, MS pipe, glass, etc. on the top floor of the rented premises for using as cafeteria and claimed depreciation @ 100% thereon. The Assessing Officer observed that WDV for the said as on 1.4.2007 was ₹ 3,50,000/- and addition of ₹ 88,750/- was made during the year, totaling gross WDV of ₹ 4,38,750/-. The Assessing Officer noted that the opening WDV on such temporary structure is not eligible for depreciation @ 100%. Further the Assessing Officer also noted that this structure had been created by the assessee illegally by breaching certain laws and, therefore, as per the Explanation to section 37 (1) of the Act it was not allowable. Therefore, the Assessing Officer disallowed the assessees claim of 100% depreciation on the temporary structure and also denied claim of the same u/s 37 (1) of the Act and made addition of ₹ 4,38,750/- to the income of the assessee. 14. During appellate proceedings before the Ld. CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rary structure for using it as a cafeteria for the employees which is an expenditure incidental to the business. As there is a bar for creating permanent structure in the area therefore appellant created temporary structure which cannot be sais illegal as there is no breach of any law by creating purely temporary structure. Therefore in my considered opinion appellant is entitled for 100% depreciation on the temporary structure in the relevant year as the asset was put to use only in the relevant year. The depreciation of ₹ 437850/- is allowable. Hence, the addition made by the AO is deleted. Ground of appeal no 4 5 are allowed. 16. Before us, the Ld. DR relied upon the order of the Assessing Officer while the Ld. counsel for the assessee relied upon the order of the Ld. CIT (Appeals). 17. We find no infirmity in the order of the Ld. CIT (Appeals). The fact that the structure created being a pre- fabricated wooden cafeteria at the top floor of the rented building by the assessee was a temporary structure, has not been disputed by the Revenue. It is also not denied that temporary structures are entitled to 100% depreciation. Further that the structure came into existe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the case and in law, the Ld. CIT(A) has erred in allowing the 'royalty' payment as business expenditure, where the same has not been exclusively and wholly incurred for business purposes. 4. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in holding that the transaction was not a colorable device to reduce the tax liability of the company in which the Managing Director was none other than the beneficiary Proprietor of royalty particularly when no evidence of any patented product in possession of the Proprietor could be produced and all the stipulations in the agreement showed that it was for the exclusive benefit of the Proprietor, and also when no proof of brand value of phoneytunes.com was established. 23. Brief facts relating to the issue are that the AO made an addition of ₹ 16,97,769/- to the income of the assessee on account of royalty paid by it to its Director Shri Tarun Mohan, holding the same to be capital in nature. 24. During the appellate proceedings, the assessee submitted that it was engaged in providing value added services to telecommunication operators and that on 18.2.2004 a proprietorship concern of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, w.e.f.A.Y.1999-2000,has explicitly mentioned copyrights as an intangible asset. 6. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred 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(l)(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 1 prescribing intangible assets as a separate block of assets on which depreciation is applicable @25%. 28. The issue involved in the said grounds relates to treatment of copyright expenses amounting to ₹ 33,77,630/- as capital in nature. 29. It was conceded by both the parties that the issue involved in the above grounds is identical to that raised in Ground Nos.2, 3 4 in ITA no.300/Chd/2016 pertaining to A.Y 2008-09 and which was heard alongwith the present appeal. 30. Since this issue has already been adjudicated upon by us in ITA No.300/Chd/2016, in the earlier part of the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect w.e.f. 01.04.2015 whereas it has been clearly mentioned in the section-11 of Finance Act, 2012 (through which second proviso was inserted in section 40 of the Income Tax Act) as the following proviso shall be inserted with effect from the 1st day of April, 2013 37. Brief facts relating to the issue are that the assessee paid interest to non banking financial companies of ₹ 41,62,580/- and claimed the same as expenditure in its Profit Loss Account. The Assessing Officer found that the assessee had not deducted tax on the same as per the provisions of section 194A of the Act. Therefore, invoking the provisions of section 40 (a)(ia) of the Act, he disallowed the said interest amounting to ₹ 41,62,580/-. 38. Before the Ld. CIT (Appeals) the assessee submitted that the interest had been paid to M/s India Bulls and Financial Services of ₹ 2,61,054/- and M/s Bajaj Financial Services Limited of ₹ 39,01,526/-, both of whom had reflected the said income in their return of income and paid taxes on the same. As evidence of the same, the assessee filed copy of Form 26A and report of Chartered Accountant. The assessee further submitted that in view of the l ..... X X X X Extracts X X X X X X X X Extracts X X X X
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