TMI Blog2003 (4) TMI 230X X X X Extracts X X X X X X X X Extracts X X X X ..... uring the assessment year under consideration, the assessee floated a subsidiary company by investing Rs. 2.00 crores in the name of M/s. Gramco Music Publishing Co. Ltd. (hereinafter known as GMPPL). The said company is the subsidiary company of the assessee-company (GCIL). Thereafter, the assessee-company has transferred the copyright of songs of its 91 Hindi Films to this subsidiary company for the consideration of Rs. 6.00 crores. The Assessing Officer took the value of the consideration at Rs. 10 crores on ad hoc basis and made the addition of Rs. 4.00 crores. But the CIT(A) has deleted the same by mentioning it as a notional/hypothetical income. 4. From the record, it reveals that before transferring the copyright of the said songs, the assessee-company asked for its valuation from M/s. Price Waterhouse Co., who has estimated the value of the songs at Rs. 506 lakhs. But the assessee was not satisfied with this valuation. So he appointed another valuer M/s. Bimal Roy Production, Mumbai, who estimated the value at Rs. 711 lakhs. It is not clear whether both these valuers were approved valuers or not. 5. The assessee, thereafter took the average value of the sale considera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of the consideration for Rs. 6 crores, especially when M/s. Bimal Roy Production had shown the value at Rs. 7,11,00,000. It is expected that the sale will be made at the higher prices by the assessee-company being an intelligent business entrepreneur. 11. It may be mentioned that the ld. D/R, during the course of argument, submitted that by floating the subsidiary company, the assessee made the attempt to dilute the tax liability and it is a colourable device as per the ratio laid down by Hon'ble Supreme Court in the case of McDowell - Co. Ltd. v. CTO [1985] 154 ITR 148. 12. In this regard, it will not be out of place to mention (from Chaturvedi - Pithisaria's Income-tax Law Vol. 2 p. 1844) i.e.,-- "If a holding company transfers any of its capital assets to its subsidiary company or vice versa, the actual cost of the asset in the hands of transferee-company shall, for and from assessment year 1965-66, be taken to be the same as it would have been if the transferor-company had continued to hold the capital asset for the purpose of its business, if- (i) in case the transfer is by a holding company to its subsidiary company- (a) the parent company or its nominees ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 143(3) of the Income-tax Act, 1961 for the assessment year 1995-96. 2. In the first ground of appeal, revenue is aggrieved of CIT(A)'s having deleted the addition of Rs. 4 crores on account of difference in valuation of copyright of certain film songs which the assessee-company had transferred to its subsidiary, namely Gramco Music Publishing Pvt. Ltd. 3. During the relevant previous year the assessee-company transferred copyrights of 690 songs, from 91 Hindi films, to a newly floated subsidiary company by the name of Gramco Music Publishing Pvt. Ltd. This transfer was done for a consideration of Rs. 6 crores, but the Assessing Officer was not satisfied about adequacy of this consideration and, accordingly, he requisitioned the basis on which this consideration is worked out. The assessee furnished one valuation report by Price Waterhouse Co. which disclosed the value at Rs. 506 lakhs and another valuation report by one M/s. Bimal Roy Productions which worked out the estimated value at Rs. 711 lakhs. The basis on which the valuation was done was also duly furnished and the same has been discussed at length in the assessment order. The assessee further stated that the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rice he should sell his assets, unless the transaction itself is claimed to be collusive or colourable device. In the present case, even the understatement is not alleged. We have also noted that the Assessing Officer has not explained as to on what basis he has arrived at the figure of Rs. 10 crores and there is no material at all, leave aside cogent material, to support the valuation subjectively adopted by the Assessing Officer. Learned Assessing Officer's remarks about the film music are also irrelevant and cannot, in any event, justify substitution of his estimated sales price over the sales consideration disclosed by the assessee. Keeping all these factors, as also entirety of the case in mind, we support the conclusions arrived at by the CIT(A) to the effect that "the question of any estimate of sale price so as to bring to tax the notional income which is neither received nor alleged to have been received, is clearly beyond the scope of the scope of legal provisions". Accordingly, we confirm the order of the CIT(A) on this point and decline to accept this ground of appeal. 6. Ground No. 1 is thus dismissed. 7. In the second ground of appeal, revenue is aggrieved that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Out of the two grounds raised by the Revenue, there was a difference of opinion amongst the Members of the Division Bench in regard to the addition of Rs. 4 crores on account of sale of copyrights of 690 songs of 91 Hindi feature films to a subsidiary company. 2. I have been nominated as Third Member in regard to point of difference formulated by the Bench as under: "Whether, on the facts and in the circumstances of the case, the addition of Rs. 4 crores pertaining to the sale consideration of the copyright of 91 Hindi Films songs is required to be deleted/restored to the Assessing Officer for fresh examination, specially when he himself is not an expert and has not referred to DVO." Parties have been heard and records, including the orders of my learned Brothers perused. Though the facts have been stated in the dissenting orders, I would like to state the same in my own words for the sake of coherence and proper appreciation of the issue involved. 3. The respondent-company had transferred the copyrights of various 690 songs of 91 Hindi feature films to its subsidiary viz., Gramco Music Publishing Pvt. Ltd. for an aggregate consideration of Rs. 6 crores. By virtue of an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the subsidiary company in consideration of transfer of the copyrights of various songs of feature films. It is also not the case of the revenue that the transfer has been made by the respondent-company to the subsidiary company as a device of tax avoidance much less tax evasion. Once there is no doubt about the actual consideration received by the assessee from the subsidiary company, in my view it is unnecessary to enter into the controversy of valuation of copyrights. The assessee had appointed a firm of Chartered Accountants viz., Price Waterhouse Co.for valuation of the copyrights of 690 feature film songs. The said valuer had determined the value at Rs. 5.06 crores. However, the assessee had also got the valuation made by M/s. Bimal Roy Productions, Mohan Studios, Andheri East, Mumbai, who had valued the copyrights at Rs. 7.11 crores on the basis of their experience in the same business. Since the transaction was between the holding company and 100 per cent subsidiary company, it was decided to adopt average value of the two valuations for the purpose of actual transfer of copyrights. So long as there is no doubt about the bona fides of the transaction and about the actual c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In the present case, the assessee had transferred the copyrights at the price determined by the valuer. The valuation was made by the assessee in order to decide the reasonable consideration between the holding company and 100 per cent subsidiary company. It is relevant to point out that the assessee has not treated the sale of copyrights as sale of a capital asset. The assessee has treated the transfer as transfer of goods and has offered the entire consideration for taxation notwithstanding the fact that the transfer was made to 100 per cent subsidiary company. 8. Therefore, there was no justification for the addition of Rs. 4 crores made by the Assessing Officer on the basis of substantive estimation of market value of copyrights. The reference to CBDT Circular No.3 WT of 1957 dated 28th September, 1957 in the assessment order in para 2.3.1 is misplaced. The said Circular relates to wealth-tax and was relevant for determination of market value of copyrights on the valuation date. It hardly needs to be emphasised that wealth-tax is chargeable in respect of market value of assets. However, in this case, there is sale of copyrights. What is assessable to tax is on the basis of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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