ACIT, Chandigarh V. M/s Mobisoft Telesolutions Pvt. Ltd., Panchkula

ITA 1017/CHANDI/2016

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 8441 (ITAT-CHANDIGARH)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Next Hearing Date: 15-02-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 26-09-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Keywords: Depreciation; Business expenditure; Retrospective amendment; Additional evidence; Competent authority; Royalty expenses; Revenue expenditure
• Section: 37(1); 201(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA NO.300/CHD/2016 (ASSESSMENT YEAR :2008-09) ITA NO.301/CHD/2016 (ASSESSMENT YEAR :2011-12) THE A.C.I.T., VS. M/S MOBISOFT TELESOLUTIONS PVT.LTD., CIRCLE 4(1), 2 ND FLOOR, TOWER C, DLF BUILDING, CHANDIGARH. IT PARK, CHANDIGARH. PAN: AAACI3573P AND ITA NO.1017/CHD/2016 (ASSESSMENT YEAR :2012-13) THE A.C.I.T., VS. M/S MOBISOFT TELESOLUTIONS PVT.LTD., CIRCLE 4(1), ALTRUIST BUILDING, TECHNOLOGY PARK, CHANDIGARH. PLOT NO.2, SECOR 22, PANCHKULA. PAN: AAACI3573P (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI MANJIT SINGH, DR RESPONDENT BY : SHRI ROHIT GOEL DATE OF HEARING : 15.02.2017 DATE OF PRONOUNCEMENT : 28.02.2017 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 , 2 18.01.2016 AND 29.7.2016 PERTAINING TO ASSESSMENT Y EARS 2008-09, 2011-12 AND 2012-13 RESPECTIVELY. SINCE B OTH THE PARTIES CONCEDED THAT CERTAIN ISSUES INVOLVED I N ALL THE APPEALS WAS COMMON & IDENTICAL, THE APPEALS WERE H EARD TOGETHER AND ARE BEING DISPOSED OFF BY THIS CONSOLI DATED ORDER. 2. WE SHALL FIRST BE DEALING WITH THE APPEAL OF TH E 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 I N NATURE AND NEEDS NO ADJUDICATION. 4. GROUND NOS.2, 3 AND 4 PERTAIN TO THE DELETION O F ADDITION OF RS.3,57,46,928/- MADE BY TREATING COPYR IGHT EXPENSES AS REVENUE IN NATURE. THE SAID GROUND RAI SED BY THE REVENUE ARE AS UNDER : 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS,3,57,46,928/- TREATING THE 'COPYRIG HT EXPENSE'-AS A REVENUE EXPENSE WHEN THE INCOME TAX A CT, 1961 ALONGWITH THE INCOME TAX RULES, W.E.F. A.Y. 19 99-2000, HAS EXPLICITLY MENTIONED COPYRIGHTS AS AN INTANGIBL E ASSET. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) HAS ERRED IN TREATING THE 'C OPYRIGHT EXPENSE' AS A REVENUE EXPENSE RELYING ON THE DECISI ONS OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS. IAEC ( PUMPS) LTD. 232 ITR 316(SC) WHICH WAS DELIVERED PRIOR TO A MENDMENTS IN SECTION 32(1 )(II) OF THE INCOME TAX ACT, 1961 A ND IN RULE 5(1) OF THE INCOME TAX RULES, 1962 W.E.F A.Y, 1999- 2000, 3 WHEREBY INTANGIBLE ASSETS, INTER-ALIA, COPYRIGHTS H AVE BEEN INCLUDED IN THE APPENDIX 1 PRESCRIBING INTANGIBLE A SSETS AS A SEPARATE BLOCK OF ASSETS ON WHICH DEPRECIATION IS A PPLICABLE @ 25%. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) HAS ERRED IN TREATING THE CO PYRIGHT EXPENSE WITH ENDURING BENEFITS AS REVENUE EXPENDITU RE. 5. BRIEF FACTS RELATING TO THE ISSUE ARE THAT THE ASSESSEE IS ENGAGED IN PROVIDING VALUE ADDED SERVI CES TO TELECOMMUNICATION OPERATORS. DURING THE IMPUGNED ASSESSMENT YEAR THE ASSESSEE HAD DEBITED AND CLAIME D AN AMOUNT OF RS.4,76,62,571/- ON ACCOUNT OF COPYRIGHT EXPENSES . THE ASSESSEE CLAIMED THAT IT HAD ENTERED INTO AGREEMENT WITH PRODUCERS, COPYRIGHT HOLDERS FOR USI NG THE SONGS, TUNES, CONTENTS FOR WHICH THEY HOLD COPYRIGH T AND CONVERT THESE INTO MOBILE USEABLE. THE ASSESSING OF FICER WAS OF THE VIEW THAT THESE EXPENSES WERE OF CAPITAL NATURE BECAUSE COPYRIGHT CAME WITHIN THE PURVIEW OF INTANG IBLE ASSETS. HE, THEREFORE DISALLOWED THE COPYRIGHT EXP ENSES CLAIMED BY THE ASSESSEE, TREATING THEM AS BEING CAP ITAL IN NATURE AND AFTER ALLOWING DEPRECIATION @ 25% ON THE SAME HE MADE ADDITION OF THE BALANCE AMOUNTING TO RS.3,57,46,928/-. 6. THE LD. CIT (APPEALS) DELETED THE ADDITION MADE FOLLOWING THE DECISION OF THE I.T.A.T. IN ASSESSEE S OWN CASE FOR ASSESSMENT YEAR 2009-10 IN ITA NOS.1217 & 1274/CHD/2012 DT.03-07-2015,WHEREIN THE SAID EXPEN SES WERE HELD TO BE REVENUE IN NATURE. 4 7. BEFORE US, THE LD. DR SUPPORTED THE ORDER OF TH E ASSESSING OFFICER WHILE THE LD. COUNSEL FOR THE ASS ESSEE RELIED UPON THE ORDER OF THE LD. CIT (APPEALS). 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE ALSO GONE THROUGH THE ORDER OF THE I.T.A.T. IN ASSE SSEES OWN CASE IN ITA NOS.1217 & 1274/CHD/2012 DT.03-07- 2015, PERTAINING TO ASSESSMENT YEAR 2009-10. IN TH E SAID CASE ALSO THE ASSESSEE HAD CLAIMED COPYRIGHT EXPENS ES AND JUSTIFIED THE CLAIM STATING THAT THE SAME WAS P AID FOR THE PURPOSE OF USE OF COPYRIGHT OF PRODUCTS LIKE SO NGS, IMAGES VIDEO CLIPS, GAMES ETC. FOR DEVELOPMENT OF V ALUE ADDED SERVICES FOR THE TELECOMMUNICATION COMPANIES. THE ITAT AFTER GOING THROUGH THE RELEVANT CLAUSES OF TH E COPYRIGHT AGREEMENT, CONCURRED WITH THE ASSESSEE AN D HELD THAT THE ASSESSEE HAD MERELY ACQUIRED THE RIGH T TO USE THE COPYRIGHTS AND HAD NOT BECOME THE OWNER OF THE COPYRIGHTS/LICENSE AND THUS THE EXPENSES WERE REVEN UE IN NATURE. THE RELEVANT FINDINGS OF THE ITAT AT PARA 1 3 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 TH E APPELLANT IN AY 2009-10 WHICH WERE DELETED BY HON, BLE ITAT IN ITS ORDER DATED 03.07.2005 IN I TA NO. 5 1217/CHD/2012 AND ITA NO 1274/CHD/2012 WHEREIN IT HA S BEEN HELD AS UNDER: PARA 13. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND WE FIND FORCE IN THE SUBMISSION OF LD. COUNSEL FOR THE ASSESSEE. THE ASSESSEE HAS MERELY ACQUIRED RIGHT TO USE THE COPYRIGHT. THE PERUSAL OF THE AGREEMENT WITH M/S PHONOGRAPHIC PERFORMANCE LTD. SHOWS THAT LICENSE HAS BEEN GRANTED ONLY FOR USAGE OF THE COPYRIGHT. PARA 14. THE ABOVE CLEARLY SHOWS THAT LICENSE WAS ONLY FOR USAGE OF COPYRIGHT HELD BY THE LICENSOR. TH E ASSESSEE HAS NOT BECOME THE OWNER OF THE LICENSE. THEREFORE, CLEARLY THE PAYMENT IS OF REVENUE NATURE.' 9. THE ISSUE INVOLVED IN THE PRESENT APPEAL, IT HA S BEEN CONCEDED BY BOTH THE PARTIES ,IS IDENTICAL AND BASED ON IDENTICAL SET OF FACTS AS IN A.Y 2009-10.NO DIFF ERING SET OF FACTS HAVE BEEN BROUGHT TO OUR NOTICE. IN VIEW O F THE SAME, SINCE THE IDENTICAL ISSUE HAS ALREADY BEEN DE CIDED IN THE SUCCEEDING YEAR BY THE ITAT, IN FAVOUR OF TH E ASSESSEE, WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT (APPEALS) FOLLOWING THE SAID ORDER OF THE ITAT AND DELETING THE ADDITION MADE ON ACCOUNT OF COPYRIGHT EXPENSES, TREATING THE SAME AS REVENUE IN NATURE. 10. GROUND NOS.2, 3 AND 4 RAISED BY THE REVENUE ARE, THEREFORE, DISMISSED. 6 11. GROUND NOS. 5, 6 AND 7 RAISED BY THE REVENUE PERTAIN TO THE SAME ISSUE AND READ AS UNDER: 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE AD DITION OF RS. 4,38,750/- ON ACCOUNT OF DISALLOWANCE OF EXCESS DEPRECIATION CLAIMED TREATING THE SUPERSTRUCTURE AS TEMPORARY STRUCTURE AS THE ASSESSEE HAS NOT PRODUCED ANY EVID ENCE THAT THE SUPERSTRUCTURE CREATED BY THE ASSESSEE AND USED AS CAFETERIA WAS LEGALLY PERMISSIBLE AS PER BUILDING B YE-LAWS OF THE COMPETENT AUTHORITY TO CLAIM ALLOWABILITY OF SU CH EXPENSES UNDER SECTION 37(1) READ WITH EXPLANATION 1. 6 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DISALLOWING RS.3,57,46,928/- AS THE ASSET CREATED (I.E. CAFETERIA BUILT) WAS FOR THE PURPOSE OF PROVIDING BENEFIT OF ENDURING NA TURE, THUS CANNOT BE TREATED AS TEMPORARY CONSTRUCTION WHICH I S ELIGIBLE FOR 100% DEPRECIATION.. 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) HAS ERRED IN NOT APPRECIATIN G THE FACT THAT TEMPORARY STRUCTURE CANNOT HAVE OPENING WDV. 12. IN THESE GROUNDS, THE REVENUE HAS CHALLENGED THE DELETION OF ADDITION MADE ON ACCOUNT OF DISALLO WANCE OF DEPRECIATION OF RS.4,38,750/-, BEING 100% OF TEM PORARY STRUCTURE ERECTED BY THE ASSESSEE. 13. BRIEF FACTS RELATING TO THE ISSUE ARE THAT THE ASSESSEE HAD ERECTED A TEMPORARY STRUCTURE OF WOODE N 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 1.4.20 07 WAS RS.3,50,000/- AND ADDITION OF RS.88,750/- WAS MADE 7 DURING THE YEAR, TOTALING GROSS WDV OF RS.4,38,750/ -. THE ASSESSING OFFICER NOTED THAT THE OPENING WDV ON SUC H TEMPORARY STRUCTURE IS NOT ELIGIBLE FOR DEPRECIATIO N @ 100%. FURTHER THE ASSESSING OFFICER ALSO NOTED THA T THIS STRUCTURE HAD BEEN CREATED BY THE ASSESSEE ILLEGALL Y 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 DISALL OWED THE ASSESSEES CLAIM OF 100% DEPRECIATION ON THE TEMPORA RY STRUCTURE AND ALSO DENIED CLAIM OF THE SAME U/S 37( 1) OF THE ACT AND MADE ADDITION OF RS.4,38,750/- TO THE I NCOME OF THE ASSESSEE. 14. DURING APPELLATE PROCEEDINGS BEFORE THE LD. C IT (APPEALS), THE ASSESSEE MADE SUBMISSIONS WHICH ARE REPRODUCED IN THE LD. CIT (APPEALS)S ORDER AT PARA 7.2 AS UNDER: 7.2 ASSESSEE MADE SUBMISSIONS AS UNDER: THIS WAS A TEMPORARY CONSTRUCTION MADE FOR PROVIDIN G A CAFETERIA SPACE ABOVE THE OFFICE PREMISES AND AS SUC H DO NOT REQUIRE ANY PERMISSION FROM ANY REGULATORY BODY. IT W AS PRE FABRICATED WOODEN CABIN CAFETERIA WITH PVC PROFILE, THERMOCOLE, MS PIPE, GLASS ETC. IS INSTALLED ON TOP FLOO R OF THE RENTED BUILDING. THAT IN FACT RS. 3,50,000/- WAS PAI D TO TINY CRAFT ON 27.11.2006 AND RS. 88,750/- WAS PAID ON 08.11.2007 ON WHICH DEPRECIATION WAS CLAIMED DURING THE YEAR AS 100% ON TEMPORARY STRUCTURE. THE LD. OFFICER HAS DISALLOWED THE EXPENDITURE ON THE FINDING THAT IT WAS AND ILLEGAL STRUCTURE AND AS SUCH THE EX PENDITURE IS DISALLOWED. THERE IS NO SANCTION REQUIRED FOR CREAT ING THIS TEMPORARY STRUCTURE BUT THE EXPENDITURE OF THIS TEM PORARY STRUCTURE IS INCIDENTAL TO BUSINESS AND THE SAME IS AN ALLOWABLE EXPENDITURE.' ' ASSESSES WAS OPERATING ITS OFFICE FROM E-46/8, OKHLA INDL. AREA PHASE - II, NEW DELHI DURING THE YEAR UNDER CONSIDERATION WHICH WAS TAKEN ON RENT AND AGAINST W HICH RENT OF RS.28,20,000/- WAS PAID DURING THE YEAR. THA T APPROXIMATELY 110 EMPLOYEES WERE WORKING IN THIS PR EMISES AND THERE WAS NO CAFETERIA/CANTEEN RESULTING INTO HA RDSHIPS TO 8 STAFF. THAT AS PER GOVERNMENT RULES TEMPORARY STRUC TURE WAS CREATED IN THIS RENTED PREMISES BY THE ASSESSES AND WAS PUT TO USE DURING THE YEAR.' 15. THE LD. CIT (APPEALS), AFTER GOING THROUGH THE ASSESSEES SUBMISSIONS, DELETED THE ADDITION MADE HO LDING THAT THE SAID EXPENSES INCURRED FOR CREATING THE TE MPORARY STRUCTURE TO BE USED AS CAFETERIA FOR EMPLOYEES WAS INCIDENTAL TO THE BUSINESS OF THE ASSESSEE, THAT TH ERE WAS NO BREACH OF ANY LAW BY THE ASSESSEE BY CREATING A PURELY TEMPORARY STRUCTURE AND THAT THE ASSESSEE WAS ENTIT LED TO 100% DEPRECIATION ON THE SAME FOR THE IMPUGNED YEAR SINCE IT WAS PUT TO USE ONLY IN THE SAID YEAR. THE RELEVANT FINDING OF THE LD. CIT (APPEALS) AT PARA 7.3 OF THE ORDER ARE AS FOLLOWS: 7.3 THE SUBMISSION OF THE APPELLANT AND ASSESSMENT OR DER HAVE BEEN CAREFULLY CONSIDERED. AO HAS NOTED IN THE ASSESSMENT ORDER (IN PARA 4.1) THAT THE COUNSEL SUB MITTED THAT AS PER THE PREVAILING RULE IN THE INDUSTRIAL AR EA WHERE APPELLANT OFFICE IS LOCATED NO PERMANENT STRUCTURE CAN B E MADE. THE APPELLANT HAS CREATED A TEMPORARY STRUCTURE FOR USING IT AS A CAFETERIA FOR THE EMPLOYEES WHICH IS AN EXPENDITUR E INCIDENTAL TO THE BUSINESS. AS THERE IS A BAR FOR CRE ATING 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 STRUCT URE. THEREFORE IN MY CONSIDERED OPINION APPELLANT IS ENTIT LED FOR 100% DEPRECIATION ON THE TEMPORARY STRUCTURE IN THE RELEVANT YEAR AS THE ASSET WAS PUT TO USE ONLY IN THE RELEVA NT YEAR. THE DEPRECIATION OF RS.437850/- IS ALLOWABLE. HENCE, THE AD DITION MADE BY THE AO IS DELETED. GROUND OF APPEAL NO 4 & 5 A RE ALLOWED. 9 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 (APPE ALS). 17. WE FIND NO INFIRMITY IN THE ORDER OF THE LD. C IT (APPEALS). THE FACT THAT THE STRUCTURE CREATED BEI NG 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 D ENIED THAT TEMPORARY STRUCTURES ARE ENTITLED TO 100% DEPRECIATION. FURTHER THAT THE STRUCTURE CAME INTO EXISTENCE AND WAS THUS PUT TO USE IN THE IMPUGNED Y EAR IS ALSO NOT DISPUTED. IN VIEW OF THE SAME, WE CONCUR WITH THE LD.CIT(APPEALS), THAT THE ASSESSEE IS ENTITLED TO DEPRECIATION @ 100% ON THE COST OF THE TEMPORARY STRUCTURE IN THE IMPUGNED YEAR. THE CONTENTION OF THE LD.DR, THAT THE ASSESSEE SHOWED AN OPENING WDV OF TEMPORARY STRUCTURE IN ITS CHART OF FIXED ASSETS, W E HOLD, MAKES NO DIFFERENCE TO THE ALLOWABILITY OF THE CLAI M OF THE ASSESSEE. THE SAID OPENING WDV HAS BEEN SATISFACTO RILY 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 TH E TEMPORARY STRUCTURE AND THE ASSESSEE HAS RIGHTLY CL AIMED 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 W ITH THE REVENUE TO HOLD THAT THE CONSTRUCTION OF THE SAID 10 STRUCTURE WAS PROHIBITED BY LAW AND WAS AN OFFENCE AS RIGHTLY POINTED OUT BY THE LD. CIT (APPEALS). THE LD.CIT(APPEALS) HAS RIGHTLY POINTED OUT THAT EVEN A S 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 STRUCTUR E AND THUS THERE WAS NO BREACH OF LAW BY THE ASSESSEE BY CREATING IT. THEREFORE, WE AGREE WITH THE LD.CIT(AP PEALS) THAT NO DISALLOWANCE COULD HAVE BEEN MADE U/S 37(1) OF THE ACT ALSO. 18. IN VIEW OF THE ABOVE, WE CONCUR WITH THE LD. C IT (APPEALS) THAT THE TEMPORARY STRUCTURE HAVING COME INTO EXISTENCE IN THE IMPUGNED YEAR AND THUS PUT TO USE IN THE IMPUGNED YEAR, THE ASSESSEE WAS ENTITLED TO DEPRECI ATION @ 100% ON THE SAME AND THE DISALLOWANCE MADE BY THE ASSESSING OFFICER, WE HOLD, HAS BEEN RIGHTLY DELETE D BY THE LD. CIT (APPEALS). 19. IN VIEW OF THE ABOVE, GROUND NOS.5, 6 AND 7 RAISED BY THE REVENUE ARE DISMISSED. 20. IN EFFECT THE APPEAL OF THE REVENUE IS DISMISS ED. ITA NO.301/CHD/2016 : A.Y 2011-12 21. GROUND NO.1 RAISED BY THE REVENUE IS GENERAL AND NEEDS NO ADJUDICATION. 11 22. GROUND NOS. 2, 3 AND 4 READS AS UNDER: 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE ID. CIT(A) HAS ERRED IN DELETING ADDITIONS OF RS.16,97,769/- WITHOUT CONSIDERING THE APPLICABILITY OF SECTION 47(XIV) READ WITH SECTION 47A(3). 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN ALLOWIN G 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 CAS E AND IN LAW, THE LD.CIT(A) HAS ERRED IN HOLDING T HAT 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 RS.16,97,769/- TO THE INCOME OF THE ASSESSEE ON ACCOUNT OF ROYALTY PAID BY IT TO ITS DI RECTOR 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 AD DED SERVICES TO TELECOMMUNICATION OPERATORS AND THAT ON 18.2.2004 A PROPRIETORSHIP CONCERN OF SHRI TARUN MO HAN, M/S PHONEYTUNES.COM TRANSFERRED ITS BUSINESS TO ITI DA 12 CAD SERVICES PRIVATE LTD. (CHANGED TO MOBISOFT TELESOLUTION PVT. LTD.) THE ASSESSEE, THROUGH BUSI NESS SALE AGREEMENT IN WHICH SHRI TARUN MOHAN WAS A DIRE CTOR. ALL THE INTELLECTUAL PROPERTY RIGHTS IN THE BUSINES S WERE TRANSFERRED, EXCEPT THE BRAND NAME OF PHONEYTUNES.C OM, FOR THE USAGE OF WHICH ITIDA HAD TO PAY 2% OF GROSS REVENUE RECEIPTS AS ROYALTY. THE ASSESSEE SUBMITTE D THAT PHONEYTUNES.COM WAS A REGISTERED TRADE MARK AS WELL AS DOMAIN NAME OF WEBSITE WHICH WAS THE PROPERTY OF SH RI TARUN MOHAN ON THE DATE OF BUSINESS SALE AGREEMENT AND BOTH WERE NOT TRANSFERRED THROUGH THIS SALE AGREEME NT. A RIGHT TO USE THE WEBSITE WAS ALLOWED TO THE ASSESSE E ON THE PAYMENT OF 2% OF GROSS REVENUE AS ROYALTY. THE ASSESSEE ALSO SUBMITTED THAT THE ISSUE HAD BEEN DEC IDED BY THE I.T.A.T., CHANDIGARH BENCH IN PRECEDING YEAR S I.E. ASSESSMENT YEARS 2006-07 TO 2008-09 IN ITS ORDER IN ITA NOS.684, 1206 & 1207/CHD/2011 DATED 16.10.2014, WHEREIN THE SAID EXPENSES WERE HELD TO BE REVENUE I N NATURE. IT WAS ALSO BROUGHT TO THE NOTICE OF THE L D. CIT (APPEALS) THAT THE SAID DECISION OF THE I.T.A.T. HA D BEEN CONFIRMED BY THE HON'BLE PUNJAB & HARYANA HIGH COUR T ALSO. CONSIDERING THE ABOVE SUBMISSIONS, THE LD. C IT (APPEALS) ALLOWED ASSESSEES APPEAL. 25. 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 (APPE ALS). 13 26. WE HAVE HEARD THE RIVAL CONTENTIONS AND WE FIN D NO INFIRMITY IN THE ORDER OF THE LD. CIT (APPEALS). THE ISSUE OF TREATMENT OF ROYALTY EXPENSES AS REVENUE I N NATURE HAS ALREADY BEEN SETTLED IN FAVOUR OF THE AS SESSEE BY THE HON'BLE PUNJAB & HARYANA HIGH COURT IN APPEA LS PERTAINING TO PRECEDING YEARS. NO DISTINGUISHING FA CTS HAVE BEEN BROUGHT TO OUR NOTICE IN THE PRESENT APPE AL BY THE REVENUE. IN VIEW OF THE SAME, WE FIND NO REASON TO INTERFERE IN THE ORDER OF THE LD. CIT (APPEALS) ON THIS ISSUE. THE GROUNDS OF APPEAL NOS.2, 3 AND 4 RAISED BY THE REVENUE ARE, THEREFORE, DISMISSED. 27. GROUND NOS.5 AND 6 RAISED BY THE ASSESSEE READ AS UNDER: 5. 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.33,77,630/- TREATING TH E '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. 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%. 14 28. THE ISSUE INVOLVED IN THE SAID GROUNDS RELATES TO TREATMENT OF COPYRIGHT EXPENSES AMOUNTING TO RS.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/201 6 PERTAINING TO A.Y 2008-09 AND WHICH WAS HEARD ALONG WITH 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, VIDE GROUND NOS.2, 3 AND 4 RAISED BY THE REVENUE, WHEREIN THE SAID EXPENSES HAD BEEN HELD TO BE REVENUE IN NATURE AT PARAS 8 TO 10 AND NO DISTINGUI SHING FACTS HAVE BEEN BROUGHT TO OUR NOTICE, THE DECISION RENDERED THEREIN WILL SQUARELY APPLY IN THE PRESENT CASE ALSO. FOLLOWING THE SAME, WE HOLD THE COPYRIGHT EX PENSES TO BE REVENUE IN NATURE AND THUS DISMISS THE GROUN D NOS.5, 6, & 7 RAISED BY THE REVENUE. 31. IN EFFECT THE APPEAL OF THE REVENUE IS DISMIS SED. ITA NO.1017/CHD/2016 : A.Y 2012-13 32. GROUND NOS.1 AND 2 RAISED BY THE REVENUE READ AS UNDER : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) HAS ERRED IN TREATING TH E 'COPYRIGHT EXPENSES' AS A REVENUE EXPENSE WHEN THE INCOME 15 TAX ACT, 1961 [SEC. 2(11) & SEC. 32(1)(II)] ALONGWI TH THE INCOME TAX RULES, 1962 [RULE 5 READ WITH PART B OF NEW APP ENDIX I] HAS EXPLICITLY MENTIONED COPYRIGHT AS AN DEPRECIABL E INTANGIBLE ASSET. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD.CIT(A) HAS ERRED IN TREATING THE COPYRIGHT EXPENSE WITH ENDURING BENEFITS AS REVENUE EXPENDITURE. 33. IN THE ABOVE TWO GROUNDS THE REVENUE HAS CHALLENGED THE DELETION OF DISALLOWANCE OF RS.1,09,55,426/- OUT OF COPYRIGHT EXPENSES HOLDING THEM TO BE CAPITAL IN NATURE. 34. IT WAS CONCEDED BY BOTH THE PARTIES THAT THE I SSUE INVOLVED IN THE ABOVE GROUNDS IS IDENTICAL TO THAT RAISED IN GROUND NOS.2, 3 & 4 IN ITA NO.300/CHD/2016 PERTAIN ING TO A.Y 2008-09 AND WHICH WAS HEARD ALONGWITH THE PRESENT APPEAL. 35. SINCE THIS ISSUE HAS ALREADY BEEN ADJUDICATED UPON BY US IN ITA NO.300/CHD/2016, IN THE EARLIER PART OF THE ORDER, VIDE GROUND NOS.2, 3 AND 4 RAISED BY THE REVENUE, WHEREIN THE SAID EXPENSES HAD BEEN HELD TO BE REVENUE IN NATURE AT PARAS 8 TO 10 AND NO DISTINGUI SHING FACTS HAVE BEEN BROUGHT TO OUR NOTICE, THE DECISION RENDERED THEREIN WILL SQUARELY APPLY IN THE PRESENT CASE ALSO. FOLLOWING THE SAME, WE HOLD THE COPYRIGHT EX PENSES TO BE REVENUE IN NATURE AND THUS DISMISS THE GROUN D NOS.1 & 2 RAISED BY THE REVENUE. 16 36. GROUND NO.3 RAISED BY THE REVENUE READS AS UNDER: 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD.CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.41,62,580/- MADE U/S 40(A)(IA) READ WITH SEC. 194A OF THE INCOMETAXACT,1961BYHOLDINGTHATTHE INSER TION OF SECOND PROVISO TO SECTION 40(A)(IA) HAS RETROSPECTI VE EFFECT W.E.F. 01.04.2015 WHEREAS IT HAS BEEN CLEARLY MENTI ONED IN THE SECTION-11 OF FINANCE ACT, 2012 (THROUGH WHICH SECO ND PROVISO WAS INSERTED IN SECTION 40 OF THE INCOME TA X ACT) AS THE FOLLOWING PROVISO SHALL BE INSERTED WITH EFFEC T FROM THE 1ST DAY OF APRIL, 2013 ' 37. BRIEF FACTS RELATING TO THE ISSUE ARE THAT THE ASSESSEE PAID INTEREST TO NON BANKING FINANCIAL COM PANIES OF RS.41,62,580/- AND CLAIMED THE SAME AS EXPENDITU RE IN ITS PROFIT & LOSS ACCOUNT. THE ASSESSING OFFICER F OUND THAT THE ASSESSEE HAD NOT DEDUCTED TAX ON THE SAME AS PER THE PROVISIONS OF SECTION 194A OF THE ACT. THEREFO RE, INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT, HE DISALLOWED THE SAID INTEREST AMOUNTING TO RS.41,62, 580/-. 38. BEFORE THE LD. CIT (APPEALS) THE ASSESSEE SUBMITTED THAT THE INTEREST HAD BEEN PAID TO M/S IN DIA BULLS AND FINANCIAL SERVICES OF RS.2,61,054/- AND M /S BAJAJ FINANCIAL SERVICES LIMITED OF RS.39,01,526/-, BOTH OF WHOM HAD REFLECTED THE SAID INCOME IN THEIR RETU RN OF INCOME AND PAID TAXES ON THE SAME. AS EVIDENCE OF THE SAME, THE ASSESSEE FILED COPY OF FORM 26A AND REPOR T OF CHARTERED ACCOUNTANT. THE ASSESSEE FURTHER SUBMITT ED THAT IN VIEW OF THE LAW ON THE ISSUE OF SECTION 40( A)(IA) WHICH INTENDS TO TAX ONLY THOSE PAYMENTS OR EXPENSE S 17 WHICH HAVE NOT BEEN REFLECTED IN THE RETURN OF INCO ME BY THE RECIPIENTS THEREOF, THE SAID EXPENSES OUGHT TO BE ALLOWED TO THE ASSESSEE. THE EVIDENCES FILED BY TH E ASSESSEE WERE ALSO SOUGHT TO BE DEEMED AS ADDITIONA L EVIDENCES. THE ADDITIONAL EVIDENCES SUBMITTED WERE FORWARDED TO THE ASSESSING OFFICER WHO DID NOT OBJE CT TO THE ADMISSION OF THE SAME. FURTHER THE ASSESSING O FFICER IN HER REMAND REPORT STATED THAT THE CLAIM OF THE ASSESSEE OUGHT TO BE ALLOWED IN VIEW OF THE PROVISI ONS OF SECTION 40(A)(IA) R.W.S. 201(1) OF THE ACT. BASED ON THE ABOVE REPORT OF THE ASSESSING OFFICER AND IN VIEW O F THE DECISION OF THE AGRA BENCH OF THE I.T.A.T. IN THE C ASE OF RAJIV KUMAR AGGARWAL VS. ADDL.CIT, REPORTED AT 45 TAXMAN.COM 555, WHEREIN IT WAS HELD THAT INSERTION OF SECOND PROVISO TO SECTION 40(A)(IA), WHICH STATES T HAT NO DISALLOWANCE IS TO BE MADE IN CASES WHERE TAXES HAV E BEEN PAID BY THE PAYEES, IS DECLARATORY AND CURATIVE IN NATURE AND IT HAS RETROSPECTIVE EFFECT FROM 1.4.2005, LD.C IT(A) DELETED THE DISALLOWANCE MADE U/S 40(A)(IA) OF THE ACT. 39. BEFORE US THE LD.COUNSEL FOR THE ASSESSEE RELI ED UPON THE ORDER OF THE CIT(A), WHILE THE LD.DR RELIE D UPON THE ORDER OF THE ASSESSING OFFICER. 40. WE HAVE HEARD THE RIVAL CONTENTIONS AND FIND N O MERIT IN THE GROUND RAISED BY THE REVENUE. IN THE P RESENT CASE ,IT IS NOT DISPUTED THAT THE PAYEES /RECIPIENT S OF THE SAID INTEREST INCOME I.E. M/S INDIABULLS FINANCIAL SERVICES LTD. AND M/S BAJAJ FINANCIAL LTD HAVE INCLUDED THE SAID 18 INCOME IN THEIR RETURN OF INCOME AND PAID TAXES ON THE SAME. EVIDENCE IN THE FORM OF FORM NO.26A AS ALSO REPORT OF CHARTERED ACCOUNTANT WAS FILED. THE REVENUE HAS NOT CHALLENGED THIS FACT BEFORE US. THUS THE ASSESSEE HAD DULY DEMONSTRATED COMPLIANCE WITH THE CONDITIONS ST ATED IN THE SECOND PROVISO TO SECTION 40(A)(IA), WHICH B RIEFLY PUT, STATES THAT NO DISALLOWANCE IS TO BE MADE IN C ASES WHERE THE RECIPIENT OF THE INCOME REFLECTS THE SAME IN ITS RETURN OF INCOME AND PAYS TAXES ON THE SAME. 41. THE ASSESSING OFFICER ALSO, WE FIND, HAS IN HE R REMAND REPORT AFTER EXAMINING THE EVIDENCES PRODUC ED BY THE ASSESSEE, ADMITTED THAT THE SAID EXPENSES W ERE ALLOWABLE IN VIEW OF THE PROVISIONS OF SECTION 40(A )(IA) R.W.S. 201(1) OF THE ACT. IN SUCH CIRCUMSTANCES, S INCE THE ASSESSING OFFICER HAS HERSELF ADMITTED THAT THE ADD ITION MADE WAS UNWARRANTED, THE ADDITION NO LONGER SURVIV ES VIS--VIS ASSESSMENT ORDER AND THERE IS NO REASON F OR THE REVENUE TO HAVE ANY GRIEVANCE ON THE ISSUE. 42. EVEN OTHERWISE, WE FIND THAT THE LD. CIT (APPEALS) HAS RIGHTLY FOLLOWED THE PROPOSITION LAID DOWN BY THE I.T.A.T. AGRA BENCH IN THE CASE OF RAJIV KUMAR AGGARWAL (SUPRA) WHICH STATED THAT THE SECOND PROVI SO TO SECTION 40(A)(IA) WERE RETROSPECTIVE IN NATURE W.E. F. 1.4.2005. THE SAID DECISION HAS BEEN FOLLOWED BY T HE DELHI HIGH COURT WHILE UPHOLDING THE ABOVE PROPOSIT ION IN THE CASE OF CIT VS. ANSAL LANDMARK TOWNSHIP P. LTD ., ITA NO.160 & 161/2015 DT. 26-08-2015. 19 43. IN VIEW OF THE SAME WE UPHOLD THE ORDER OF THE LD. CIT (APPEALS) DELETING THE DISALLOWANCE MADE OF RS.41,62,580/- AND DISMISS THE GROUND NO.3 RAISED B Y THE REVENUE. 44. IN EFFECT THE APPEAL OF THE REVENUE IS DISMISS ED. 45. IN THE RESULT, ALL THE THREE APPEALS FILED BY THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (BHAVNESH SAINI) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 28 TH FEBRUARY, 2017 *RATI* COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. THE CIT 5. THE DR ASSISTANT REGISTRAR, ITAT, CHANDIGARH