GROUP M MEDIA INDIA P.LTD, MUMBAI V. ADDL CIT RG 7(3), MUMBAI

ITA 561/MUM/2012

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 2728 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 9 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-11-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 30-06-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 27-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIKASH KR AGARWAL
• Keywords: Revenue expenditure; Capital expenditure

Judgement Text

GROUP M MEDIA INDIA P LTD. ITA NO. 561 /MUM/20 1 2 1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G , MUMBAI , , BEFORE SHRI AMIT SHUKLA , JUDICIAL MEMBER AND SHRI RAMIT KOCHAR , ACCOUNTAN T MEMBER ITA NO. : 5 6 1 /MUM/20 1 2 ( ASSESSMENT YEAR: 200 8 - 0 9 ) GROUP M MEDIA INDIA P LTD. , COMMERZ, 8 TH FLOOR, INTERNATIONAL BUSINESS PARK, OBEROI GARDEN CITYM, OFF WESTERN EXPRESS HIGH WAY, GOREGAON (EAST), MUMBAI - 400 063 .: PAN: A ACCM 7365 H VS ASST COMMISSIONER OF INCOME TAX CIRCLE 24 ( 1 ), C - 13, R. NO. 503, PRATYAKSH KAR BHAVAN, BANDRA (EAST), MUMBAI - 400 001 (APPELLANT) (RESPONDENT) APPELLANT BY : MISS AARTI VISSANJI & SHRI AJIT SHAH RESPONDENT BY : SHRI VIKASH KR. AGARWAL /DATE OF HEARING : 10 - 08 - 201 5 / DATE OF PRONOUNCEMENT : 06 - 11 - 201 5 ORDER , . . : PER AMIT SHUKLA, J M : THE AFORESAID APPEAL S HA VE BE EN FILED BY THE IMPUGNED ORDER DATED 1 1 . 10 .20 1 1 , PASSED BY CIT (A) - 1 3 , MUMBAI , FOR THE QUANTUM OF ASSESSMENT PASSED U/S 14 3(3) FOR THE ASSESSMENT YEARS 200 8 - 0 9. IN VARIOUS GROUNDS OF APPEAL, THE ASSESSEE HAS CHALLENGED THE FOLLOWING ADDITIONS/ DISALLOWANCES : - ( I ) DISALLOWANCE OF SOFTWARE EXPENSES CLAIMED AS REVENUE EXPENDITURE AGGREGATING TO RS. 11,47,520/ - WHICH HAS BEEN TREATED AS CAPITAL IN NATURE. ( II ) DISALLOWANCE OF RS. 84,50,557/ - ON ACCOUNT OF PROVISION OF EXPENDITURE TO BE REIMBURSED TO THE PARENT/GROUP COMPANY IN CONNECTION WITH SOFTWARE ALLOCATION COST ON THE GROUND THAT DEDUCTION OF TAX AT SOURCE U/S 195 R.W.S. 194J HAS NOT BEEN MADE AND CONSEQUENTLY , 40( A ) (I) HAS BEEN MADE. GROUP M MEDIA INDIA P LTD. ITA NO. 561 /MUM/20 1 2 2 ( III ) DISALLOWANCE OF RS. 5,07,500 / - ON ACCOUNT OF REPLACEMENT OF OLD MONITORS OF RS.5,07,520/ - AND A RTIFICIAL CARPET C HARGES OF RS. 1,13,453/ - ON THE GROUND THAT THE SAME IS NOT COVERED BY THE DEFINITION OF CURRENT REPAIRS. 2. THE BRIEF FACTS OF THE CASE ARE THAT, ASSESSEE IS IN THE BUSINESS OF MEDIA PLANNING, EXECUTING AND BUYI NG IN THE FIELD OF ADVERTISING AND MARKETING AND OTHER RELATED SERVICES. THE AO REQUIRED THE ASSESSEE TO SUBMIT THE DETAILS O F THE SOFTWARE EXPENSES AND SHOW - CAUSE AS TO WHY THE SAME SHOULD NOT BE TREATED AS THE CAPITAL EXPENDITURE, IN RESPONSE, IT ASSESSE E SUBMITTED THAT , IN THE COURSE OF THE BUSINESS, VARIOUS INFORMATION AND KNOWLEDGE ON DIFFERENT SUBJECTS RELATING TO CLIENTS BUSINESS, PRODUCTS , KIND OF MARKETS IN DIFFERENT PARTS OF THE COUNTRY AND ALSO THE INFORMATION AND KNOWLEDGE ABOUT THE DIFFERENT S OURCE OF MEDIA LIKE, NEWSPAPER S , PUBLICATIONS, MA GAZ INE S , ELECTRONIC MEDIA SUCH AS TV, INTERNET ETC. ARE REQUIRED. THIS INFORMATION WAS AVAILABLE FROM SOFTWARE S SUPPLIED BY DIFFERENT PARTIES WHO SPECIALIZE IN SUCH JOBS AND ACTIVITIES. THE SOFTWARE HAS A VE RY LIMITED UTILITY AND USEFUL LIFE , DUE TO VAST CHANGING OF BUSINESS DYNAMICS AND ALSO THE ADVANCEMENT OF VARIOUS KINDS OF REQUIREMENTS. THE SOFTWARE GENERALLY HAS A USEFUL LIFE OF 12 MONTHS TO 18 MONTHS; THEREFORE SUCH EXPENDITURE IS TO BE ALLOWED AS REVE NUE EXPENDITURE. HOWEVER, AO REJECTED THE ASSESSEES CONTENTION AND DISALLOWED THE FOLLOWING SOFTWARE EXPENDITURES DEBITED TO THE PROFIT AND LOSS ACCOUNT WHICH ACCORDING TO THE AO WAS IN THE NATURE OF LICENSE FEES AND RESEARCH COST : - SR. NO. PARTICULARS AMOUNT (RS.) 1 SOFTWARE LICENSE COST OF MAC(MS OFFICE) 2,38,386 2 RESEARCH SOFTWARE COST 3,928 3 SOFTWARE LICENSE COST 6,93,959 4 SOFTWARE LICENSE COST (TOAD SOFTWARE DEVELOPMENT TOOL) 31,120 5 3D RESEARCH COST 1,49,199 6 RE SEARCH SOFTWARE COST (RADIO MONITORING SOFTWARE) 30,928 TOTAL (RS.) 11,47,520 3. THE LD. CIT(A), TOO UPHELD THE ACTION OF THE AO ON THE GROUND THAT IT HAS AN ENDURING BENEFIT. GROUP M MEDIA INDIA P LTD. ITA NO. 561 /MUM/20 1 2 3 4. BEFORE US, THE LD. COUNSEL SUBMITTED THAT THIS ISSUE HAD COME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2006 - 07. 5. AFTER HEARING THE PARTIES AND ON PERUSAL OF THE IMPUGNED ORDER, WE FIND THAT THESE SOFTWARE LICENSE COSTS W HICH HAS BEEN PAID BY THE ASSESSEE IS FOR USING OF SOFTWARE FOR ITS DAY - TO - DAY BUSINESS REQUIREMENTS, AS STATED BY THE ASSESSEE BEFORE THE AO. THESE SOFTWARES KEEP ARE EVER CHANGING FROM TIME TO TIME AND DID NOT HAVE A USEFUL LIFE FOR VERY LONG PERIOD AND AT ONE POINT OF TIME IT BEC O ME S OBSOLETE. THUS, IT CANNOT BE HELD THAT THEY ARE CAPITAL IN NATURE ON ACCOUNT OF ENDURING BENEFIT. MOREOVER, THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS ASAHI INDIA SAFETY GLASS LTD, 346 ITR 329 AND HONBLE BOMBAY HIG H COURT IN THE CASE OF CIT VS RAYCHEM RPG LTD, REPORTED IN 346 ITR 138 (BOM) HAVE HELD THAT, THESE SOFTWARES D O NOT FORM PART OF THE PROFIT MAKING APPARATUS AND MERELY FACILITATE THE ASSESSEES TRADING OPERATION OR ENABLED THE MANAGEMENT TO CONDUCT THE ASS ESSEES BUSINESS MORE EFFICIENTLY AND MORE PROFITABLE. THUS, THEY HAVE TO BE TREATED AS REVENUE EXPENDITURE. MOREOVER, AS POINTED OUT BY THE LD. COUNSEL IN THE EARLIER YEARS, THE TRIBUNAL IN ITA NO. 1306/MUM/2011 FOR THE ASSESSMENT YEAR 2006 - 07 HAS ALLOWED THIS ISSUE IN FAVOUR OF THE ASSESSEE. ACCORDINGLY, RESPECTFULLY FOLLOWING THE SAME, WE H O LD THAT SOFTW ARE EXPENSES AGGREGATING TO RS. 11,47,520/ - IS ALLOWABLE AS REVENUE EXPENDITURE. ACCORDINGLY, GROUND NO. 1.1 IS ALLOWED. 6. SO FAR AS THE DISALLOWANCE OF RS. 84 ,50,557 / - BEING THE PROVISION MADE FOR THE EXPENDITURE TO BE REIMBURSED IN CONNECTION WITH THE SOFTWARE ALLOCATION COST BY THE FOREIGN AE/ GROUP COMPANY, M INDS HARE ASIA PACIFIC , THE AO OBSERVED THAT, SUCH A PAYMENT ON ACCOUNT OF REIMBURSEMENT OF SO FTWARE COST AMOUNTS TO ROYALTY WITHIN THE MEANING OF EXPLANATION TO SECTION 9( 1 ) ( VI ) . ACCORDINGLY, HE HELD THAT TDS SHOULD HAVE BEEN DEDUCTED BY THE ASSESSEE WHILE MAKING THE PAYMENT, WHICH HAS NOT BEEN DONE AND GROUP M MEDIA INDIA P LTD. ITA NO. 561 /MUM/20 1 2 4 THEREFORE , DISALLOWANCE U/S 40(A)( I ) HAS B EEN MADE. THE LD. CIT(A) TOO HAS CONFIRMED THE SAID ADDITION ON THE FOLLOWING REASONS : - THE AMOUNT PAID TOWARDS PURCHASE OF SOF TWARE IS ROYALTY AS HELD IN THE CASE OF CIT (INT.TAX) VS SAMSUNG ELECTRONICS CO. LTD 320 ITR 209 (MUM). THE APPELLANT HAS PRO DUCED THE BILLS OF MINDSHARE ASIA PACIFIC HAVE NOT BEEN PRODUCED TO PROVE THAT WHAT MINDSHARE ASIA PACIFIC HAVE NOT BEEN PRODUCED TO PROVE THAT WHAT MINDSHARE ASIA PACIFIC HAS CHANGED IS MERELY THE REIMBURSEMENT OF ACTUAL SOFTWARE COST. WITHOUT PREJUDICE THE AMOUNT HAS BEEN PAID TOWARDS PURCHASE OF SOFTWARE EITHER DIRECTLY OR THROUGH INTERMEDIARY DOES NOT MATTER. HENCE PROVISIONS OF SEC. 194J WERE CLEARLY APPLICABLE. 7. BEFORE US, THE LD. COUNSEL CONTENDED THAT IT IS MERELY REIMBURSEMENT OF COST OF SOFTW ARE EXPENSES INCURRED BY THE GROUP COMPANY WHICH HAS BEEN ALLOTTED TO THE ASSESSEE AND IS NOT A ROYALTY WITHIN THE MEANING OF EXPLANATION 2 TO SECTION 9(1)(VI) OF THE ACT , AS IT DOES NOT FALL WITHIN ANY OF THE PARAMETERS LIKE : - (I) THERE IS NO TRANSFER OF ALL OR ANY RIGHTS (INCLUDING THE GRANTING OF LICENSE ) IN RESPECT OF A PATENT, INVENTION, MODEL, DESIGN, SECRET FORMULA OR PROCESS OR TRADEMARK OR SIMILAR PROPERTY; (II) THERE IS NO IMPARTING OF ANY INFORMATION CONCERNING THE WORKING OF THE USE OF, A PAT ENT, INVENTION, MODEL , DESIGN, SECRET FORMULA OR PROCESS OF TRADE MARK OR SIMILAR PROPERTY; ( III ) THERE IS NO USE OF A PATENT, INVENTION, MODEL, DESIGN, SECRET FORMULA OR PROCESS OF TRADE MARK OR SIMILAR PROPERTY; ( IV ) THERE IS NO IMPARTING OF ANY INFORMATION CONCERN ING TECHNICAL, INDUSTRIAL, COMMERCIAL OR SCIENTIFIC KNOWLEDGE, EXPERIENCE OR SKILL; GROUP M MEDIA INDIA P LTD. ITA NO. 561 /MUM/20 1 2 5 ( V ) THERE IS NO USE OR RIGHT TO USE ANY INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EQUIPMENT, NOT INCLUDING THE AMOUNTS REFERR ED TO IN SECTION 44BB; ( VI ) THERE IS NO TRANSFER OF ALL OR AN Y RIGHTS (INCLUDING THE GRANTING OF A LICENSE ) IN RESPECT OF ANY COPYRIGHT, LITERARY, ARTISTIC OR SCIENTIFIC WORK INCLUDING FILM OR VIDEO TAPES FOR USE IN CONNECTION WITH RADIO BROADCASTING, BUT NOT INCLUDING CONSIDERATION FOR THE SALE, DISTRIBUTION OR EXH IBITION OF CINEMATOGRAPHIC FILMS; OR ( VII ) THERE IS A NO RENDERING OF ANY SERVICES IN CONNECTION WITH THE ACTIVITIES REFERRED TO IN SUB - CLAUSES (I) TO (VI) ; THUS, THERE IS NO REQUIREMENT OF DEDUCTING TDS EITHER U/S 195 OR U/S 194J. THE LD. COUNSEL FURTHER REF ERRED TO THE DETAILS OF SOFTWARE COST ALLOCATED ON COST SHARING BASIS AND ALSO THE NATURE OF SUCH SOFTWARE AS GIVEN IN THE PAPER BOOK AND SUBMITTED THAT THESE SOFTWARES WERE PROCURED CENTRALLY FOR ALL THE GROUP ENTITIES FOR BETTER AND COORDINATED FUNCTIONI NG . SH E ALSO DREW OUR ATTENTION TO THE DETAILS OF SOFTWARE EXPENSES ALLOCATED BY PARENT COMPANY ALONG WITH THE INTERNAL DEB I T INVOICES . THUS, SHE SUBMITTED THAT, IT CANNOT BE TREATED AS ROYALTY. 8 . ON THE OTHER HAND, LD. DR STRONGLY RELIED UPON THE ORD ER OF THE AO AS WELL AS CIT(A) AND SUBMITTED THAT, THE SOFTWARE HAS BEEN SUPPLIED BY THE PARENT COMPANY FOR THE USAGE AND BENEFIT OF THE ASSESSEE , THEREFORE PAYMENT MADE IN LIEU THEREOF IS TO BE TREATED AS ROYALTY. 9 . AFTER CONSIDERING THE RIVAL CONTENT ION AND ON PERUSAL OF THE RELEVANT FINDING OF THE IMPUGNED ORDER AS WELL AS THE MATERIAL ON RECORD, WE FIND THAT VARIOUS SOFTWARES PRODUCTS HAVE BEEN SUPPLIED BY THE AE/ GROUP C OMPANY , MINDSHARE ASIA PACIFIC, THE DETAILS OF WHICH ARE AS UNDER : - GROUP M MEDIA INDIA P LTD. ITA NO. 561 /MUM/20 1 2 6 SR.NO. PA RTICULARS AMOUNT(RS.) 1 POSTINI/SYMANTEC ANTIVIRUS AND IBM LOTUS NOTES 18,39,000 2 SYMANTEC SUPPORT & MAINTENANCE 82,58 3 3 TREESIZE PROFESSIONAL LICENSE 6,706 4 PEERSYNC WORKSTATION MAINTENANCE 6,37,523 5 CHECKPOINT SECU RECLIENT 2,29,442 6 CHECKPOINT SECURECLINET MAINTENANCE 97,104 7 MS OFFICE EA 27,16,380 8 TIMESHEET 2,70,900 9 SA FOR SQL - METIS 1,35,584 10 DIRECTORY MAINTENANCE FOR SHAREPOINT 27,360 11 WINDOWS SERVER CAL R ENEWAL 1,57,376 12 WINDOWS SERVER ENTERPRISE RENEWAL 43,200 13 WINDOWS SERVER STANDARD RENEWAL 2,33,345 14 WINDOWS STANDARD SERVER TRUE UP 2,09,334 15 WINZIP (EXISTING) 54,720 16 GUPTA SQL 3,60,000 17 A DEPT 13,50,000 TOTAL 84,50,557 THESE SOFTWARES HAVE NOT BEEN DEVELOPED BY THE PARENT COMPANY OR ANY AE, BUT HAVE BEEN CENTRALLY PROCURED SO THAT SAME CAN BE ALLOTTED AND GIVEN TO THE VARIOUS GROUP ENTITIES IN ORDER TO ENSURE PROPER FUNCTIONING ; PROPER COORDINATION AND QUALITY. WHATEVER COST HAD BEEN INCURRED FOR PROCURING THE SOFTWARE FROM THIRD PARTIES HAS BEEN ALLOCATED AMONG THE GROUP ENTITIES ON THE PROPORTIONATE BASIS. SUCH A N ALLOCATION HAS N OT BEEN DISPUTED EXCEPT FOR HOLDING THAT THE REIMBURSEMENT OF COST PAID BY THE ASSESSEE TO THE PARENT / AE COMPANY AMOUNTS TO ROYALTY. SUCH A REIMBURSEMENT OF COST CANNOT BE HELD TO BE FOR ANY TRANSFER OF ANY RIGHT OR GIVING ANY RIGHT TO USE WITHIN THE AM BIT AND SCOPE OF ANY OF THE DEFINITION AS GIVEN IN EXPLANATION 2 TO SECTION 9(1)(VI). ONCE SUCH A PAYMENT DOES NOT FALL WITHIN ANY OF THE PARAMETERS SET OUT IN EXPLANATION 2, THEN IT CANNOT BE HELD THAT, IT IS IN THE NATURE OF ROYALTY. MINDSHARE ASIA PA CIFIC IS PROCURING THE SOFTWARE FROM SOMEWHERE ELSE AND LOADING THE COST ON PROPORTIONATE BASIS TO VARIOUS GROUP ENTITIES WITHOUT ANY MARK - UP HENCE ON REIMBURSEMENT OF SUCH A COST, ASSESSEE WAS NOT LIABLE TO DEDUCT TDS ON ACCOUNT OF ROYALTY AND THEREFOR E , NO DISALLOWANCE U/S 40(A)(I) CAN BE MADE. AS A RESULT, SUCH A DISALLOWANCE OF RS. 84,50,557/ - STANDS DELETED. ACCORDINGLY, GROUND NO. 2 IS ALLOWED.