DCIT, New Delhi V. M/s. I.K. International Publishing House Pvt. Ltd., New Delhi

ITA 5832/DEL/2011

• Counselvise Citation: 583220114 RSA 2011
• Duration Of Justice: 2 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-03-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 29-02-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 28-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KUM YS KAKKAR SENIOR
• Assessee Lawyers: NITIN CHAUDHARY CAS; SSH PRADEEP DIN ODIA RK KAPOOR
• Keywords: Rule of consistency; Royalty expenses; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH C NEW DELHI) BEFORE SHRI G.D. AGARWAL, HONBLE VICE-PRESIDENT AN D SHRI RAJPAL YADAV: HONBLE JUDICIAL MEMBER ITA NO. 5832/DEL/2011 ASSESSMENT YEAR: 2008-09 DEPUTY CIT, VS. I.K. INTERNATIONAL PUBLISHING CIRCLE 11(1), HOUSE PVT. LTD., S-25, NEW DELHI. GREEN PARK EXTENSION, NEW DELHI (PAN: AACCR2944K) (APPELLANT) (RESPONDENT) APPELLANT BY: KUM. YS KAKKAR , SENIOR DR RESPONDENT BY: S/SH. PRADEEP DIN ODIA, RK KAPOOR & NITIN CHAUDHARY, CAS DATE OF HEARING : 29.02.2012 DATE OF PRONOUNCEMENT : 16.03.2012 ORDER PER RAJPAL YADAV: JUDICIAL MEMBER THE REVENUE IS IN APPEAL BEFORE US AGAINST THE ORD ER OF LEARNED CIT(APPEALS) DATED 31.10.2011 PASSED FOR ASSESSMENT YEAR 2008-09. THE SOLITARY GRIEVANCE OF THE REVENUE IS THAT LEARNED C IT(APPEALS) HAS ERRED IN DELETING THE ADDITION OF RS.31,22,377. LEARNED ASSE SSING OFFICER HAS MADE THIS ADDITION ON THE GROUND THAT EXPENSES INCURRED BY THE ASSESSEE UNDER THE HEAD PRINTING/BLOCK AND ROYALTY ARE CAPITAL EXPEND ITURE BECAUSE IT WILL GIVE ENDURING BENEFIT TO THE ASSESSEE. HOWEVER, HIS FIND INGS DID NOT MEET THE APPROVAL OF LEARNED CIT(APPEALS) HENCE THIS APPEAL. 2 2. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE CO MPANY IS IN THE BUSINESS OF PUBLISHING OF EDUCATIONAL BOOKS AUTHORED BY FACU LTY MEMBER FROM INDIAN INSTITUTIONS. IT HAS FILED ITS RETURN OF INCOME ON 29.9.2008 DECLARING NIL INCOME AFTER MAKING ADJUSTMENT OF BROUGHT FORWARD L OSSES. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT AND A NOTICE UNDER SEC. 143(2) WAS DULY SERVED UPON THE ASSESSEE. LEARNED ASSESSIN G OFFICER HAS OBSERVED THAT EXPENDITURE INCURRED BY THE ASSESSEE TOWARDS P RINTING/BLOCKS AND ROYALTY PAID TO THE AUTHORS DESERVES TO BE CAPITALIZED AND ONLY 1/5 TH OF SUCH EXPENSES ARE ALLOWABLE IN THIS YEAR. ACCORDINGLY, HE MADE TH E DISALLOWANCE OF THE BALANCE. HIS FINDINGS ON THIS ISSUE READ AS UNDER: DISALLOWANCE OF CAPITAL EXPENSES 3. THE ASSESSEE HAS DEBITED RS.23,42,968 AND RS.15,60,003/- TOWARDS PRINTING/BLOCKS EXPENSES AND ROYALTY PAID TO AUTHORS. THE ABOVE EXPENSES HAVE BEEN INCURRED IN T HE NATURE OF CAPITAL EXPENDITURE AS THE BENEFITS OF SUCH EXPENSE S GENERALLY SPREAD BEYOND THE FINANCIAL YEAR IN WHICH THEY ARE INCURRE D AND RENDERS THE ASSESSEE FOR ENDURING BENEFITS. IN VIEW OF THIS, IT IS HELD THAT THE SAID EXPENSES SHOULD BE SPREAD OVER FIVE YEARS. IN VIEW OF THIS, ONLY 1/5 TH OF THE EXPENSES SHALL BE ALLOWABLE IN THE YEAR UNDE R CONSIDERATION AMOUNTING TO RS.7,80,594 AND THE BALANCE RS.31,22,3 77 SHALL BE DISALLOWED TO BE CLAIMED EQUALLY IN THE SUCCEEDING FOUR ASSESSMENT YEARS. 3 3. DISSATISFIED WITH THE ACTION OF THE ASSESSING OF FICER, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LEARNED CIT(APPEALS ). IT CONTENDED THAT ROYALTY WAS NOT PAID ON LUMP SUM BASIS RATHER IT IS PAID IN TERMS OF PERCENTAGE COMPUTED ON THE BASIS OF SALES MADE DURI NG THE YEAR. LEARNED FIRST APPELLATE AUTHORITY WHILE EVALUATING THIS ISS UE DIRECTED THE ASSESSEE TO GIVE THE DETAILS OF ROYALTY PAYMENT AND THE PRINTIN G COST FOR THE LAST THREE YEARS AND THEIR PERCENTAGE VIS--VIS TURNOVER OF TH E ASSESSEE. THE ASSESSEE HAS SUBMITTED THOSE DETAILS AND LEARNED FIRST APPEL LATE AUTHORITY HAS REPRODUCED THE DETAILS IN PARAGRAPH NO. 6.3 OF THE IMPUGNED ORDER. ON AN ANALYSIS OF THE DETAILS, LEARNED CIT(APPEALS) FOUND THAT THE ROYALTY HAS BEEN PAID IN BETWEEN 7 TO 10% OF THE TURNOVER. SIMILARLY , THE COST OF PRINTING IS ALSO RANGING IN BETWEEN 16 TO 29%. ON THE STRENGTH OF THESE DETAILS, LEARNED FIRST APPELLATE AUTHORITY OBSERVED THAT THE ASSESSE E HAS NOT INCURRED ANY EXTRAORDINARY EXPENDITURE IN THIS ASSESSMENT YEAR. IN THE PAST THE ASSESSING OFFICER HAS NOT DISPUTED THE VERSION OF THE ASSESSE E. IN THIS WAY, LEARNED FIRST APPELLATE AUTHORITY HAS ALLOWED THE CLAIM OF ASSESSEE BY ASSIGNING TWO REASONING, FIRSTLY, HE OBSERVED THAT ACCORDING TO T HE PRINCIPLE OF CONSISTENCY, A DIFFERENT TREATMENT IN THIS YEAR CANNOT BE GIVEN. IN THIS CONNECTION, LEARNED CIT(APPEALS) MADE REFERENCE TO THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF RADHA SOAMI SATSANG VS. CIT RE PORTED IN 193 ITR 321. 4 THE SECOND REASON ASSIGNED BY THE LEARNED CIT(APPEA LS) IS THAT ROYALTY HAS BEEN PAID BY WAY OF A PERCENTAGE OF SALES. IT HAD N OT BEEN PAID IN ONE GO. HAD IT BEEN PAID LUMP SUM THEN, ACCORDING TO THE LE ARNED FIRST APPELLATE AUTHORITY, THE ASSESSING OFFICER MIGHT HAVE A CASE. FOR BUTTRESSING HIS OPINION, HE MADE REFERENCE TO THE TO DECISION OF HO N'BLE SUPREME COURT IN THE CASE OF ALAMBIC CHEMICAL WORKS VS. CIT REPORTED IN 177 ITR 377. ACCORDINGLY, LEARNED FIRST APPELLATE AUTHORITY HAS HELD THAT ROYALTY EXPENDITURE AS WELL AS PRINTING EXPENDITURE ARE TO BE ALLOWED AS REVENUE EXPENDITURE. 4. LEARNED DR WHILE IMPUGNING THE ORDER OF LEARNED CIT(APPEALS) CONTENDED THAT NEITHER THE ASSESSING OFFICER HAS LO OKED INTO THE FACTS NOR LEARNED CIT(APPEALS). SHE POINTED OUT THAT LEARNED FIRST APPELLATE AUTHORITY FAILED IN PERFORMING HER DUTIES BY NOT CA LLING UPON THE AGREEMENTS ENTERED BY THE ASSESSEE WITH THE AUTHORS. ONLY AN A NALYSIS OF THOSE AGREEMENTS, IT COULD BE ASCERTAINED WHETHER PAYMENT MADE BY THE ASSESSEE IN THE SHAPE OF ROYALTY IS A CAPITAL EXPENDITURE OR REVENUE EXPENDITURE. IN THIS WAY, SHE PRAYED THAT ORDERS OF BOTH THE REVENU E AUTHORITIES BE SET ASIDE AND THE ISSUE BE RESTORED TO THE FILE OF THE ASSESS ING OFFICER FOR FRESH EXAMINATION. ON THE OTHER HAND, LEARNED COUNSEL FOR THE ASSESSEE POINTED OUT 5 THAT ASSESSEE HAS PAID THE ROYALTY IN PERCENTAGE BA SED ON THE SALES AND IF THE ROYALTY IS PAID IN SUCH A WAY THEN IT IS A REVENUE EXPENDITURE. HE RELIED UPON THE FOLLOWING DECISIONS OF HON'BLE DELHI HIGH COURT , NAMELY, (I) CIT VS. SHARDA MOTORS INDUSTRIAL LTD. REPORTED IN 319 ITR 1 09; AND (II) CLIMATE CONSTRUCTION INDIA LTD. VS. CIT REPORTED IN 319 ITR 113. 5. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS AN D GONE THROUGH THE RECORD CAREFULLY. WE HAVE EXTRACTED THE BRIEF FINDI NG OF THE ASSESSING OFFICER. ASSESSING OFFICER HAS NOWHERE NARRATED THE FACTS WHICH GOAD AN AUTHORITY TO TREAT THE ROYALTY EXPENSES AND PRINTIN G EXPENSES INCURRED BY THE ASSESSEE AS A CAPITAL EXPENDITURE. ON THE OTHER HAN D, LEARNED FIRST APPELLATE AUTHORITY HAS CALLED FOR THE PAST HISTORY OF THE AS SESSEE HOW IT HAS TREATED SUCH TYPE OF EXPENDITURE AND THEN RECORDED A FINDIN G THAT ROYALTY WAS NOT PAID IN ONE GO RATHER IT WAS PAID IN TERMS OF PERCE NTAGE COMPUTED ON THE BASIS OF SALES MADE BY THE ASSESSEE. THE ROYALTY IS DIRECTLY LINKED WITH THE SALES AND THE SALES HAVE BEEN OFFERED FOR TAXATION BY THE ASSESSEE. IN THE DECISIONS REFERRED BY THE LEARNED COUNSEL FOR THE A SSESSEE, HONBLE COURT HAS OBSERVED THAT IF ROYALTY IS PAID IN TERMS OF PERCEN TAGE OF THE SALES THEN IT IS A REVENUE EXPENDITURE. ON DUE CONSIDERATION OF THE F ACTS AND CIRCUMSTANCES 6 AND THE REASONED ORDER OF THE LEARNED FIRST APPELLA TE AUTHORITY, WE DO NOT FIND ANY FORCE IN THIS APPEAL OF THE REVENUE. IT IS DISMISSED. DECISION PRONOUNCED IN THE OPEN COURT ON 16.03.201 2 SD/- SD/- ( G.D. AGARWAL) ( RAJPAL YADAV ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 16/03/2012 MOHAN LAL COPY FORWARDED TO: 1) APPELLANT 2) RESPONDENT 3) CIT 4) CIT(APPEALS) 5) DR:ITAT ASSISTANT REGISTRAR