2010 (10) TMI 563 - AT - Income Tax

Capital or revenue expenditure - assessee is engaged in the business of manufacturing and trading of pre-recorded music in cassettes and compact disc. etc - Finance Act (No.2) 1998 w.e.f 1.4.99 section 32(1) has been amended and the amended provisions provide that in respect of copyright owned and used by the assessee for the purpose of business, the assessee would e entitled to claim depreciation - CIT(A) did not entertain the breakup given by the assessee before him on the ground that no explanation has been filed by the assessee to explain as to what presume the assessee from filing the same before the AO - Held that Assessing Officer shall decide the issue in accordance with law after giving reasonable opportunity of being heard to the assessee - Appeal is allowed for statistical purpose

Issues Involved:

1. Treatment of computer software expenses as capital expenditure.
2. Treatment of lump sum consideration paid for music rights as revenue expenditure.
3. Disallowance of foreign exchange loss on loan as capital expenditure.

Issue-wise Detailed Analysis:

1. Treatment of Computer Software Expenses as Capital Expenditure:

The assessee contested the CIT(A)'s decision to treat computer software expenses as capital expenditure, arguing it provided an enduring benefit. Both parties agreed to remand the issue back to the Assessing Officer (AO) for fresh adjudication in light of the Special Bench decision in Amway India Enterprises (111 ITD 110(SB)). The Tribunal restored the issue to the AO for fresh adjudication, directing it to be done in accordance with the law and after giving the assessee due opportunity to be heard. The ground raised by the assessee was allowed for statistical purposes.

2. Treatment of Lump Sum Consideration Paid for Music Rights as Revenue Expenditure:

The assessee, engaged in manufacturing and trading pre-recorded music, claimed OST royalty payments as business expenditures. The AO disallowed the claim, treating it as capital expenditure, a decision upheld by the CIT(A), who directed the expenditure to be amortized over five years. The Tribunal, referencing its previous decision in the assessee's own case (ITA No.194/Mum/2007 for AY 2001-02), found that similar expenditures had been allowed as revenue expenditures. The Tribunal cited cases like Tips Cassettes and Records Co vs ACIT (82 ITD 641) and Supper Cassettes Industries P Ltd vs CIT (41 ITD 530), which supported treating such expenses as revenue in nature. Consequently, the Tribunal set aside the CIT(A)'s order and directed the AO to allow the assessee's claim, thus allowing this ground of appeal.

3. Disallowance of Foreign Exchange Loss on Loan as Capital Expenditure:

The AO disallowed the assessee's claim of foreign exchange loss on loans, amounting to Rs.2.64 crores, due to insufficient details provided by the assessee. The CIT(A) upheld this disallowance, noting the assessee's failure to furnish necessary details and evidence. The assessee requested an opportunity to present the required details before the AO. The Tribunal, considering the interest of justice, agreed to remand the issue back to the AO, directing the AO to give the assessee another opportunity to substantiate its claim with supporting evidence. The AO was instructed to decide the issue in accordance with the law after providing a reasonable opportunity for the assessee to be heard. This ground of appeal was allowed for statistical purposes.

Conclusion:

The appeal filed by the assessee was allowed for statistical purposes, with the Tribunal remanding issues related to computer software expenses and foreign exchange loss back to the AO for fresh adjudication, while directing the AO to allow the claim regarding music rights expenditure. The order was pronounced on 22.10.2010.

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