2012 (10) TMI 200 - AT - Income Tax

Additions on account of royalty - revenue expenditure or capital expenditure - Assessing Officer has made the impugned addition by comparing the royalty paid vis-a-vis sales of a particular year Held that - Assessee has submitted various copy of agreements with authors as well as detailed chart of royalty calculation - Considering these agreements and detailed chart of royalty, Ld. Commissioner of Income Tax (A) has held that the entire royalty payment is on revenue account and the disallowance made by the Assessing Officer - matter is remitted to the file of the Assessing Officer

Summary

Issues:
Assessment of royalty expenses for a publishing company for the assessment year 2007-08.

Analysis:
The case involved an appeal by the Revenue against the order of the Ld. Commissioner of Income Tax (Appeals) related to the assessment year 2007-08. The primary issue was the addition of Rs. 27,21,133 as royalty expenses claimed by the assessee company. The Assessing Officer noted a significant increase in royalty expenses compared to sales, leading to suspicion. The Assessing Officer allowed a 40% increase in royalty expenses over the previous year's sales increase and disallowed the rest, resulting in the addition. The Ld. Commissioner of Income Tax (Appeals) deleted the addition after examining detailed submissions, agreements with authors, and royalty calculations. The Ld. Commissioner found that the royalty payments were based on sales value and volume after deducting discounts, and the entire payment was on revenue account, not capital expenditure.

Upon hearing the appeal, the Appellate Tribunal noted the Assessing Officer's comparison of royalty payments with sales and the Ld. Commissioner's findings on the nature of royalty payments. The Tribunal observed that the Ld. Commissioner had considered the agreements and detailed royalty calculations before deleting the addition. However, the Tribunal found a lack of clarity regarding whether the details submitted to the Ld. Commissioner were shared with the Assessing Officer or if a remand report was sought. Therefore, the Tribunal decided to remit the matter back to the Assessing Officer for a fresh consideration, ensuring the assessee's right to be heard. Consequently, the appeal filed by the Revenue was allowed for statistical purposes.

In conclusion, the judgment addressed the assessment of royalty expenses for a publishing company, emphasizing the need for a thorough review based on detailed submissions and agreements. The decision highlighted the importance of proper communication between authorities and the requirement to grant the assessee a fair opportunity to present their case.