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2013 (10) TMI 744 - AT - Income TaxPurchase of Audio rights, a revenue expenditure of an expenditure of capital nature Held that - Reliance has been placed upon the judgment in the case of Super Cassettes Industries P. Ltd. v. CIT 1992 (3) TMI 123 - ITAT DELHI-A , wherein it has been held that royalty paid for obtaining rights of reproduction of audio sound and music from master plate was allowable as revenue expenditure - The concern purchased master plate by way of assignment of copyrights which contain original sound-track and songs, reproduced the same into blank cassettes with the help thereof and sold the same in market. The concern here had paid the consideration money partly in shape of a fixed sum initially and partly by way of percentage of sale value of the recorded cassettes - The plate cannot be termed as of capital nature. The initial lump sum payment and subsequent reimbursement in the form of royalty on sales will not change the character of its expenditure being revenue in nature - Respectfully following the ratio laid down by this Tribunal in the abovecited case, expenditure in purchase of Audio rights are revenue in nature Decided against the Revenue.
Issues Involved:
1. Whether the expenditure incurred on acquiring copyrights for mechanical reproduction of sound recordings should be treated as revenue expenditure or capital expenditure. Detailed Analysis: Issue 1: Treatment of Expenditure on Acquiring Copyrights Arguments by the Revenue: The Revenue contended that the expenditure of Rs. 1.11 crores incurred on acquiring copyrights for the mechanical reproduction of sound recordings should be treated as capital expenditure. According to the amended provisions of section 32(2) of the Income-tax Act, effective from April 1, 1999, copyrights, among other intangible assets, must be capitalized, and depreciation should be allowed on these investments. The Revenue argued that the master plate acquired by the assessee is akin to a mould, providing enduring benefits, thus qualifying as a capital asset. The Revenue cited the case of Star Music v. Deputy CIT and Super Cassettes Industries P. Ltd. v. CIT to support their position, emphasizing that these precedents were either pending appeal or not applicable due to changes in the law. Arguments by the Assessee: The assessee argued that the cost of acquiring copyrights had been consistently treated as revenue expenditure in previous years and accepted by the Department. They maintained that the expenditure was for obtaining stock-in-trade rather than acquiring a capital asset, as the copyrights were used to produce and sell audio cassettes and compact discs. The assessee also highlighted the short lifespan of soundtracks due to market competition and piracy, arguing against the enduring benefit characterization. Findings of the Assessing Officer: The Assessing Officer treated the expenditure as capital, allowing depreciation at 25%. The officer reasoned that the master plate with copyright enabled the assessee to reproduce and commercially exploit the sound recordings, thus providing an enduring benefit. The officer dismissed the assessee's arguments, citing legal precedents that estoppel against statute is not permissible and emphasizing the capital nature of the master plate. Commissioner of Income-tax (Appeals) Decision: The Commissioner of Income-tax (Appeals) allowed the assessee's claim, referencing the jurisdictional Income-tax Appellate Tribunal's decision in Star Music v. Dy. CIT, which upheld similar claims as revenue expenditure. The Commissioner noted that the Tribunal had relied on the Delhi Tribunal's decision in Super Cassettes Industries P. Ltd. v. CIT and the co-ordinate Bench judgment in M. Subramaniam v. Deputy CIT, which treated such expenditures as revenue in nature. Tribunal's Analysis: The Tribunal affirmed the Commissioner of Income-tax (Appeals)'s decision, noting that the issue was covered by the Tribunal's previous ruling in Star Music v. Dy. CIT. The Tribunal observed that the expenditure on acquiring audio copyrights and CD/DVD rights was consistently treated as revenue expenditure in similar cases, including Super Cassettes Industries P. Ltd. v. CIT and M. Subramaniam v. Dy. CIT. The Tribunal emphasized that the master plate and copyrights were integral to the assessee's business operations, akin to raw material, and did not confer an enduring benefit. Conclusion: The Tribunal concluded that the expenditure incurred by the assessee for acquiring copyrights should be treated as revenue expenditure. The Tribunal found no justifiable reason to interfere with the Commissioner of Income-tax (Appeals)'s order, which was confirmed. Consequently, the Revenue's appeal was dismissed, and the cross-objection filed by the assessee was also dismissed as infructuous. Final Order: The appeal filed by the Revenue and the cross-objection filed by the assessee were both dismissed. The order was pronounced on January 15, 2013, in Chennai.
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