2019 (4) TMI 1237 - HC - Income Tax

Accrual of income - effect of addendum of agreement - sale of rights - HELD THAT - The facts as noted above clearly show that, the terms of initial agreement were revised through the addendum which was also executed during the same year. As per the revised terms, the assessee would receive only ₹ 5 crores during the current year and further ₹ 40,00,000/- in the subsequent year. The assessee only received subject sum of ₹ 5 crores, deducted tax at source on such payment and also claimed the same as its income. Correspondingly, the purchaser had claimed a sum of ₹ 5 crores by way of expenditure. By no logic, the sum of ₹ 7 crores can be stated to have accrued in favour of the assessee. Even the amount of ₹ 40,00,000/- to be received in the later year by virtue of addendum was never paid and the reasons for such non-payment was also recorded on 25th February, 2009 mainly attributing to the slow business and slum in the market. No question of law therefore arises. Expenditure of consultancy charges out of sale of rights to the audio songs - HELD THAT - Tribunal while accepting the assessee's stand, noted that the payee has accepted the subject amount by way of income. The Tribunal also noted that the payment was made through cheque. The assessee had also pointed out the nature of services rendered by the Consultant. In the circumstances, the Tribunal accepted the assessee's contention of expenditure. The issue is predominantly based on facts. The Tribunal has noted the relevant fact and come to the conclusion that the expenditure was genuine and was made for the purpose of services rendered by the Consultant. No question of law arises in this respect. Allowable business expenditure u/s 37 - 'expenses for purchase of rights held as in the nature of dead expenses - HELD THAT - We are in agreement with the view of the Tribunal. The assessee had purchased copyrights for a limited period of two years by incurring total cost of ₹ 2.25 crores. This expenditure was thus a business expenditure. Merely because, the assessee could sell only one of the three rights by giving a license to INX Media Ltd. would not change the nature of this expenditure. No question of law therefore arises in this respect also. - Revenue appeal dismissed.

Summary

Issues:
1. Accrual of income from the sale of rights
2. Allowability of expenses for purchase of rights
3. Allowability of consultancy charges as expenditure

Issue 1 - Accrual of income from the sale of rights:
The case involved a private limited company engaged in producing songs records and video songs, owning copyright under the trademark "T-Series." The dispute related to the income of ?7 crores arising from the sale of rights in audio visual songs during the Assessment Year 2009-10. The agreement for the sale of 50 audio visual songs was initially valued at ?7 crores but was later revised to ?5.40 crores due to business challenges. The purchaser paid ?5 crores in the current year, with the balance remaining unpaid. The Tribunal held that the entire ?7 crores did not accrue to the assessee, considering the revised terms and non-payment of the balance amount due to business slowdown. The High Court agreed with the Tribunal's view, emphasizing the revised terms, actual payment received, and reasons for non-payment.

Issue 2 - Allowability of expenses for purchase of rights:
The second issue revolved around the assessee's claim of expenses for purchasing copyrights from three agencies for ?2.25 crores, out of which only ?75 lakhs were recovered by licensing to INX Media. The Assessing Officer disallowed the expenditure, but the Tribunal allowed it, stating that the purchase of intangible assets for a limited period was a business expenditure. The High Court concurred with the Tribunal's decision, emphasizing that the nature of the expenditure remained unchanged despite not being able to sell all rights, as the copyrights were acquired for a specific purpose and duration.

Issue 3 - Allowability of consultancy charges as expenditure:
Regarding the consultancy charges claimed by the assessee, the Tribunal accepted the expenditure noting the payment method and the nature of services rendered. The Tribunal considered the payee's acceptance of the amount as income and the genuine nature of the services. The High Court found no legal question arising from this issue, as it was primarily factual, and upheld the Tribunal's decision.

In conclusion, the High Court dismissed the Income Tax Appeal, affirming the Tribunal's decisions on the accrual of income, allowability of expenses for purchasing rights, and consultancy charges as expenditure.