2003 (4) TMI 230 - AT - Income Tax

Summary

Issues Involved:
1. Valuation of Copyrights and Addition of Rs. 4 Crores.
2. Disallowance of Rs. 75,000 on Account of Premium on Debenture Redemption.

Summary:

1. Valuation of Copyrights and Addition of Rs. 4 Crores:
The primary issue was the valuation of copyrights of 690 songs from 91 Hindi films transferred by the assessee-company to its subsidiary, Gramco Music Publishing Pvt. Ltd., for Rs. 6 crores. The Assessing Officer (AO) was dissatisfied with this valuation and estimated the value at Rs. 10 crores, adding Rs. 4 crores to the assessee's income. The CIT(A) deleted this addition, terming it as notional/hypothetical income. The AO's reliance on CBDT Circular No.3 WT of 1957 was deemed misplaced as it pertains to wealth-tax, not income-tax. The Tribunal noted that the AO did not provide a basis for his valuation and failed to refer the matter to the Departmental Valuation Officer (DVO). The Judicial Member suggested remanding the issue to the AO for a fresh valuation by the DVO, while the Accountant Member and the Third Member agreed with the CIT(A) that the addition was unjustified. The Third Member emphasized that income-tax is chargeable on real income, not notional income, and upheld the deletion of the Rs. 4 crores addition.

2. Disallowance of Rs. 75,000 on Account of Premium on Debenture Redemption:
The AO disallowed Rs. 75,000 on account of premium on debenture redemption, stating it was "not an allowable expenditure." The CIT(A) deleted this disallowance, referencing the Calcutta High Court's judgment in CIT v. Tungabhadra Industries Ltd., which allows such premium in the year it is incurred. The Tribunal upheld the CIT(A)'s decision, noting that the liability to pay the premium crystallizes only at the time of redemption, making it allowable in the year of redemption.

Conclusion:
The appeal by the Department was dismissed. The Tribunal upheld the CIT(A)'s deletion of the Rs. 4 crores addition related to the valuation of copyrights and the Rs. 75,000 disallowance on account of premium on debenture redemption. The case highlighted the importance of basing tax assessments on real income and proper valuation methods.