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TMI Blog1992 (3) TMI 123X X X X Extracts X X X X X X X X Extracts X X X X ..... original soundtrack of the film relating to the songs and with the help of this master plate, the company makes several copies of audio cassettes, which are ultimately sold in the market. He submitted that, the master plate is similar to a formula or a mould used in the manufacture. He submitted that, the company produces several of these cassettes for different films every year and for the reproduction of each series of cassettes, it requires a different master plate. He pleaded that, for each film that is being made, the producers require music cassettes and soundtrack, which the company manufactures with the help of this master plate and provides the cassettes prior to the release of the film. He submitted that, the master plate is no doubt retained by the company, but, its use and reuse would entirely depend upon the marketability of the cassettes manufactured by it. 3. He submitted that, as soon as the series of the cassettes relating to a film are manufactured and marketed, the master plates become useless, though in rare cases, they do get reused for manufacturing cassettes of additional copies. He submitted that, the life of the master plate is very short, though, the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their recording rights in favour of the company. The company on its part is required to submit half-yearly statement of sale to the producers. The clause 8 of the agreement by which the assessee is made the owner of the plate, are for the limited purpose of ensuring that, the producers are not allowed to provide the same to another competitor. He pleaded that, this master plate that contains the master information, sound, music, dialogue, is the raw-material, from which several copies are made. 5. Shri Ganesan submitted that, in the following assessment year 1986-87 too, the revenue had limited the royalty payment and the CIT(A), vide his order dated 23rd Feb. 1991 had allowed full deduction of the same. He submitted that, the relevant paras are 7-12.1 to 7-12.27. He submitted that, the frequency with which films are made, which results in new type of music has considerably reduced the life of the soundtrack, for it is outdated very fast. He submitted that, the plate of one could not be substituted for another and for every new music recording, a totally different plate is required, indicated very clearly that, the plate is nothing more than a raw-material. He contended that, me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er from arriving at the true intention behind the transaction. He made reference to the clauses 3, 4 and 8 of the agreement and also to page 4 of the order of CIT and submitted that, the reading of the order reveals that, it is not a mere change of opinion, but provides ample material indicating that, there was error in the order of the Assessing Officer, which has caused prejudice to the interests of revenue. He made reference to the Law of Income-tax by Sampath Aiyengar (1985 ed.) Vol. 5, page 4598. He also placed reliance on the Delhi High Court's ratio in Gee Vee Enterprises v. Addl. CIT [1975] 99 ITR 375, for the proposition that, it is sufficient for the CIT to point out the errors that have been committed by the Assessing Officer and the consequent prejudice caused to the revenue. 8. We have given our very careful consideration to the rival submissions and also to the voluminous paper book containing 245 pages, filed by the assessee. The issue revolves around the nature of the amount paid for making of copies of the master plate supplied by the various persons to the assessee. It is not disputed that, but for the plate being provided, the assessee could not have produced t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the sales made by the assessee is another factor that goes to indicate the nature of the royalty payment, as that of revenues. In the case of Travancore Sugars Chemicals Ltd. , the assessee had acquired certain assets, for which the assessee had paid part consideration in cash and the balance was payable based as a percentage of the annual profits for an indefinite period. The question that was considered by the Supreme Court was, whether, the percentage payment was capital or revenue. The Court ruled that, since the amount was payable for an indefinite period, and based as a percentage of the annual profits, it was on revenue account and had no relation to the initial fixed amount paid. 10. In Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1, the Supreme Court had considered the concept of capital expenditure and revenue expenditure and had provided some guidance to distinguish the two. They have observed that, it is not necessary that every thing that results in a benefit of enduring nature, would automatically become a capital asset. They have observed to the effect that, the nature of an item has to be considered with reference to advantage in a commercial sense and it is only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal account at all. The recurring payment is similar in nature to the royalty or dead rent paid for the extraction of limestone from the quarries, as has been held by the Supreme Court in Gotan Lime Syndicate's case. We are therefore of the opinion that, the royalty paid including the cost of the plate is on revenue account and hence fully allowable as deduction in computing the income from business. 12. Having decided the issue on merits, we would only mention that, the reading of the order of CIT passed under section 263 is more on the lines of the approach of the appellate authority, which is not his role, as has been held by the Madras High Court in Venkatakrishna Rice Co's case. The reading of his order indicates that, he is of a different opinion from that of his subordinate officer. The Courts have been always taking a serious view of the action of the Commissioner and have more often than one have held that, section 263 must be invoked only when there is error and which error has caused prejudice to the revenue. The Madras High Court has amplified it further by stating that, section 263 is not for the purpose of correcting every unfavourable order, is not for jurisdiction ..... 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