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TMI Blog2013 (12) TMI 181X X X X Extracts X X X X X X X X Extracts X X X X ..... account. Since the assessee brought forward the losses for the assessment years 2004-05 and 2005-06 against the total income for the assessment year 2006-07, the tax liability of the assessee was nil. 3. The Commissioner of Income-tax issued notice under section 263 of the Act to the assessee with the following observations : "It is seen that during the year the assessee has purchased audio copyrights and CD, DVD rights and debited profit and loss account with entire expenditure towards acquisition of copyrights. The Assessing Officer should have capitalised the expenditure of Rs.82,55,000 (Rs. 51,85,000 + Rs. 30,70,000) and allowed depreciation on it. Instead of allowing depreciation of Rs. 20,63,750 the Assessing Officer allowed the entire expenditure which has resulted in underassessment. On account of this, the assessment order is erroneous and prejudicial to the interests of the Revenue. Therefore, the provisions of section 263 of the Income-tax Act, 1961 are invoked." 4. The assessee filed reply dated March 16, 2011 to the show-cause notice stating that treatment of rights as capital and providing depreciation on the same is not correct. If t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x failed to appreciate that if the purchases have to be capitalised then the receipts also have to be capitalised. 7. For that the Commissioner of Income-tax failed to appreciate that the business of the appellant is trading in rights and that there will be no business or income calling for capitalisation or write off. 8. For that the Commissioner of Income-tax failed to appreciate the rules laid down in rule 9A/9B of the Income-tax Rules for write off or expenses." 6. Shri T. Banusekar, authorised representative for the assessee submitted that the expenses incurred by the assessee in purchasing audio copyrights and CD and DVD rights are revenue in nature. He contended that the Commissioner of Income-tax has failed to appreciate that expenditure towards acquisition of copyrights were allowed as revenue expenditure to the assessee/appellant in the earlier years also. He further contended that it is a well settled law that expenditure towards acquisition of copyrights is revenue in nature and is not to be capitalised. He submitted that the case of the assessee/appellant is squarely covered by the orders of the other Benches of this Tribunal in the cases of : (i) Super Cassettes I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ] 62 ITR 566 (SC), Gotan Lime Syndicate v. CIT [1966] 59 ITR 718 (SC) and Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1 (SC) held that the royalty paid including the cost was on revenue account and hence was fully allowable as deduction in computing the income of the assessee. 9. In the case of M. Subramaniam v. Deputy CIT [1992] 42 ITD 676 (Mad), the co-ordinate Bench of this Tribunal held in paragraph 12 as under : "12. The facts of the present case indicate that the song which the assessee was permitted to record in the cassette was in the nature of a basic raw material. The recorded cassette consisted of the cassette and tape on which the music was recorded. Therefore, the production of the recorded cassette cannot be complete unless the music is recorded in the cassette and together it forms the finished product. The royalty is paid on the price of each cassette sold and is therefore price paid for the raw material embedded in the cassette. Thus the royalty paid goes into the cost of production and varies with the quantity of cassettes produced. Even though the licence has been given for the duration of the copyright, the manufacture and sale of the cassettes its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .e. master plate is integral part of the profit earning process and not the capital field. Under these circumstances, the Tribunal held the same to be revenue in nature." 11. We find that the issue involved in the present case is identical to that of the abovereferred cases. Therefore, respectfully following the ratio laid down by this Tribunal in the abovecited cases, we are of the firm opinion that the learned Commissioner of Income-tax has erred in coming to the conclusion that the expenditure incurred by the assessee/appellant in acquisition of audio copyrights and CDs and DVD rights are not revenue expenditure and have to be capitalised. 12. The Commissioner of Income-tax has further invoked the provisions of section 263 of the Act on the premise that the assessment order dated October 30, 2008 for the assessment year 2006-07 passed by the Assessing Officer is erroneous and prejudicial to the interests of the Revenue. After going through the facts of the case and following the view taken by the coordinate Benches of the Tribunal, we find that the Commissioner of Income-tax was not correct in holding that the assessment order is erroneous. For invoking the provisions of secti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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