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TMI Blog2015 (7) TMI 1293X X X X Extracts X X X X X X X X Extracts X X X X ..... sment proceedings the Assessing Officer noticed that assessee has paid an amount of Rs. 17,97,858/- as royalty to Director Shri Taron Mohan. After some enquiries from assessee this amount was disallowed following the order for assessment year 2008-09. 4. On appeal following the earlier order disallowance was confirmed. 5. Before us Ld. Counsel for the assessee submitted that in earlier years this disallowance was deleted by the Tribunal in assessee's own case in ITA No. 684, 1206 & 1207/Chd/2011. 6. On the other hand Ld. DR strongly supported the impugned order. 7. After considering the rival submissions we find that identical issue was adjudicated by the Tribunal in assessee's own case for assessment year 2006-07, 2007-08, 2008-09 vide paras 10 to 13 which are as under:- "10 We have considered the rival submissions carefully in the light of material on record and paper book filed by the assessee. We find that Shri Tarun Mohan was running a proprietary concern known as Phoneytunes.com which was engaged in the business of providing value added telecom services to various mobile companies for ring tones/images/wall papers etc. Phoneytunes.com had entered into an agreement wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erty, register the property in its own name and carry on any business. Even u/s 2 (31) of the Income-tax Act, 1961 which defines a person the company is recognized as a separate person different from individual. In fact a particular person can have different capacities say as an individual or as a partner or as a Director in a company. In the case before us, Shri Tarun Mohan has clearly acted into two capacities namely as individual being proprietor of phoneytunes.com and at the same time his second capacity is on behalf of ITIDA Cad Services Pvt Ltd as an director of that company. There is nothing illegal about this. As per the copy of business agreement all the fixed assets and other assets were required to be taken over by the assessee-company from phoneytunes.com. Authorities below have observed that no asset has been taken over which is not correct. Copies of balance sheet have been filed for phoneytunes.com as well as ITIDA Cad Services Pvt Ltd before us. Balance sheet of phoneytunes.com clearly show that total assets were for Rs. 27,50,583/- as on 31.3.2003. Perusal of balance sheet of ITIDA Cad services Pvt Ltd clearly show that these assets have been added in the fixed ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, the claim for payment of royalty deserves to be allowed. Therefore we set aside the order of Ld. CIT(A) and direct the Assessing officer to allow claim for royalty." Following the above, we decide this issue in favour of the assessee. 8. Ground No.2: After hearing both the parties we find that during assessment proceedings the Assessing Officer noticed that assessee has debited a sum of Rs. 2,71,71,970/- on account of Copyright fees. The Assessing Officer was of the opinion that these expenses were of capital nature because copyright come within the purview of intangible assets. The assessee was asked to justify the claim. In response, it was stated as under:- "Master Copyrights" and "intellectual property rights" and "software" of the products like songs, images. Video Clips, Games, etc. are held by the owners like Music Companies, Film Producers, and Game developers, etc. Company takes rights- on payment basis- to use these "Master Copyrights" and "intellectual property rights" for development of value added services (VAS) for the telcos. After taking rights for Songs, Images, Video Clips, Games, etc. from the original Copyright owners like Music Companies, Film Producers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y takes "Copyrights" and "Intellectual Property Rights" as the music, images etc, are not usable on the mobile phones in the original format. This explanation of the appellant that since the material for which the copyrights is taken cannot be used in the original format and that the copyrights holders get the fee based on successful download hits and so the amount paid for copyrights should be allowed as revenue expenditure is not acceptable because once the appellant has taken the copyrights for the songs, images, video clips, games etc, no other person is entitled to use them. The appellant has acquired an asset, the benefit of which is available to the appellant for all times to come. Where the expenditure results in a benefit of enduring nature, the expenditure has to be treated as capital expenditure. The various decisions quoted by the Ld. Counsel pertain to the assessment years prior to insertion of new Appendix-1 according to which the copyrights are allowed depreciation @ 25%. In fact, by prescribing a particular rate of depreciation for the asset in question, the legislature has made it explicitly clear that the expenditure on acquiring such an asset is of capital nature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... censee's and the Sub-Licence's' website/IVR/WAP or such other method or sampling. 2.1.5 to use the track title/title of the Licensed Works, names of the Licensors' members represented on the Licensed Works and any other related material, for the purpose of identifying the Licensed Works on the Service. PROVIDED that:- 2.1.6.1 each Ring Tone can be created from only one Licensed Work; 2.1.6.2 each Ring Tone cannot exceed thirty(30) seconds in monophonic format and forty five (45) seconds in polyphonic format; 2.1.6.3 the Ring Tones shall not be copied or stored by any other third party onto whatever media except onto the a. Licensee's/Sub Licensee Computer Servers b. End Users Cellular phone, Hand held Devices or such wireless devices 2.1.6.4 the Licensee shall not itself or indirectly through any other person in respect of any copying pursuant to this Agreement segue, mix or re-mix or overlap, edit, change or otherwise manipulate the sounds of any Licensed Works, other than as otherwise authorized herein; 2.1.6.5 the substantial identity of any Licensed Work or relevant part thereof shall not be changed in the corresponding Ring Tone; 2.1.6.6 Licensee shall not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e foreign company undertook not to surrender its patents without the consent of the assessee and to make available to the assessee any improvements, modifications and additions to designs. It had also undertaken to enable the assessee to defend any counterfeit by others. The assessee was not to disclose to third parties any of the documents made available by the foreign company to the assessee without having received a written authorisation from the foreign company. The High Court held that these features of the agreement clearly established that what was obtained by the assessee was only a licence and what was paid by the assessee to the foreign company was only a licence fee and not the price for acquisition of any capital asset. On appeal by the Department to the Supreme Court: Held, affirming the decision of the High Court, that the High Court had applied the proper principles of law and had rightly held that the expenditure incurred by the assessee was only revenue expenditure." 15. From the above it becomes absolutely clear that once license is taken only for usage of copyright then such payments would constitute Revenue expenditure. It would have become capital expenditur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ftware but has ignored definition given by assessee. The definition given is complete definition. Computer kiosk is assembly of personal computer with touch screen, blue tooth & other computer parts loaded with software, house in a steel frame making it secure and portable for down loading various value added services like ring tones, caller ring back tone, wall papers, video etc. The learned assessing officer has ignored the whole definition and just picked up the word steel frame to make the additions. If we look into detail the steel frame in which the system is fitted is just 5% of the total cost of the kiosk and is fitted just for safety and placement purposes. These kiosk are placed at public places like railway stations, cinema halls, malls and market places. The steel frame is made just to protect it from damage and placement becomes easier. The frame does not change the nomenclature of the system. The learned assessing officer is clearly indicating that assesses is not denied the depreciation on computer but depreciation cannot be allowed on kiosk at the same rate, but has failed to separate the cost of the kiosk (steel frame). The detail given on page 3 of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... computer including computer software and computer software means any computer programme recorded on any disc, tape perforated media or other information storage device. IVR card is device fitted into computer with software to answer the customer with software to answer the customer's calls automatically. Hence, the Ld. Assessing Officer is not justified in disallowing the depreciation of@ 60% on IVR card. " 30. The Ld. CIT(A) in view of the above submissions allowed the depreciation @ 60%. 31. Before us, Ld. DR supported the order of Assessing Officer. 32. On the other hand Ld. counsel for the assessee reiterated the submissions made before CIT(A). 33. After examining the rival submissions we find that once IVR card is loaded with software which allows the computer to interact with humans through the voice and DTMF, keypads inputs. This technical jargon has not been denied by the Revenue. Once IVR card is interacting with the humans through software obviously the same would form part of the computer and hence entitled for 60% depreciation. Therefore, we find nothing wrong with the order of Ld. CIT(A) and we confirm the same. 34. In the result appeal of the Revenue is dis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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