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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 ..... held by the licensor. The assessee has not become the owner of the license. Therefore, clearly the payment is of Revenue nature. Case of VRV. BREWERIES & BOTTLING INDUSTRIES LTD. [2011 (8) TMI 485 - DELHI HIGH COURT] to be followed - once license is taken only for usage of copyright then such payments would constitute Revenue expenditure - decided in favour of assessee Disallowance of GRRS/SMS testing expenses @ 20% - Held that:- After considering the rival submissions we find since no evidence was furnished before Assessing Officer or even before us, therefore, estimated 20% disallowance is justified. Depreciation @ 60% on computers - Held that:- We find force in the submissions of Ld. Counsel for the assessee because computer Kiosks is an assembly of computer with touch screen, Bluetooth and other computer parts loaded with software. In this background Ld. CIT(A) has correctly held the same to be part of the computer, and therefore, we find nothing wrong with the order of Ld. CIT(A)a nd confirm the same. Depreciation on IVR card - @ 60% OR 15% - Held that:- We find that once IVR card is loaded with software which allows the computer to interact with humans through the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 with various music companies like Sound Buzz India, Phone Graphic, Cuber Music Ltd etc. Through these agreements Phoneytunes. Com had acquired rights of various music companies and also the right to make a ring tone on the basis of such songs which could be provided to an individual mobile user through cellular operating companies. Phoneytones.com was required to pay some royalty to such music company and in turn was charging money from cellular company. This shows why phoneygues.com was paying charges to outsiders. We further find that said mobile company i.e. cellular company would collect from the customers for down loading ring tone and out of above charges some fees was paid to the phoneytunes.com. Therefore the Assessing officer and the Ld. CIT(A) are not right that phonetunes.com has not invented anything. Phoneytones.com had invented the technology through which ring tones can be created of various filmy songs on the basis of above rights obtained from music companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et of phoneytunes.com clearly show that total assets were for ₹ 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 assets schedule as well as current assets have been added in the respective heads. In fact note No. 2 to the accounts reads as under: Acquisition of running business of phoneytunes.com During the year, the company entered into an agreement with one of its director, Tarun Mohan to acquire the business of his Sole Proprietary concern running in the name and style of phoneytunes.com. All assets and liabilities of the concern were acquired at the book value as on Ist April, 2003. As per the agreement for the takeover of the firm, the company has to pay royalty after 2 years of takeover at scaling down slabs of 5% to 3% of gross revenue receipts under the relevant business: The book value at which the assets and liabilities were acquired, are as follows: As a result, there does not arise any goodwill or capital reserve. Above clearly show that these assets and liabilities have been taken over by the assessee-company. 12 As seen above phoneytunes.com had i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, and Game developers, etc. the company formats and converts these in to the form as per the size and type of various mobile instruments in use . requirements of the telcos. These services for which the Company takes copyrights and intellectual property rights are not usable on the mobile telephones as it is. These are formatted and converted into Value Added Downloaded Services (VAS) like Ring Tones, True Tones, Video, MP3, Themes, Games, Colored Logo, Wallpaper, Picture Message, Animated Wallpaper, Full Songs, Music Messaging, Dial a Song and Caller Ring Back Tunes (CRBT)/ Hello Tunes by the company for use in Mobile Telephone Services. We provide all these value added services to cellular service providers Telcos like Airtel, Idea, Vodafone, BSNL, Tata, and Reliance, etc., on payment basis, who in turn provide these to their mobile subscribers. Master Copyrights and intellectual rights holders get copyrights fee from the compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng 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. Ground of appeal No. 4 taken by the appellant is ccordingly dismissed and the disallowance made by the Assessing Officer is upheld. 11. Before us, Ld. Counsel for the assessee reiterated the submissions made before Assessing Officer and CIT(A). He further argued vehemently that assessee was merely using the Copyright and has not become the owner of the copyright and in this regard he referred to the copy of agreement filed at pages 27 to 41 of the paper book. He also relied on the decision of Hon'ble Supreme Court in the case of CIT Vs. IAEC (Pumps) Ltd. 232 ITR 316 (SC) and Hon'ble Delhi High Court in the case of CIT Vs. V.R.V. Breweries and Bottling Industries Ltd. 347 ITR 249 (Delhi) 12. On the other hand Ld. DR strongly relied on the order of Assessing Officer and CIT(A). 13. We have considered the rival submissions and we find force in the submissions of Ld. Counsel for the assessee. The assessee has mere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 incorporate any voice-over of any kind or interview or other commentary during the playing of any Licensed Works; 2.1.6.7 any use by Licensee of the Ring Tones for a purpose other than in furtherance of the Licensee s Service(s) shall be subject to separate negotiation and agreement between the Parties. 2.2 Notwithstanding the rights granted under 2.1.1, 2.1.2 2.1.3 the Licensor reserves the right to store the Licensed Works(as Ring Tones)at its wholly owned and fully controlled computer servers and make it available to the Licensee to be distributed to its End-Users. 14. The above clearly shows that license was only for usage of copyright held by the licensor. The assessee has not become the owner of the license. Therefore, clearly the payment is of Revenue nature. The Hon'ble Delhi High Court in the case of CIT Vs. V.R.V. Breweries and Bottling Industries Ltd (supra) after examining the reas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 expenditure if the assessee has purchased the copyright on outright basis without any further payment which is not the case before us. Therefore, we set aside the order of Ld. CIT(A) and hold that copyright of payments are of Revenue nature. 16. Ground No.3 : After hearing both the parties we find that during assessment proceedings the Assessing Officer noticed that assessee has claimed a sum of ₹ 3,91,651/- on account of GRRS/SMS testing. Since sufficient documentary evidence was not filed, the Assessing Officer disallowed 20% of the expenses. The order of the Assessing Officer had been confirmed by Ld. CIT(A). 17. Before us Ld. Counsel for the assessee submitted that expenditure were incurred by way of payment to staff for testing of ring tones. 18. On the other hand Ld. DR supported the order of Ld. CIT(A). 19. After considering the rival submissions we find since no evidence was furn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es 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 assessment order of the interactive kiosk also gives component specification which is the same as given in the definition. Otherwise also if we look into Income Tax rule depreciation schedule part A tangible assets sub point U the word kiosk is not mentioned in furniture and fittings detail. We are of the view that the learned assessing officer has just erred in judgement from the definition given and has disallowed depredation on computer kiosk by considering it furniture fittings which unjustified and wrong. 24. On the basis of above submissions the Ld. CIT(A) was of the opinion that Kiosks was part of the computer and, therefore, assessee was entitled to depreciation @ 60%. 25. Before us, Ld. DR submitted that Kiosks is merely steel frame and cannot be called part of the computer and, therefore, Assessing Officer was right in allwiong 10% depreciati ..... X X X X Extracts X X X X X X X X Extracts X X X X
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