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TMI Blog2014 (10) TMI 988X X X X Extracts X X X X X X X X Extracts X X X X ..... neytunes.com have been sold to the assessee-company and the assessee-company has agreed further to give royalty @ 2%. Secondly it is very important that the assessee-company and Tarun Mohan have duly paid the taxes on full amounts received against royalty and have not been set off against any losses etc. It is absolutely clear that the assessee-company has paid royalty for the particular invention which belonged to phoneytunes.com and therefore in our opinion, the claim for payment of royalty deserves to be allowed - Decided in favour of assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... of take over no down payment or cash compensation was paid to Tarun Mohan. ITIDA has not looked back since that day and contunes to prosper and grow." On further enquiry it was explained that M/s ITIDA CAD Services Pvt Ltd was incorporated in 1994 and started the activities as a dealer in CNC (computer numeric control) sheet metal fabrication softwares. Later on the company diversified into consultancy services for sheet metal fabrication, plants design, layout and plant implementation. It was further submitted that in the changing environment and loosing profit, it was decided somewhere in 2003 when the company took a decision to diversify the business and took over the portfolio of activity of phonetunes.com in the value added service for the upcoming moblile industry. It was also submitted that turnover of the company increased later on as under: Year Turnover Profit 2003 19.61 lakhs -24855/- 2004 304.14 lakhs 18.11 lakhs 2005 792.83 lakhs 111.46 lakhs 2006 1019.33 lakhs 191.62 lakhs The Assessing officer after examination of the submissions observed that the said company is closely held private company and had two directors namely Shri Tarun Mohan Prop of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee-company was paying royalty to Tarun Mohan and claiming it as business expenditure. Here the company has not acquired any asset but only right to use it and hence any amount paid for utilizing the brand name is business expenditure. The brand name was created by phoneytunes.com by developing software to convert the songs, picture sand other objects into mobile usable. At the time of takeover the phoneytunes.com was having a recognized name in the VAS filed. The name has not just invented as mentioned by the Assessing officer but was created with hard work and development of required software. In para 5 (ii) of the Assessing officer has said that there is no invention on the part of proprietor to whom royalty is paid. It is right, because the brand name can never be invented out created and that is the reason the proprietor is being paid the royalty. If we go through the billing done by the assessee-company after agreement, it was done in the name of phoneytunes.com because this is the name recognized in the market not the ITIDA Cad Services Pvt Ltd. In npara 5 (iii) the Assessing officer has sighted the Hon'ble Supreme Court case of M/s Dowell & Co. Ltd V. Commercial Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t order the Assessing officer has stated that there is no actual sale purchase of assts and as Mr. Tarun Mohan has signed the agreement as proprietor of phoenytunes.com and director of ITIDA Cad Services Pvt Ltd and being seller and purchaser are the same. But he has signed the agreement in different capacities as in case of companies directors are signing documents on behalf of the company and not in individual capacity. So by this act the Assessing officer has considered the contract not valid, which is totally unjustified. The Assessing officer has acted beyond his jurisdiction by commented on the commercial prudence of the members of the assessee-company to enter in to such an agreement. The fact has been explained in submission 2 above. While framing order these facts have been ignored. Submission: as explained in submission 2. The Assessing officer has not properly considered the explanation of the assessee and has acted unreasonably. Submission: The Assessing officer has mentioned in para 6(i), (ii) and (iii) that we have submitted in our reply that there is no acquisition of assets. We have submitted the same but in contest to when it was asked to explain the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s were using the services and charging the customers to make a particular filming song as their ring tune. Out of this charge some fees was being passed to the assessee. The assessee in turn was required to pay royalty charges to the music company which was holding the rights of a particular song. This business was run as an proprietary concern and later on same was sold to the assessee-company. The assessee-company could use this technology of phoneytunes.com for which assessee-company was required to pay royalty of 2%. During merger all the assets were acquired by the assessee-company. The rights developed by the assessee are basically in the nature of "intellectual proprietary rights" known as IPR for which there cannot be any evidence. 7 In this connection he referred to various agreements entered into by the assessee-company with phoneytunes.com and also agreements entered by the company with Music companies etc. He also referred to a certificate issued by the Registrar of copy rights to Shri Tarun Mohan for this technology. 8 In any case whatever royalty was received by Shri Tarun Mohan has been duly shown to the Income-tax Department and full tax has been paid. In fact Shr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... towards mobile application, content and platforms included in class 42." 11 In 2003 it was decided to sell the business of phonetunes.com to a company known as ITIDA Cad Services Pvt Ltd. This company is also owned by a family member of Tarun Mohan. The Assessing officer as well as the Ld. CIT(A) has refused to recognize the sale agreement because I has been signed by Tarun Mohan as proprietor of phoneytunes.com on one side and on the other side again by Shri Tarun Mohan as Director of ITIDA Cad Services Pvt Ltd. According to authorities below same person cannot enter into an agreement with himself. We find that this is not correct. Every company under Companies Act has separate legal entity known as juristic entity. In other words, the company has a separate entity crated by the law and the company can deal on its behalf with any one. It can purchase or sell the property, 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 Dire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that in case of intellectual property, it is not necessary that there would be a documentary evidence because invention is a technology and stored in the computer. The last allegation of revenue is that this is a colourable device used by the assessee to reduce the profits. We have already seen that this is not a colorable device but a pure and simple transaction through which the business of phoneytunes.com have been sold to the assessee-company and the assessee-company has agreed further to give royalty @ 2%. Secondly it is very important that the assessee-company and Tarun Mohan have duly paid the taxes on full amts received against royalty and have not been set off against any losses etc. Page 108 of paper book gives chart of comparative tax paid by the assessee-company and Tarun Mohan: Ay Gross receipts Net profit before tax Net taxable income Tax liability Effective rate of tax Royalty @ 2% to Tarun Mohan Salary to Tarun Mohan Tarun Mohan's taxable income Tax liability Effective rate of tax 2006-07 101933252 19161981 16035310 5502196 34.31 2031774 2400000 31498770 1004146 31.88 2007-08 101617412 179993598 20169670 6837397 33.90 1920077 3000000 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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