Tribunal decision: Royalty as revenue expense, partial disallowance upheld, 60% depreciation rate on computer kiosks.

The Tribunal partially allowed the assessee's appeal by directing the Assessing Officer to treat royalty payment and copyright charges as revenue expenses. The 20% disallowance on GPRS/SMS testing expenses was upheld. The Tribunal confirmed the 60% depreciation rate on computer kiosks and IVR cards, dismissing the Revenue's appeal. The judgment was delivered on 03/07/2015.

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Issues Involved:
1. Addition of Rs. 17,97,785/- on account of royalty paid to the Director as capital expenditure.
2. Disallowance of Rs. 2,03,78,978/- treating usage charges paid to copyright holders as capital expenses.
3. Adhoc disallowance of 20% out of GPRS/SMS testing expenses.
4. Depreciation rate on computer kiosks and IVR cards.

Detailed Analysis:

1. Addition of Rs. 17,97,785/- on Account of Royalty Paid to the Director as Capital Expenditure:
The assessee appealed against the confirmation of the addition of Rs. 17,97,785/- as capital expenditure. The Tribunal had previously adjudicated similar issues in the assessee's favor for earlier years. The Tribunal found that the royalty was paid for technology invented by Phoneytunes.com, a proprietary concern of the Director, which was later sold to the assessee company. The business transfer included all assets and liabilities, and the royalty was a legitimate business expense, not a capital expenditure. Thus, the Tribunal directed the Assessing Officer to allow the claim for royalty.

2. Disallowance of Rs. 2,03,78,978/- Treating Usage Charges Paid to Copyright Holders as Capital Expenses:
The Assessing Officer treated the copyright fees as capital expenditure, allowing only depreciation. The CIT(A) upheld this view. However, the Tribunal found that the assessee merely acquired the right to use the copyrights, not ownership. The license agreements indicated non-exclusive, non-transferable rights for specific usage, making the payments revenue in nature. Citing precedents, the Tribunal concluded that such payments are revenue expenses and set aside the CIT(A)'s order, allowing the assessee's claim.

3. Adhoc Disallowance of 20% out of GPRS/SMS Testing Expenses:
The Assessing Officer disallowed 20% of the GPRS/SMS testing expenses due to insufficient documentary evidence, a decision upheld by the CIT(A). The Tribunal found no evidence provided by the assessee to counter the disallowance and deemed the 20% disallowance justified.

4. Depreciation Rate on Computer Kiosks and IVR Cards:
The Revenue challenged the depreciation rate on computer kiosks and IVR cards. The Assessing Officer had restricted depreciation on kiosks to 10%, treating them as furniture, and on IVR cards to 15%, categorizing them as plant and machinery. The CIT(A) allowed 60% depreciation, treating them as part of the computer system. The Tribunal upheld the CIT(A)'s decision, noting that kiosks and IVR cards, integrated with computer systems and software, qualify for 60% depreciation as per the Income Tax rules.

Conclusion:
The Tribunal partly allowed the assessee's appeal, directing the Assessing Officer to allow the royalty payment and copyright usage charges as revenue expenses while upholding the 20% disallowance on GPRS/SMS testing expenses. The Tribunal dismissed the Revenue's appeal, confirming the 60% depreciation rate on computer kiosks and IVR cards. The judgment was pronounced in open court on 03/07/2015.

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