TaxTMI 
TaxTMI 
2013 (10) TMI 744
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....ccording to the amended provisions of section 32(2), with effect from April 11, 1999, know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, etc. were to be treated as intangible assets and depreciation to be allowed on investments in such items. 2.2 It is submitted that the assessee had acquired a master plate with a right to exploit the same by reproducing the sound track in the form of cassettes and compact discs, etc. Hence the master plate acquired was like a mould from which the assessee records/re-records many fold cassettes and commercially exploit the same. 2.3 It is submitted that an expenditure which gives enduring benefit to the assessee had to be treated as capital in nature. In this case, the master plate is a capital asset as per the provisions of section 32(2) of the Act. 2.4 It is submitted that the decision of the jurisdictional Income-tax Appellate Tribunal in the case of Star Music v. Deputy CIT [2013] 22 ITR (Trib) 700 (Chennai) has not become final and an appeal has been filed before the hon'ble High Court ....
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....f audio cassette tapes, compact discs or any other format of various films to the tune of Rs. 1,11,01,001. As per the agreements entered (all these agreements are similar with respect to terms and conditions) the assessee acquires a master plate containing the agreed sound track with copyright to commercially exploit the same. The assessee has claimed the cost of purchase of this master plate with copyright as revenue expenditure. As per the provisions of section 32(1)(ii) purchase of any knowhow, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets, acquired on or after the April 1, 1998 shall be capitalised and only depreciation at 25 per cent. be allowed as the provisions of rule 5(1) of the Income-tax Rules, 1962. By this office letter dated October 7, 2011, the assessee was required to put forward its arguments as to why the cost of purchase of copyrights should not be capitalised and depreciation at 25 per cent. be allowed on the cost of purchase. The assessee-firm, vide its letter dated October 19, 2011 an....
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....; 2. The character of expenditure has to be decided on the facts and circumstances of each case. Any payment or expenditure for ensuring source of stock-in-trade is capital whereas the payment or expenditure for obtaining stock-in-trade from known source is revenue. The payment made by the assessee is to obtain stock-in-trade. The assessee's contention is considered. It is not accepted for the following reasons : Para No. 3.3.1 of the agreement entitles the assessee to use, exploit and produce, duplicate and or reproduce the works for marketing and/or sales of works in the form audio cassettes, compact discs, and/or any other forms of sound recording/any other contrivance/appliance bearing or used for emitting sounds that may be developed in future within the agreed territory. Thus what the assessee acquired by way of agreement is not stock-in-trade but a master plate with copyright which enables the assessee to copy it many folds in the form of audio cassettes and compact discs, etc. and exploit the same commercially. Stock-in-trade is a product which the assessee during the course of business acqu....
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....wance of Rs. 1,11,01,001 being assignment of copyright and master plate claimed as revenue expenditure. The Assessing Officer has summarised the arguments of the appellant and his stand in pages 2 to 5 of the assessment order and rejected the contention and treated it as capital expenditure and allowed depreciation. During the appeal proceedings the authorised representative relied on the statement of facts and grounds of appeal and submitted a copy of order of jurisdictional Income-tax Appellate Tribunal in the case of Star Music v. Dy. CIT [2013] 22 ITR (Trib) 700 (Chennai) (I. T. A. No. 910/Mds/2011 dated March 30, 2012) and submitted that the facts of the case of the appellant are covered by the said decision wherein the claim of the appellant relating to revenue expenditure was upheld. 5.1 I have carefully considered the submission of the authorised representative and also perused the judgment of the hon'ble Income-tax Appellate Tribunal. In the said judgment the hon'ble Tribunal relied on the judgment of the Delhi Tribunal in the case of Super Cassettes Industries P. Ltd. v. CIT [1992] 41 ITD 530 (Delhi) and co-ordinate Bench judgment in the case of M. Subramaniam v. Deput....
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....Assessing Officer allowed the entire expenditure which has resulted in under-assessment. 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 the purchases have to be capitalised, in the same manner, the receipt also needs to be capitalised. As per rule 9A the entire expenses of a movie/production could be written off if the same is released within three months before the end of the financial year. The Commissioner of Income-tax did not accept the contentions of the assessee and held as under : 'The assessee has purchased the end product from a producer, i.e., audio rights and rights in CD and DVDs. The assessee has purchased by incurring expenses of Rs. 51,85,000 towards purchase of audio rights and Rs. 30,70,000 towards CD and DVD rights. These rights permit the assessee to exploit the audio and CD ....
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....p; 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 Industries P. Ltd. v. CIT [1992] 41 ITD 530 (Delhi) (ii) M. Subramaniam v. Dy. CIT [1992] 42 ITD 676 (Mad) ; (iii) Gramophone Co. of India Ltd. v. Dy. CIT [1994] 48 ITD 145 (....
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....aid 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 (supra), 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 the 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 itself will depend upon the popularity of the songs which in the case of film songs may not last even a year. T....
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....ances, 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 co-ordinate Benches of the Tribunal, we find that Commissioner of Income-tax was not correct in holding that the assessment order is erroneous. For invoking the provisions of section 263, the twin conditions, namely :- ....