AI Drafter 
TaxTMI 
TaxTMI 
2018 (2) TMI 1654
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....umstances of the case and in law, the 'royalty' payment would be allowable as business expenditure, where the same has not been exclusively and wholly incurred for business purposes? (ii) Whether on the facts and in the circumstances of the case and in law, the order of the Tribunal is not perverse in holding that the transaction was not a colorable devise to reduce the tax liability of the company in which the Managing Director was none other than the beneficiary Proprietor of royalty particularly when no evidence of any patented product in possession of the Proprietor could be produced and all the stipulates in the agreement showed that it was for the exclusive benefit of the proprietor, and also when no proof of brand value of phoneytune.com was established? (iii) Whether on the facts and in the circumstances of the case and in law, the Hon'ble ITAT was correct in not appreciating the applicability of the provisions of section 47 (xiv) read with section 47A (3)? (iv) Whether on the facts and in the circumstances of the case and in law, the Hon'ble ITAT was right in treating the 'copyright expense' as a revenue expense when the Income Ta....
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....7,858/- on account of royalty paid to the assessee's director Shri Tarun Mohan. The earlier assessment order passed in the case of the assessee for the assessment year 2008-09 was followed. Further licence fee of ' 2,03,78,978/- paid to M/s Phonographic Performance Ltd. was treated as capital expenditure. 7. The CIT (Appeals) partly allowed the assessee's appeal vide order dated 25.09.2012. The addition made by the AO on account of royalty paid to Shri Tarun Mohan was upheld, relying upon the earlier decisions in the case of the assessee for the assessment years 2007-08 and 2008-09. The licence fee paid was held to be capital expenditure as the acquired asset has benefit which is enduring in nature. 8. Aggrieved by the order of the CIT (Appeals), the assessee as well as the revenue filed appeals before the Tribunal. The Tribunal by the impugned order dated 03.07.2015 partly allowed the appeal of the assessee and dismissed the appeal of the revenue. 9. The assessee company filed its return for the relevant assessment year. In the return, among other things, the amount of royalty paid to Shri Tarun Mohan was claimed as a business expenditure. The licence fee paid to ....
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....his agreement, ITIDA shall pay to Mr. Tarun Mohan, sole proprietor of PT a purchase price or consideration of a sum of ' 5,81,231/- and in consideration of all intellectual property rights (other than brand name) and for the use of brand name of phoneytunes.com a consideration of 2% of the gross revenue receipts under the relevant business after 2 years of closing date." (emphasis supplied) From the above Articles, it is evident that Shri Tarun Mohan permitted the assessee to use the intellectual property vested in him, viz. the mark 'phoneytunes.com'. He had not assigned the same to the assessee Company. He was entitled to receive royalty of 2% of the gross revenue receipts under the relevant business after two years of the closing date. It would be appropriate to note at this stage that the transfer of assets etc. by the sole proprietor was against consideration of ' 5,81,231/-. Shri Tarun Mohan also acquired shareholding in the assessee company. 11. As we noted earlier, question No. (iii) is also covered in the assessee's favour by virtue of the judgment dated 07.08.2015 in ITA Nos. 193, 194 and 197 of 2015. Mrs. Dhugga however contended that the judgment ....
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.... received consideration in cash of ' 5,81,231/- which includes payment of royalty for the use of the brandname. Moreover he has admittedly not received shares as consideration for the same. Thus, Section 47 has no application to the case. 13. The case set up by the appellant is that as Tarun Mohan is being paid royalty, therefore, there is a violation of clause (xiv) of section 47, as the consideration, apart from allotment of shares, has passed to the sole proprietor. On this basis, sub-section (3) of section 47A should be invoked and the said consideration would be deemed profit and gain of the assessee company. Section 47A lays down the conditions, which if violated, would result in withdrawal of exemption as provided under section 47. Sub-section (3) of section 47A deals with violation of clause (xiii) or proviso to clause (xiv) of section 47. The result of violation would be that the amount of profits or gains arising from the transfer will be treated as deemed profits and gains of the successor company chargeable to tax in the previous year in the hands of the company. 14. The issue raised has no foundation to stand. There are no findings of fact recorded that the provi....
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....s End- Users who have subscribed to and paid or agreed to pay for such services ("Subscribers"); 2.1.4 to prepare and publicly perform excerpts and samples of the Licensed Works of duration not exceeding fifteen (15) seconds for monophonic format and thirty (30) seconds for polyphonic format, solely for promotional purposes on the Licensee's and the Sub-Licence's website/IVR/WAP or such other method of 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 ....