ACIT, Chandigarh v. M/s Mobisoft Tele Solutions P. Ltd., Chandigarh

MA 6/CHANDI/2016 | 2006-2007
Pronouncement Date: 26-10-2016 | Result: Dismissed

Appeal Details

RSA Number 621524 RSA 2016
Assessee PAN AAACI3573P
Bench Chandigarh
Appeal Number MA 6/CHANDI/2016
Duration Of Justice 1 year(s) 1 month(s) 7 day(s)
Appellant ACIT, Chandigarh
Respondent M/s Mobisoft Tele Solutions P. Ltd., Chandigarh
Appeal Type Miscellaneous Application
Pronouncement Date 26-10-2016
Appeal Filed By Department
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 26-10-2016
Assessment Year 2006-2007
Appeal Filed On 18-09-2015
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH CHANDIGARH BEFORE SHRI BHAVNESH SAINI JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA ACCOUNTANT MEMBER M.A.NO.6/CHD/2016 IN ITA NO.684/CHD/2011 (ASSESSMENT YEAR: 2002-03) THE A.C.I.T. VS. M/S MOBISOFT TELE SOLUTIONS P. LTD. CIRCLE 4(1) EARLIER KNOWN AS M/S TIDA CHANDIGARH. CAD SERVICES PVT. LTD. SECTOR-36A CHANDIGARH. PAN: AAACI 3573 P (APPELLANT) (RESPONDENT) APPLICANT BY : SHRI S.K. MITTAL RESPONDENT BY : SHRI ROHIT GOYAL DATE OF HEARING : 21.10.2016 DATE OF PRONOUNCEMENT : 26.10.2016 O R D E R PER ANNAPURNA GUPTA A.M . : THIS MISCELLANEOUS APPLICATION FILED BY THE REVENUE ARISES FROM THE ORDER PASSED BY THE TRIBUN AL IN ITA NO.684/CHD/2011 DATED 28.10.2014. PASSED IN CONSOLIDATED ORDER IN ITA NO. 684 1206 &1207/CHD/20 11. 2. LEARNED D.R. VIDE THIS MISC. APPLICATION HAS SOUGHT RECTIFICATION OF A MISTAKE IN THE ABOVE MENT IONED ORDER BEING FAILURE OF THE TRIBUNAL IN DEALING/DI SCUSSING AN ISSUE WHICH WAS DEALT WITH BY THE LD.CIT (APPEA LS). 3. THE LEARNED D.R. STATED THAT IN THE ASSESSMENT ORDER PASSED IN THE CASE OF THE ASSESSEE THE EXPE NDITURE 2 ON ACCOUNT OF ROYALTY AMOUNTING TO RS.20 31 774/- P AID TO THE DIRECTOR OF THE ASSESSEE COMPANY SHRI TARUN MO HAN ALLEGEDLY IN LIEU OF TAKING OVER HIS PROPRIETARY BU SINESS RUN IN THE NAME OF M/S PHONEYTUNES WAS DISALLOWED TREATING IT TO BE A COLORABLE DEVICE. THE CIT (APPE ALS) UPHELD THE DISALLOWANCE AND FURTHER HELD THAT SINCE THE ASSESSEE HAD NOT COMPLIED WITH THE CONDITIONS OF SE CTION 47(XIV) OF THE INCOME TAX ACT 1961 (IN SHORT THE ACT) THE PROVISIONS OF SECTION 47A(3) OF THE ACT HAD BEC OME APPLICABLE AND AS A CONSEQUENCE THE CAPITAL GAIN O N ACCOUNT OF TAKEOVER OF THE PROPRIETARY CONCERN BY T HE ASSESSEE COMPANY WAS TAXABLE IN THE HANDS OF THE ASSESSEE COMPANY. THE I.T.A.T. SET ASIDE THE ORDER OF THE LEARNED CIT (APPEALS) AND DELETED THE ADDITION MADE BY THE ASSESSING OFFICER. THE LEARNED D.R. STATED THA T WHILE PASSING THE IMPUGNED ORDER SETTING ASIDE THE ORDER OF THE CIT (APPEALS) THE I.T.A.T. DID NOT DISCUSS ABOUT T HE APPLICABILITY OF SECTION 47(XIV) R.W.S. 47A(3) OF T HE ACT AND THEREFORE A MISTAKE HAD CREPT IN THE ORDER OF THE I.T.A.T. NEEDING RECTIFICATION UNDER SECTION 254(2) OF THE ACT. 4. ON THE OTHER HAND LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE MISCELLANEOUS APPLICATI ON FILED BY THE DEPARTMENT WAS FRIVOLOUS AND NEEDED TO BE DISMISSED OUTRIGHT SINCE HE ORDER OF THE I.T.A.T. H AD BEEN UPHELD BY THE PUNJAB & HARYANA HIGH COURT VIDE ITS ORDER DATED 7.8.2015. THE LEARNED COUNSEL FOR THE ASSESS EE STATED THAT SINCE THE ADDITION/DISALLOWANCE OF EXPE NDITURE 3 MADE BY THE ASSESSING OFFICER HAD BEEN DELETED THE RE WAS NO QUESTION OR NEED AT ALL TO GO INTO THE APPLICABI LITY OR OTHERWISE OF THE PROVISIONS OF CAPITAL GAINS AS PRE SCRIBED UNDER SECTION 47(XIV) R.W.S. 47A(3) OF THE ACT. 5. WE HAVE HEARD THE CONTENTIONS OF BOTH THE PARTIES AND FIND THAT THE SOLE ISSUE BEFORE US IS T HAT SINCE THE TRIBUNAL HAD NOT CONSIDERED THE APPLICABILITY O F PROVISIONS OF SECTIONS 47(XIV) AND 47A(3) OF THE AC T IN THE ORDER PASSED BY IT ON THE ISSUE RELATING TO DISALLO WANCE OF ROYALTY EXPENSES INCURRED ON TAKEOVER OF PROPRIETAR Y BUSINESS BY THE ASSESSEE THE SAME NEEDED TO BE RECALLED/REVIEWED. 6. WE FIND NO MERIT IN THE PRESENT MISCELLANEOUS APPLICATION FIRSTLY FOR THE REASON THAT THE ITAT HA D COMMITTED NO ERROR IN ITS ORDER WHEN IT DID NOT DEA L WITH THE APPLICABILITY OF THE PROVISIONS OF SECTION 47( XIV) AND 47A(3) OF THE ACT ON THE ISSUE BEFORE IT SINCE A PERUSAL OF THE GROUNDS RAISED BEFORE THE ITAT REVEAL THAT THE ASSESSEE HAD NOT CHALLENGED THE SAME BEFORE IT AT A LL. THE GROUNDS RAISED BY THE ASSESSEE ARE BEING REPRODUCED HEREUNDER: '1 THAT THE LD. CIT(A) IS NOT JUSTIFIED IN HOLDING THAT THE TRANSACTION BETWEEN SHRI TARUN MOHAN PROP OF M/S PHONEYTUNES.COM AND THE COMPANY WHEREBY 2% OF SALE CONSIDERATION HAS BEEN PAID AS ROYALTY IS A SHAM TRANSACTION. 2 THAT THE LD. CIT(A) IS NOT JUSTIFIED IN CONFIRMING THE ADDITION OF RS. 20 31 774/- BEING THE AMOUNT OF ROYALTY PAID TO THE PROP OF M/S PHONEYTUNES.COM ON THE GROUND THAT M/S 4 PHONEYTUNES.COM DID NOT HAVE ANY PRODUCT INVENTED BY IT WITH COPY RIGHT OR PATENT AND THAT THE BRAND VALUE OF PHONEYTUNES.COM HAS NOT BEEN ESTABLISHED JUSTIFYING THE PAYMENT UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE COMPLETELY IGNORING THE F ACT THAT M/S PHONEYTUNES.COM IS A WEBSITE REGISTERED UNDER COPY RIGHT ACT/ TRADE MARKS ACT. 3 THAT THE LD. CIT(A) IS NOT JUSTIFIED IN CONFIRMING THE ACTION OF AL IN TREATING THE AMO UNT OF ROYALTY PAID AS CAPITAL EXPENDITURE UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE.' 7. IT IS EVIDENT FROM THE ABOVE THAT THE ASSESSEE HAD ONLY CHALLENGED THE ADDITION MADE ON ACCOUNT OF HOLDING THE PAYMENT OF ROYALTY AS SHAM TRANSACTION AND DISBELIEVING THE CONTENTION OF THE ASSESSEE RELATIN G TO GENUINENESS OF THE TRANSACTION AS ALSO ALTERNATIVE LY TREATING THE TRANSACTION/EXPENSE AS BEING CAPITAL I N NATURE. NOWHERE WE FIND IN THE GROUNDS HAS THE ASSESSEE CHALLENGED THE TREATMENT OF TAKEOVER OF TH E PROPRIETARY CONCERN OF THE DIRECTOR OF THE ASSESSE COMPANY AS RESULTING IN CAPITAL GAINS AS PER THE PROVISIONS OF SECTION 47(XIV) OF THE ACT READ ALONGWITH 47A(3) OF THE ACT. THE TREATMENT OF AN EXPENSE AS BEING CAPITAL IN NAT URE IS TOTALLY DISTINCT AND IN COMPLETE CONTRAST TO TREATI NG AN EXPENSE AS RESULTING IN CAPITAL GAIN. THUS FOR ALL PURPOSES WE FIND THAT THE ISSUE WHICH THE DEPARTME NT FINDS WAS NOT ADJUDICATED BY THE ITAT WAS NEVER IN FACT RAISED BEFORE IT AND THEREFORE NO QUESTION AROSE O F ADJUDICATING IT AT ALL. MOREOVER EVEN THE LD.DR ADM ITTED TO THIS FACT BEFORE US THAT THE ISSUE WAS NEVER RAI SED BEFORE THE ITAT. IT IS AMPLY CLEAR THEREFORE THAT THERE WAS NO ERROR IN THE ORDER OF THE ITAT VIS-A-VIS NON 5 ADJUDICATING THE ISSUE OF APPLICABILITY OF THE PROV ISIONS OF SECTION 47(XIV) READ WITH SECTION 47A(3) OF THE ACT . THE MISCELLANEOUS APPLICATION FILED BY THE REVENUE THER EFORE NEEDS TO BE REJECTED FOR THIS REASON ALONE. 8. HOWEVER GOING FORWARD WE FIND THAT THE I.T.A.T . ALLOWED ASSESSEES CLAIM FOR ROYALTY HOLDING IT TO BE GENUINE SINCE IT WAS CLEARLY ESTABLISHED THAT THE A SSESSEE COMPANY HAD PAID ROYALTY FOR THE PARTICULAR INVENTI ON WHICH BELONGED TO PHONEYTUNES.COM. THE RELEVANT FIN DINGS OF THE ITAT AT PARA 13 OF ITS ORDER ARE AS UNDER: 13. IN VIEW OF ABOVE DISCUSSION 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. THEREFORE WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND DIRECT THE ASSESSING OFFICER TO ALLOW CLAIM FOR ROYALTY. 9. FURTHER AND MORE IMPORTANTLY WE FIND THAT THE HIGH COURT UPHELD THE ORDER OF THE ITAT VIDE ITS OR DER DATED 7.8.2015.IT IS RELEVANT AT THIS JUNCTURE TO A PPRECIATE THE QUESTIONS OF LAW FRAMED BEFORE THE HIGH COURT WHICH WERE AS FOLLOWS: (I) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE HON'BLE ITAT IS JUSTIFIED IN HO LDING THAT ROYALTY PAYMENT TO A RELATED PERSON WOULD BE ALL OWABLE FOR BUSINESS EXPENDITURE U/S 37(1) OF THE ACT WHEREA S THE SAME HAS NOT BEEN EXCLUSIVELY AND WHOLLY INCURRED F OR BUSINESS PURPOSES? (II) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW THE HON'BLE ITAT IS JUSTIFIED IN HO LDING 6 THAT ROYALTY PAYMENT WOULD BE ALLOWABLE BUSINESS EXPENDITURE U/S 37(1) WHEN THE SAME HAS NOT BEEN PA ID TO THE OWNER/HOLDER OF THE PATENT DESIGN COPYRIGHT AND T ECHNICAL KNOW HOW OR TO AN INVENTOR AND WHERE THERE IS NO TRANSFER/ACQUISITION OF ANY ASSETS? (III) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE HON'BLE ITAT IS JUSTIFIED IN H OLDING THAT ROYALTY PAYMENT WOULD BE ALLOWABLE BUSINESS EX PENDITURE U/S 37(1) INSPITE OF THE FACT THAT EXPENDITURE ON R OYALTY PAYMENT IS CAPITAL IN NATURE? (IV) WHETHER ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE ORDER OF THE TRIBUNAL IS NOT PERVERSE IN HOLDIN G THAT THE TRANSACTION WAS NOT A COLOURABLE DEVICE TO REDUCE T HE TAX LIABILITY OF THE COMPANY IN WHICH THE MANAGING DIRE CTOR WAS NONE OTHER THAN THE BENEFICIARY PROPRIETOR OF R OYALTY PARTICULARLY WHEN NO EVIDENCE OF ANY PATENTED PRODU CT IN POSSESSION OF THE PROPRIETOR COULD BE PRODUCED AND ALL THE STIPULATIONS IN THE AGREEMENT SHOWED THAT IT WA S FOR THE EXCLUSIVE BENEFIT OF THE PROPRIETOR AND ALSO WH EN NO PROOF OF BRAND VALUE OF PHONEYTUNES.COM WAS ESTABLI SHED? 10. CLEARLY THE REVENUE HAD CHALLENGED THE ALLOWABILITY OF THE IMPUGNED EXPENSES U/S 37(1) OF THE ACT WHICH THE HON'BLE HIGH COURT VIDE ITS ORDER DATED 7.8.2015 ANSWERED IN FAVOUR OF THE ASSESSEE BY UPHO LDING THE ORDER OF THE I.T.A.T. AT PARA 10 OF ITS ORDER A S FOLLOWS: 10. IN THESE CIRCUMSTANCES THE DELETION BY THE TRIBUNAL OF THE ADDITION OF ROYALTY BY THE ASSESSING OFFICER AND CONFIRMED BY THE CIT (APPEALS) WAS RIGHTLY SET ASIDE BY THE TRIBUNAL. NO QUESTION OF LAW ARISES. 11. WHAT EMERGES FROM THE ABOVE IS THAT THE I.T.A.T. HAD ALLOWED THE ASSESSEES CLAIM FOR EXP ENDITURE U/S 37(1) OF THE ACT HOLDING THE SAME TO BE GENUIN E AND THE HON'BLE HIGH COURT ON THE QUESTION OF LAW FRA MED BEFORE IT RELATING TO ALLOWANCE OF ASSESSES CLAIM O F 7 EXPENDITURE U/S 37(1) OF THE ACT HAS AFFIRMED THE ORDER OF THE TRIBUNAL. THE ISSUE OF ALLOWABILITY OF EXPE NDITURE ON ACCOUNT OF ROYALTY U/S 37(1) OF THE ACT HAS TH US ATTAINED FINALITY. WE THEREFORE SEE NO REASON WHY THE ISSUE OF CAPITAL GAIN VIS-A-VIS SECTION 47(XIV) R.W .S 47A(3) ALSO NEEDS TO BE ADJUDICATED UPON . THERE IS CLEA RLY NO ERROR IN THE ORDER OF THE I.T.A.T. NEEDING ANY RECT IFICATION AND THE MISCELLANEOUS APPLICATION FILED BY THE REVE NUE IS GROSSLY MISPLACED. 12. IN VIEW OF THE ABOVE THE MISCELLANEOUS APPLICATION FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (BHAVNESH SAINI) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 26 TH OCTOBER 2016 *RATI* COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. THE CIT 5. THE DR ASSISTANT REGISTRAR ITAT CHANDIGARH