Case Law Details
Saregama India Ltd. Vs DCIT (ITAT Kolkata)
The issue under consideration is whether payment of minimum guarantee royalty for purchasing right to reproduce film-music is considered as capital expense or revenue expense?
ITAT states that, the nature of business of the assessee in the present case, it cannot be disputed that music is a raw material in the case of the assessee, a fact which has been confirmed by the Tribunal in A.Y 1984-85. It purchases music on payment of royalty and reproduces the same In musical cassettes, CDs manufactured and sold by It. Any payment for procuring raw material for one’s business is an expenditure In the revenue field Irrespective of the made of payment. Payment of a minimum guarantee and then recurring royalty thereafter for music (raw material) is nothing but mode of payment for purchase of raw material out of business. The reason why royalty has to be allowed as revenue expenditure must be the relation which the royalty has to the raw material which is going to be excavated or extracted. The more you take, the more royalty you pay, and the minimum payment or dead rent has also the same characteristic. Further, we also find support to our above conclusion in the order passed by this Tribunal In the assessee’s own case for the A. Y 1984-95, which is reproduced that ” the assessee’s business itself consists of purchasing of music, reproducing the same in gramophone records and music cassettes and selling them to the public. The Hon’ble Supreme Court itself in the aforesaid decision has laid down that the question whether a particular expenditure is capital or revenue must be decided in the larger context of business necessity or expediency. Since the assessee’s business itself consists of reproducing and selling recorded music, the royalty payment for the purchase of the original music, which forms the raw material, is an expenditure incurred out of business necessity just as a sugar manufacturer would require sugarcane as its raw material. The payment is so related to the conduct of the assessee’s business that it must be regarded as in integral part of the profit earning process and not for acquisition of any asset or any right of a permanent character. In this respect ITAT must point out that expenditure Incurred for purchase of raw material is always revenue expenditure irrespective of mode of payment viz. minimum guarantee royalty or recurring royalty & therefore mode of payment cannot change the basic character of the expenditure i.e., expenditure incurred for purchase of raw material (music In the present case) which is always revenue.
FULL TEXT OF THE ITAT JUDGEMENT
The instant batch of seven cases pertains to a single assessee M/s Saregama India Ltd. First two assessment year(s) 2003-04 & 2004-05 involve assessee’s and Revenue’s cross appeal(s) ITA No.309 and 470/Kol/2017 and ITA Nos. 310 & 471/Kol/2017. Assessment year(s) 2005-06 and 2006-07 contain latter appeal(s) ITA No.s 472 & 473/Kol/2017 and assessment year 2010-11 includes taxpayer’s appeal ITA No.312/Kol/2017, arising against the Commissioner of Income Tax (Appeals)-22 Kolkata’s separate orders; dated 07.12.2016 (former two), 08.12.2016 (in 3rd and 4th) and 09.12.2016 (in last assessment year) passed in case No.s.155/CIT(A)-22/Kol/03-04/15-16, 157/CIT(A)-22/Kol/04-05/15-16, 156/CIT(A)-22/Kol/10-11/15-16, 160/CIT(A)-22/Kol/01-02/15-16 & 163/CIT(A)-22/06-07/15-16,assessment year-wise; respectively relevant proceedings in all cases are u/s 143(3) of the Income Tax Act, 1961; in short ‘the Act’.
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