COMMISSIONER OF INCOME TAX vs. M/S.SHRIRAM CHITS TAMILNADU

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TCA/885/2017HC Madras12 August 2020Bench: Hon`ble Dr Justice VINEET KOTHARI4 pages
AI SummaryWithdrawn

What did the High Court hold?

The High Court dismissed the appeal filed by the Revenue. The dismissal was based on a Circular issued by the Central Board of Direct Taxes (CBDT), Circular No.17/2019 dated 8th August 2019. This circular stipulates that the Department shall not file or pursue appeals before the High Court where the tax effect does not exceed Rs.1,00,00,000/- (Rupees One Crore). In the present case, the tax effect was found to be less than this monetary limit. Consequently, the appeal was dismissed as withdrawn, without delving into the merits of the substantial questions of law raised. The court explicitly stated that the substantial questions of law remain open for determination in appropriate future cases. No costs were awarded.

What were the facts?

The Revenue, Commissioner of Income Tax, Chennai, filed a Tax Case Appeal (TCA No.885 of 2017) before the High Court of Judicature at Madras, challenging an order dated 29.07.2016 passed by the Income Tax Appellate Tribunal (ITAT), Madras 'B' Bench, in ITA.No.732/Mds/2016. The appeal pertains to the assessment of M/s.Shriram Chits Tamilnadu Pvt.Ltd. The core of the dispute revolves around the classification of royalty paid by the assessee for the use of a copyright for a logo. The Revenue contended that such payment should be treated as capital expenditure, entitling the assessee only to depreciation, whereas the ITAT had held it to be revenue expenditure.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the royalty paid by the assessee towards the copyright for the use of a logo is to be treated as revenue expenditure, without appreciating that as per Section 32 read with Explanation 3 of the Income Tax Act, 1961, the copyright is to be treated as an intangible asset of capital nature, and consequently, the royalty payment is a capital expenditure, and the assessee is entitled to depreciation only? Assessee's Contention: The judgment does not record any specific contentions made by the assessee. Revenue's Contention: The Revenue argued that the copyright is an intangible asset of a capital nature as per Section 32 read with Explanation 3 of the Income Tax Act, 1961. Therefore, royalty payments for its use should be treated as capital expenditure, and the assessee should only be entitled to depreciation. The Revenue sought to overturn the ITAT's finding that the royalty payment was revenue expenditure.

Which sections of the Income-tax Act were involved?

Section 32,Section 260-A

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, Madras B Bench, dated

Order dated 12.08.2020 in TCA No.885 of 2017 (CIT -Vs- Shriram Chits Tamilnadu Pvt Ltd) IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 12.08.2020 CORAM THE HON'BLE DR.JUSTICE VINEET KOTHARI AND THE HON'BLE MR.JUSTICE KRISHNAN RAMASAMY T.C.A.No.885 of 2017 Commissioner of Income Tax, Chennai. ... Appellant -Vs- M/s.Shriram Chits Tamilnadu Pvt.Ltd., Greams Dugar, 4th Floor,Egmore, Chennai 600 006 ... Respondent Prayer: Tax Case Appeal filed under Section 260-A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal Madras " B " Bench, dated 29.07.2016 in ITA.No.732/Mds/2016. For Appellant : Mr.J.Narayanaswamy, Senior Standing Counsel For Respondent : Mr.R.Sivaraman O R D E R (Order of the Court was made by Dr.Vineet Kothari,J) The Court was held by Video Conference as per the Resolution of the Full Court dated 03 July 2020, by Judges at the respective residence and the counsel, staff of the Court appearing from their respective residences. Page 1 / 4 http://www.judis.nic.in Order dated 12.08.2020 in TCA No.885 of 2017 (CIT -Vs- Shriram Chits Tamilnadu Pvt Ltd) 2. This Tax Case Appeal has been filed by the Revenue, calling in question the correctness of the order passed by the Income Tax Appellate Tribunal, Madras " B " Bench, dated 29.07.2016 in ITA.No.732/Mds/2016, by raising the following substantial questions of law: "Whether on the facts and in the circumstances of the case the tribunal was right in holding that the royalty paid by the assessee towards the copy right for use of logo is to be treated as revenue expenditure without appreciating that as per the section 32 w.eJ 1.4.99 read with expln 3, the copyright is to be treated as intangible asset of capital nature and consequently the royalty payment is a capital expenditure and the assessee is entitled for depreciation only?” 3. When the matter is taken up for hearing, learned Standing Counsel brought to our notice the Circular issued by the Central Board of Direct Taxes vide Circular No.17/2019 dated 8th August 2019, wherein, it is stipulated that appeals shall not be filed/pursued by the Department before the High Court in cases where the tax effect does not exceed Rs.1,00,00,000/- (Rupees One Crore). Page 2 / 4 http://www.judis.nic.in Order dated 12.08.2020 in TCA No.885 of 2017 (CIT -Vs- Shriram Chits Tamilnadu Pvt Ltd) 4. In the instant case, the tax effect is said to be less than the monetary limit imposed and therefore, the Appeal filed by the Revenue is dismissed as withdrawn, keeping open the substantial questions of law for determination in appropriate cases. No costs. (V.K.,J.) (K.R.,J.) 12.08.2020 KST To Income Tax Appellate Tribunal, Madras B Bench, Chennai. Page 3 / 4 http://www.judis.nic.in Order dated 12.08.2020 in TCA No.885 of 2017 (CIT -Vs- Shriram Chits Tamilnadu Pvt Ltd) Dr.VINEET KOTHARI, J. and KRISHNAN RAMASAMY, J. KST T.C.A.No.885 of 2017 12.08.2020 Page 4 / 4 http://www.judis.nic.in

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