CIT vs. KL MALIK & SONS PVT LTD

IN THE HIGH COURT OF DELHI AT NEW DELHI . ITA 232/2013 . CIT ..... Appellant . Through: Mr Kamal Sawhney, Advocate . . . versus . . . KL MALIK and SONS PVT LTD ..... Respondent . Through . . . CORAM: . HON'BLE MR. JUSTICE BADAR DURREZ AHMED . HON'BLE MR. JUSTICE VIBHU BAKHRU . O R D E R . 15.05.2013 . . . This appeal is directed against the order dated 31.01.2012 passed by the Income Tax Appellate Tribunal in ITA No.2531/DEL/2011 relating to the assessment year 2006-2007. The appeal before the Tribunal arose out of an order of the Commissioner of Income Tax under Section 263 of the Income Tax Act, 1961. . The only issue which arose for consideration was with regard to the payment of royalty of ` 26,79,284/- which had been claimed by the assessee as a revenue expenditure. The Commissioner of Income Tax, on examination of the assessment record, observed that the Assessing Officer had allowed the expenditure of ` 26,79,284/- towards royalty and copyright expenses in violation of provisions of Section 37 of the said Act. Thereafter, a show cause notice under Section 263 was issued and, in response to which, the assessee submitted that the royalty had been paid to the authors based on number of their books that were published and sold during the year and the assessee company had not acquired any copyright in those titles. It was contended on behalf of the assessee that as the assessee company had not purchased any right from the authors, the payment of royalty was nothing but a revenue expenditure. . The Commissioner of Income Tax, however, was of the view that the respondent assessee had derived an enduring benefit on account of the payment made under the head ?royalty? and ?copyright expenses? and that . the same were not allowable as revenue expenditure under Section 37 of the said Act. Consequently, the order of the Assessing Officer was held to be erroneous and prejudicial to the interest of the revenue and, therefore, the assessment order was cancelled and the matter was remitted to the Assessing Officer with the direction to frame an assessment order afresh after providing the assessee a reasonable opportunity of being heard. . On an appeal by the assessee, the Tribunal held that the uncontroverted facts of the case were that the royalty payments had been made on the basis of sales made and had been allowed by several assessing officers in the past. The Tribunal also noted that it was not the case of the revenue that the assessee had purchased any copyright during the year under consideration. The Tribunal observed that as royalty had been claimed and allowed consistently by various assessing officers in the past two decades, the Assessing Officer was not required to specifically mention in the assessment order as to why the claim of royalty was allowed. This was in the context of the fact that the Assessing Officer had not mentioned anything about the royalty payments in the assessment order. The Tribunal explained this provision by stating that this was a standard practice, which was going on from two decades and, therefore, there was no need for the Assessing Officer to make any specific mention as to why the royalty was allowed as a revenue expenditure. This is so, particularly, in view of the fact that even for the year in question, the revenue?s case is not that any copyrights were acquired by the respondents assessee. Consequently, the Tribunal was of the view that by virtue of the Commissioner?s order passed under Section 263 of the said Act, the Assessing Officer would be unnecessarily dragged in protracted litigation on a settled issue. As a result, the Tribunal set aside the order passed by the Commissioner of Income Tax dated 28.03.2011. We do not find any substantial question of law which arises for our consideration in this appeal. . The appeal is dismissed. . . . . . . . BADAR DURREZ AHMED, J . . . . . . . VIBHU BAKHRU, J . MAY 15, 2013 . MK . . . $ 3 .