COMMISSIONER OF INCOME TAX Vs. M SUBRAMANIAM

JUDGEMENT

(1.) The question referred is as to whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the expenditure in obtaining a right for reproduction of film songs for a specific period is royalty and allowable as revenue expenditure and not a capital expenditure, which attracts the provisions of Section 35A of the Income-tax Act.

(2.) The assessee is an individual engaged in the production of audio cassettes with popular film songs. He carries on the business of manufacturing pre-recorded cassettes and selling the same in the name of ECHO Recording Company. In order to obtain such popular songs, the assessee enters into agreements with the producers of the Films for obtaining the right to re-produce the film songs.

(3.) The assessee claimed that the monies paid under those agreements was in the nature of royalty and should, therefore, be allowed as revenue expenditure in computing the assessee's income. His claim was accepted on 29.09.1996 for the assessment year 1985-86. For the assessment year 1984-85 also, the assessment was made under Section 143(3) of the Income-tax Act on 19.3.1987 accepting the deduction of such expenditure. Later on, the Commissioner of Income Tax was of the view that the royalty paid for acquiring the copy right should be treated as capital expenditure, since what was obtained by the assessee was a capital asset.