| |
| The Tax Publishers2020 TaxPub(DT) 0819 (Kol-Trib) INCOME TAX ACT, 1961
Section 37(1)
Whether a particular expenditure is capital or revenue must be decided in the larger context of business necessity or expediency. Since assessee's business itself consisted of reproducing and selling recorded music, royalty payment for purchase of original music, which formed the raw material, was an expenditure incurred out of business necessity just as a sugar manufacturer would require sugarcane as its raw material. The payment was so related to the conduct of assessee's business that it had to be regarded as integral part of profit earning process and not for acquisition of any asset or any right of a permanent character whatever the mode of payment might be. Accordingly, minimum guarantee royalty was allowable as revenue expenditure.
|
Capital or revenue expenditure - Payment of minimum guarantee royalty for purchasing right to reproduce film-music - Music formed the raw material for assessee engaged in manufacturing and sale of music cassettes, compact discs (CDs) etc. -
Assessee engaged in manufacturing and sale of music cassettes, compact discs (CDs) etc. entered into agreements with various producers etc. for purchasing right to reproduce film-music on payment of minimum guarantee royalty. AO held that assessee has acquired absolute right of production and sale of cassettes, compact disc etc. and minimum guarantee royalty was of capital in nature because this payment was one time contractual expenditure incurred for the purpose of acquiring absolute/monopoly right. Held: Whether a particular expenditure is capital or revenue must be decided in the larger context of business necessity or expediency. Since assessee's business itself consisted of reproducing and selling recorded music, royalty payment for purchase of original music, which formed the raw material, was an expenditure incurred out of business necessity just as a sugar manufacturer would require sugarcane as its raw material. The payment was so related to the conduct of assessee's business that it had to be regarded as integral part of profit earning process and not for acquisition of any asset or any right of a permanent character whatever the mode of payment might be. Accordingly, minimum guarantee royalty was allowable as revenue expenditure.
REFERRED :
FAVOUR : In assessee's favour.
A.Y. :
INCOME TAX ACT, 1961
Section 36(1)(vii)
 SUBSCRIBE FOR FULL CONTENT
|