The Income Tax Appellate Tribunal (ITAT), Mumbai Bench, has recently, in an appeal filed before it, held that copyright license fee/ royalty distributed amongst the members of a company are not taxable at the hands of the company.
The aforesaid observation was made by the Tribunal when an appeal was preferred before it by the Revenue, as against the order of the Commissioner of Income-tax (Appeals)-17, Mumbai dated 26/02/2018, passed under section 250 of the Income-tax Act, 1961 pertaining to assessment year 2011-12.
The grounds of the appeal being the question as to whether on the facts and in the circumstances of the case as well as in law, the CIT(A) has erred in deleting the addition of Rs.7,83,76,440/ being the amount of unreconciled TDS and income not offered for taxation, without appreciating the fact that the deductors have accounted the same in its books of account and have also subjected it to TDS, remitting the same to the Government Treasury , the contention of the Assessee was that it has not taken the credit of the said TDS and that it was not aware of the parties who had credited the said TDS amount.
With the AR further stating for the assesse that the Assessing Officer had made the said addition without proper enquiry as to who has credited the same, he relied on the decision of the CIT(A), while the DR for the Revenue on the other hand contended that the CIT(A) has erred in deleting the addition made by the Assessing Officer on the ground that the same does not pertain to the income of the assessee.
Hearing the opposing contentions of the parties and perusing the materials available on record, the Tribunal commented:
“We have heard the rival submissions and perused the materials on record. It is observed that the assessee company is a mere step through entity, which collected royalties and licence fees on behalf of its members and distributed the said amount to the concerned member, after duly deducting the related expenses on actuals. It is pertinent to consider the submission of the assessee with regard to the method of accounting followed by the assessee company and how the receipts are accounted for.”
“We have considered the judicial precedents in the decisions of Shoorji Vailabhdas 46 ITR 144 (SC), Morvi industries 82 ITR 835 and Godhra Electricity co 225 ITR 746, which reiterated the principle that it is essential to consider whether any income is real or hypothetical and that whether there is a corresponding liability of the other party to pay the amount to the assessee and that the probability of realization of income by the assessee are the factors that are to be considered to determine whether an income has accrued or not.”, the Bench observed.
And further adding to its observation, it said:
“We would also like to place reliance on the decision of the jurisdictional Bombay High Court in the case of CIT vs Neon Solutions Pvt Ltd which was also relied on by the Ld.CIT(A) for the fact that even in accrual method of accounting, income which cannot be realized and the collection of the same if uncertain, the same cannot be accounted.”
Thus, finally dismissing the appeal of the revenue and the cross objection filed by the assessee, the Tribunal ruled:
“Respectfully following the above said decision, we find no infirmity in the decision of the Ld.CIT(A) and we hereby uphold the order of the Ld.CIT(A). Resultantly, the appeal filed by the Revenue is dismissed.”
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