Commissionerof Incometax-Ivthrough:mr.kamalsawhney,Advocate v. Ita 435/2013

$~2 *IN THE HIGH COURT OF DELHI AT NEW DELHI+ITA 434/2013 COMMISSIONEROF INCOMETAX-IVThrough:Mr.KamalSawhney,Advocate Appellant versus 3 + M/S H T MUSIC & ENTERTAINMENTCO LTDRespondent Through:Nemo. ITA 435/2013 COMMISSIONER OF INCOME TAX IVAppellantThrough:Mr.KamalSawhney,Advocate versus M/S H T MUSIC & ENTERTAINMENT CO LTD Respondent Through: Mr.V.P.Gupta,Advocate CORAM:HON'BLE MR. JUSTICE SANJIV KHANNAHON'BLE MR. JUSTICE SANJEEV SACHDEVAORDER%25.09.2013CM No.14054/2013(exemption^in ITA 435/2013 Exemptionallowed,subjectto alljust exceptions. CM No.14053/2013(delay) in ITA 434/2013CM No.14055/2013(delay) in ITA 435/2013 Thereis delay of 65 days and 117 days in refilingof theappeals. For the reasons stated in the applications, the delay infiling and refiling the appeal is condoned.The applications stand disposed of. Signature Not Verified These two appealsby the revenueunder Section260A ofthe Income Tax Act relate to assessment years 2007-08 and2008-09. Two common issues are raised in these two appeals. Thefirst commonissuerelatesto expenditureincurredon trainingofstaff.The contention of the revenue is that this was capitalexpenditure.The contention cannot be accepted as theemployeeswere not a capitalasset or fixed asset of a company.Employees were trained for greater efficiency and superiorperformance. But this cannot be a ground to hold that theassessee companyhad incurredcapital expenditureor that theyhad derived enduringbenefit.Employeesundergo training fortheir skill improvements,whichmay and should in turn result inbetter efficiency and increased productivity. Nevertheless, it isincorrect to assume that every expenditure that may increaseproductivity or enhance profits must be capital expenditure.Better or improved skills and knowledge, is personal to anemployee. It does not add to the profit making apparatus orstructure and is not acquisition of a source of profit. Employeeis entitled to change his employer and move on.The followingobservations in Empire Jute Company v. Commissioner ofIncome Tax; (1980) 124 ITR 0001(SC) are apposite andillustrate the principle of law applicable:- "The revenue,however,contendedthat bypurchase of loom hours the assessee acquireda right to produce more than what it otherwisewould have been entitled to do and this righttoproduceadditionalquantityof goodsconstituted addition to or augmentation of itsprofit-making structure. The assessee acquired "The revenue,however,contendedthat bypurchase of loom hours the assessee acquireda right to produce more than what it otherwisewould have been entitled to do and this righttoproduceadditionalquantityof goodsconstituted addition to or augmentation of itsprofit-making structure. The assessee acquired the rightto producea largerquantityof goodsand to earn more income and this, accordingto the revenue, amounted to acquisition of asource of profit or income which thoughintangible was nevertheless a source or "spinner " of income and the amount spent onpurchase of this source of profit or income,therefore, represented expenditure of capitalnature. Now it is true that if disbursementismade for acquisition of a source of profit orincome, it would ordinarily, in the absence ofany other countervailing circumstances, be inthe nature of capital expenditure. But we failto see how it can at all be said in the presentcase that the assessee acquired a source ofprofit or income when it purchased loomhours. The source of profit or income was theprofit-makingapparatusandthisremaineduntouchedandunaltered.Therewasnoenlargementof thepermanentstructureofwhich the incomewould be the produceorfinit. What the assesseeacquired was merelvan advantagein the nature of relaxationofrestriction on working hours imposed bv theworking time agreement,so that the assesseecould operate its profit-earningstructure for alonger number of hours. Undoubtedly,theprofit-earning structure of the assessee wasenabled to produce more goods, but that wasnot because of any additionor augmentationin the profit-makingstructure, but because theprofit-making structure could be operated forlongerworkinghours.Theexpenditureincurred for this purpose was primarily andessentiallyrelated to the operation or workingof theloomswhichconstitutedtheprofit-earning apparatus of the assessee. It was anexpenditure for operating or working thelooms for longer working hours with a viewto producing a larger quantity of goods andearning more income and was, therefore, inthe nature of revenue expenditure." (Emphasis Supplied) With regard to royalty payment, it is noticed that thepayment was to be made on "Need Hours Basis".Therespondent assessee did not acquire any enduring or long termright in the copyright and was entitled to play songs/music andhad made payment to access the music, which was broadcast.No capital asset or right was acquired by the respondent whichcould be transferred and sold to the third party. In the appeal for the assessment year 2008-09 anotherissue relating to rate of depreciation on KBA servo regulator hasbeen raised. As per the Tribunal, the Voltage Stabilizer was anintegral part of the computer system.The said finding is afinding of fact. In view of the decision of Delhi High Court inCIT V. BSES Yamuna Power Limited; ITA 1267/2010 decidedon 31.08.2010, the Tribunal has rightly held that depreciationshould be allowed @ 60%. The appeals are dismissed being devoid of merit. SEPTEMBER 25,2013/sv [ SANJIVKHANNA,JsXnjeev sachdeva, j.