Punjab & Haryana High Court
Principal CIT vs. M/s Mobisoft Tele Solutions Pvt. Ltd.
Income tax (Appeal) no. 193, 194 & 197 of 2015,
07/08/2015
Summary of Case :-
Punjab & Haryana High Court held In the case of Principal CIT vs. M/s Mobisoft Tele Solutions Pvt. Ltd. that Tarun Mohan had obtained the copyright in respect of the artistic work comprised in the name phoneytunes.com. Registration of the copyright is, however, not compulsory. In any event, phoneytunes.com was a part of his trading style and constitutes a trade mark. This is not a ground for challenging his entitlement to the trade mark. The assessee was entitled, therefore, to use the trade mark as a licensee thereof. The payment of royalty for the same is nothing unusual or out of place and allowable under section 37(1) of Income Tax Act,1961.
Facts of the Case
In this case, a royalty payment has been made to one person named Tarun Mohan. Tarun Mohan is also a Director in the assessee-company. He and his family members are the only share-holders of the assessee-company. Tarun Mohan carried on business in the name and style of phoneytunes.com as the sole proprietor thereof. The business comprised of providing value added telecom services to various mobile companies for ring tones, images, wall papers etc. He had entered into agreements with various music companies under which he acquired their rights as also the right to make ring tones on the basis thereof. In turn, he provided individual mobile users the tones through cellular operating companies. He paid royalty to the music companies in consideration of these agreements. He in turn was remunerated by collecting fees from the customers for downloading the ring tones etc.
Held by CIT (A)
The CIT (A) disallowed the royalty payment made as business expenditure u/s 37(1). It was held that there was no evidence to prove that Tarun Mohan to whom royalty payment has been made, developed any product for which he had any copyright or trade mark.
Held by ITAT
ITAT held that royalty payment made to related person i.e. director of the company is allowable expenditure u/s 37(1). It was held that Tarun Mohan had in any event paid the entire taxes in respect of the royalty received by him. That, however, would not make a difference for if the deduction sought by the assessee is wrongful, the Assessing Officer is bound to disallow the same.
Held by High Court
It is clear that Tarun Mohan retained the brand name phoneytunes.com. He merely permitted the assessee to use the intellectual property right acquired by him, namely, the brand name/trade-mark phoneytunes.com. He had not assigned the same to the assessee, but only licensed the same to the assessee.
The Assessing Officer and the CIT (A) wrongly came to the conclusion that Tarun Mohan being a Director of the respondent was not entitled to enter into an agreement for the transfer of his assets to the company. They held that the same person cannot enter into an agreement with himself. This ignores the fundamental concept that the assessee being a company incorporated under the Companies Act, 1956 is a separate legal juristic entity.
The CIT (Appeals) observed that there was no evidence to prove that Tarun Mohan had developed any product for which he had any copyright or trade mark. Firstly, as we noted earlier, he had obtained the copyright in respect of the artistic work comprised in the name phoneytunes.com. Registration of the copyright is, however, not compulsory. In any event, phoneytunes.com was a part of his trading style and constitutes a trade mark. This is not a ground for challenging his entitlement to the trade mark. The assessee was entitled, therefore, to use the trade mark as a licensee thereof. The payment of royalty for the same is nothing unusual or out of place.
Accordingly, appeal of the revenue dismissed.
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