Tribunal Upholds Disallowance of Transponder Charges as Royalty; Orders Reassessment of Software, Equipment Expenditure.

The tribunal upheld the disallowance under section 40(a)(i) for transponder/uplinking charges, deeming them 'royalty' for services. It restored matters concerning disallowed expenditure and depreciation on software development, Cinemax equipment, and computers back to the Assessing Officer for fresh examination, due to the improper admission of new evidence by the CIT(A) without referral to the Assessing Officer, violating rule 46A. The tribunal directed reconsideration of these issues, emphasizing compliance with procedural rules and proper assessment of business commencement dates.

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Issues Involved
1. Deletion of addition under section 40(a)(i) related to transponder charges/uplinking charges.
2. Deletion of expenditure disallowed by the Assessing Officer due to non-commencement of commercial operations.
3. Allowance of depreciation on Software Development expenses under section 32.
4. Allowance of depreciation on Cinemax Equipment and Computers under section 32.
5. Admission of new evidence in contravention of rule 46A of the Income-tax Rules, 1961.

Detailed Analysis

1. Deletion of Addition under Section 40(a)(i) Related to Transponder Charges/Uplinking Charges
The revenue contested the deletion of Rs. 43,11,694 made by the Assessing Officer under section 40(a)(i) for transponder charges/uplinking charges paid to M/s. Shim Satellite Public Co. Ltd., Thailand. The CIT(A) allowed the expenditure, stating that the provisions of section 195 of the Income-tax Act, 1961, were applicable only from 1-4-2002. The tribunal disagreed with the assessee's claim that the amendment to section 9(1)(vi) effective from 1-4-2002 excluded earlier periods from the definition of 'royalty.' The tribunal held that the digital broadcast service agreement was for providing a comprehensive service, not merely hiring transponder equipment. The tribunal cited the ITAT Delhi Bench decision in Asia Satellite Telecommunications Co. Ltd. v. Dy. CIT, which considered similar issues and concluded that the charges paid were for services, thus falling under the definition of 'royalty.' Consequently, the tribunal upheld the disallowance under section 40(a)(i).

2. Deletion of Expenditure Disallowed by the Assessing Officer Due to Non-Commencement of Commercial Operations
The Assessing Officer disallowed Rs. 14,46,892, claiming that Sanskar TV had not started commercial operations. The CIT(A) accepted a certificate from STAR dated 10-5-2004, indicating the channel was set up on 15-11-2000, and allowed Rs. 11,53,806 of the disallowed expenditure. The tribunal noted that the certificate was not presented to the Assessing Officer, violating rule 46A. Therefore, the tribunal restored the matter to the Assessing Officer for fresh examination.

3. Allowance of Depreciation on Software Development Expenses under Section 32
The CIT(A) directed the Assessing Officer to allow depreciation on Software Development expenses amounting to Rs. 15,10,885 at 25 percent applicable to Plant & Machinery. The tribunal noted that the CIT(A) accepted new evidence without referring it to the Assessing Officer. Therefore, the tribunal restored the matter to the Assessing Officer, directing reconsideration in light of the ITAT Delhi Special Bench decision in Amway India Enterprises v. Dy. CIT.

4. Allowance of Depreciation on Cinemax Equipment and Computers under Section 32
The CIT(A) directed the Assessing Officer to allow depreciation of Rs. 5,19,956 on Cinemax Equipment and Computers. The tribunal noted that the CIT(A) accepted new evidence without referring it to the Assessing Officer. Therefore, the tribunal restored the matter to the Assessing Officer for fresh consideration.

5. Admission of New Evidence in Contravention of Rule 46A of the Income-tax Rules, 1961
The revenue argued that the CIT(A) admitted new evidence without referring it to the Assessing Officer, violating rule 46A. The tribunal agreed and restored the matter to the Assessing Officer for fresh examination, directing the Assessing Officer to consider the date of business setup and allow expenses accordingly.

Conclusion
The tribunal allowed the appeal, restoring the matters related to the disallowance of expenditure and depreciation back to the Assessing Officer for fresh consideration. The tribunal upheld the disallowance under section 40(a)(i) for transponder charges/uplinking charges, emphasizing that the charges were for services and fell under the definition of 'royalty.'

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