Ruling allows FCCB/debenture issue costs as public-issue revenue under s.35D; editorial and brand-rights deductible, Revenue estopped

ITAT, Hyderabad upheld the appellant's claims, concluding that expenditure on FCCB and debenture issues made to Qualified Institutional Buyers constitutes expenses of a public issue and is allowable as revenue expenditure under s.35D. Expenditure on editorial content and brand-rights was held to be revenue (deferred revenue) expenditure rather than capital, and therefore deductible; a prior acceptance of identical brand-rights treatment in an earlier year estopped the Revenue from contesting the same issue in the assessment year under appeal. The appeals were decided against the Revenue.

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Issues Involved:
1. FCCB and debenture issue expenses under Section 35D for the assessment years 2007-08 and 2008-09.
2. Expenditure on the issue of qualified institutional buyers (QIB) for the assessment year 2008-09.
3. Editorial content and brand right expenditure for the assessment year 2009-10.

Issue-Wise Detailed Analysis:

1. FCCB and Debenture Issue Expenses Under Section 35D for the Assessment Years 2007-08 and 2008-09:

The Revenue's appeals for these years revolved around the allowance of expenditure on FCCB and debenture issues under Section 35D. The Commissioner of Income-tax (Appeals) had allowed these expenses, considering them as public issue expenditures. The Assessing Officer had disallowed these expenses, arguing that they constituted capital expenditure. However, it was noted that the Department did not appeal against a similar allowance in the assessment year 2006-07. The Income-tax Appellate Tribunal (ITAT) held that the Department cannot contest the same issues in subsequent years if they accepted the order in an earlier year. The Tribunal upheld the Commissioner of Income-tax (Appeals)'s decision, allowing the expenses under Section 35D.

2. Expenditure on the Issue of Qualified Institutional Buyers (QIB) for the Assessment Year 2008-09:

The Assessing Officer disallowed the expenditure on the issue of QIB, arguing it was not a public issue. However, the Commissioner of Income-tax (Appeals) allowed the expenditure, stating that QIBs constitute 'public' and thus the subscription amounts to public subscription. The Commissioner also noted that the funds raised were utilized for the extension, modernization, and working capital requirements of the appellant's business, making the expenditure eligible for deduction under Sections 35D and 37. The Tribunal upheld this view, confirming that QIB expenditure could be treated as revenue expenditure and eligible for deduction under Section 35D.

3. Editorial Content and Brand Right Expenditure for the Assessment Year 2009-10:

The issue involved the allowance of expenditure on editorial content and brand rights as revenue expenditure. The Assessing Officer disallowed the expenditure, considering it capital in nature. However, the Commissioner of Income-tax (Appeals) allowed the expenditure, treating it as deferred revenue expenditure. The Commissioner noted that the expenditure was recognized as deferred revenue expenditure and written off over a period of 10 years. The Tribunal upheld the Commissioner of Income-tax (Appeals)'s decision, noting that the Department had not contested a similar allowance in the assessment year 2006-07. The Tribunal concluded that the Department could not agitate the same issues in subsequent years if they accepted the order in an earlier year.

Conclusion:

The Tribunal dismissed the Revenue's appeals for the assessment years 2007-08, 2008-09, and 2009-10, upholding the Commissioner of Income-tax (Appeals)'s decisions on all the issues involved. The order was pronounced in the open court on January 30, 2015.

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