Tribunal partially allows appeals, remands non-compete fee issue, directs TV program cost treatment.

The Tribunal partly allowed the appeals for statistical purposes. The issues concerning the non-compete fee and the film software library were remanded back to the Assessing Officer for further examination. The Tribunal directed the Assessing Officer to treat the cost of production of TV programs as revenue expenditure, in line with previous judgments. The order was pronounced on 24.03.2016.

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Issues Involved:

1. Allowability of depreciation on non-compete fee.
2. Treatment of cost of production of TV serials and programs as capital or revenue expenditure.
3. Disallowance of depreciation on film software library.

Detailed Analysis:

1. Allowability of Depreciation on Non-Compete Fee:

The primary issue revolves around whether the depreciation claimed on the non-compete fee by the assessee is allowable. The assessee, M/s. Prism TV Pvt. Ltd., claimed depreciation on a non-compete fee paid by its parent company, M/s. Ushodaya Enterprises P. Ltd., which had entered into a non-compete agreement with M/s. Ushakiran Television and M/s. Ushakiran Movies. The Assessing Officer (A.O.) disallowed the depreciation, considering the transaction a sham aimed at reducing the tax burden, arguing that a person cannot compete with themselves. The CIT(A) upheld this disallowance.

The Tribunal, referencing its earlier decision in the case of M/s. Ushodaya Enterprises P. Ltd. for A.Y. 2008-09, noted that the genuineness of the non-compete fee and its valuation were crucial. The Tribunal had previously remanded the matter to the A.O. to examine the genuineness and necessity of the non-compete fee and its valuation. The Tribunal found that the payment of Rs. 670 crores was influenced by a precondition set by a domestic investor, Equator Trading Enterprises Pvt. Ltd., which acquired a 39% stake in the assessee company. The Tribunal emphasized that the role of the investor and the genuineness of the transaction needed thorough examination. Consequently, the current appeal was also remanded to the A.O. to give consequential effect based on the decisions for A.Y. 2009-10.

2. Treatment of Cost of Production of TV Serials and Programs as Capital or Revenue Expenditure:

The second issue pertains to whether the cost of production of TV serials and programs should be treated as capital expenditure or revenue expenditure. The assessee claimed the entire expenditure as revenue expenditure, while the A.O. treated it as capital expenditure and allowed depreciation. The CIT(A) confirmed the A.O.'s order.

The Tribunal referred to various decisions, including those of the Chennai and Mumbai Benches and the Hon’ble Delhi High Court, which held that such expenditure should be treated as revenue expenditure under section 37 of the I.T. Act. It was noted that the assessee consistently followed this accounting method, and the Revenue had allowed the claim in the past. The Tribunal directed the A.O. to treat the expenditure incurred on production of TV programs as revenue expenditure, following the precedents set by previous judgments.

3. Disallowance of Depreciation on Film Software Library:

The third issue involves the disallowance of depreciation on the film software library. This issue first arose in A.Y. 2007-08 when M/s. Ushodaya Enterprises P. Ltd. took over the business of M/s. Ushakiran Movies and M/s. Ushakiran Television. The Tribunal had previously remitted the issue to the A.O. for verification of facts and revaluation of the asset. The current issue was deemed consequential to the decision in the case of M/s. Ushodaya Enterprises P. Ltd. The Tribunal remitted this issue back to the A.O. to give consequential effect based on the decision in the case of M/s. Ushodaya Enterprises P. Ltd.

Conclusion:

The appeals were partly allowed for statistical purposes. The Tribunal remanded the issues regarding the non-compete fee and the film software library back to the A.O. for further examination and directed the A.O. to treat the cost of production of TV programs as revenue expenditure. The order was pronounced in the open Court on 24.03.2016.

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