TaxTMI 
TaxTMI 
2018 (4) TMI 859
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....f Rs. 39,81,32,920/- even after noting the decision of Hon'ble Income tax Appellate Tribunal in ITA No.26/Hyd/2011 of Ushodaya Enterprises Pvt. Ltd (UEPL) for the Assessment year 2008-09 wherein Hon'ble Income tax Appellate Tribunal directed the Assessing Officer to examine the issue in the light of acquisition of 30% of equity shares of UEPL by Equitor Trading Enterprise pvt. Ltd. 2(c). The C.I.T (A) ought to have seen that depreciation claimed by the appellant on noncompete fee is in accordance with law and is therefore allowable as deduction while computing income of the appellant. 3(a). The C.I.T(A) erred in sustaining disallowance of cost of production of Rs. 55,25,94,OOO/on TV serials and programmes incurred by the appellant made by the Assessing Officer and allowing only depreciation at 25% thereon. 3(b). The C.I.T (A) ought to have seen that TV serials and programmes do not have long life and once they are telecast, there may not be much value for such programs. 3(c). It is further relevant to note that cost of production of TV serials and programmes is allowed as deduction by the Department itself to various other producers of TV....
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....8 for not competing in the business directly or indirectly for a period of five years from the date of agreement and thus, the non-compete fee was distributed amongst all the three demerged companies and that the assessee has acquired intangible asset of non- compete fee at Rs. 212,33,75,625 and claimed depreciation at Rs. 39,81,32,930 during the A.Y 2012-13. The AO observed that the non-compete fee is not a right that is acquired by the payer, but the restriction on the recipient and therefore, depreciation on non-compete fee is not allowable. He accordingly rejected the claim of the assessee. Aggrieved, the assessee preferred an appeal before the CIT (A) who rejected the assessee's grounds of appeal. The CIT (A) followed the decision of his predecessor in assessee's own case for the A.Y 2011-12 for rejecting the assessee's claim. Further, the CIT (A) also considered the decision of the Income Tax Appellate Tribunal in the case of the parent company i.e. M/s. Ushodaya Enterprises (P) Ltd for the A.Y 2008-09 in ITA No.26/Hyd/2011, dated 22.10.2014 wherein ITAT had set aside the claim of the assessee and remanded the issue to the file of the AO with a direction to examine the impact....
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....amining whether non-compete fee can be considered to be an intangible asset so as to entitle the assessee to claim depreciation on it, it is necessary, at the outset, to address the issue of genuineness of payment of non-compete fee and necessity to make such payment. As can be seen from the assessment order, AO has treated the agreement entered into between assessee for payment of non-compete fee as a sham transaction as Shri Ramoji Rao is not only the owner of UKT and UKM being the karta of HUF to which these concerns belong but he also in his individual capacity is the Chairman of the assessee company. As such, assessee cannot be considered to be competing with himself. As it is an arrangement between related parties, there is no necessity for payment of non- compete fee. AO further observed that the assessee has entered into agreement for payment of non- compete fee to reduce its tax burden by allowing Shri Ramoji Rao HUF to adjust the non-compete fee against the huge brought forward losses suffered by it. AO also raised doubts with regard to the value of non-compete fee at Rs. 670 crores. However, the CIT(A) has rejected assessee's claim by holding that as Shri Ramoji Rao,....
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....ny decision taken by assessee company has not at all been considered. Neither the AO nor the CIT(A) has examined the effect of acquisition of 39% of equity shares by another entity and whether after such acquisition of shares, it can still be held that Shri Ramoji Rao is the controlling authority of assessee company and it is a transaction between related parties. Unfortunately, the assessment order and order of CIT(A) is totally silent on this aspect. Though in the remand report, AO has examined the issue of investment made by the domestic investor and has alleged that it as a sham transaction and a collusive agreement entered into between the parties to reduce the tax burden by claiming depreciation on payment of non-compete fee. However, such inference drawn by AO, in our view, is more on presumptions and surmises rather than on the basis of strong evidence. When two independent parties enter into an agreement on certain terms and conditions, it cannot be termed as sham or collusive without bringing sufficient evidence to prove such fact. AO cannot treat the transaction as a colourable device adopted by the parties merely on presumptions and surmises without proving the fact tha....
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....non-compete fee paid by assessee has been accepted at the hands of Shri Ramoji Rao HUF and allowed to be set off against the brought forward losses, it needs to be examined whether still the payment of non-compete fee made by the assessee to Shri Ramoji Rao HUF can be held to be either non-genuine or not necessary. Therefore, considering the totality of the facts and circumstances we are of the view that as the impact of acquisition of 39% of equity shares by M/s Equator Trading Enterprises Pvt. Ltd. has not at all been examined by AO at the time of assessment proceeding or by the learned CIT(A) while disposing of assessee's appeal and further as the additional evidences produced before us were not examined either by the AO or by CIT(A), which certainly have a crucial bearing on the issue as to whether the payment of non-compete fee is genuine and necessary, we are inclined to remit the matter back to the file of AO for deciding afresh.." 5.1. This appeal before us being for the subsequent assessment year, also needs to be remanded to the file of the A.O. to give consequential effect to the decisions taken by him for the A.Y. 2009-2010. This ground of appeal is accordi....
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....iring the films or serials. Once the film or the serial is aired, its value is diminished in subsequent telecasts. The assessee earns substantial revenue in the first telecast itself. In repeat telecast, the assessee is able to generate marginal revenue. Whatever income is earned from the subsequent telecasts is offered as income without claiming any expenditure. The assessee also generates revenue from broadcasting serials through satellite channels. The assessee gets revenue from production and broadcasting serials on the lines of feature films, the rights of broadcasting such serials are also treated as stock in trade till the time they are aired and the expenses are debited to the Profit & Loss account. The assessee treats the films and the serials at par and applied the provisions of Rule 9A and 98 of the Income Tax Rules, as are applicable in case of films on serials as well. On the other hand, the contention of the Revenue is that the film and serial broadcasting rights acquired by assessee are perpetual in nature. After first telecast, the assessee does not discard the films but carefully store the same in digital library for airing the same again. Therefo....
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....e said Note. Per contra, the case of the revenue on these issues is that these items constitute 'intangible depreciable capital assets' and provisions of section 32 of the Act apply. Considering the same, we shall now undertake to discuss the item wise adjudication as follows. a. On the debits relating to the purchases of the News items: Regarding the nature of the news items purchased by the assessee and debited to the P and L account, we find it is in the common knowledge of every citizen that the news items do not have enduring benefit. Normally, the news items/non fictional items purchased by the assessee lose its value once they are telecast. Therefore, such items do not have repeat telecast value in terms of the revenue generation by way of advertisement from the sponsors. As such, it is a settled issue at the level of Hon'ble Delhi High Court in the case of Television Eighteen India Ltd (supra) that the claims of the assessee relating to news/non-fictional items are allowable. Even otherwise, even if some income generated, that is not criterion for describing the items as 'intangible assets' for the purpose of invoking the provisions of section 3....
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....quired to be reversed. Accordingly, Ground nos. 2 and 3 raised by the assessee are allowed. 9.2. In coming to this conclusion, the Tribunal has followed the judgment of the Hon'ble Delhi High Court in the case of CIT vs. Television Eighteen India Limited reported in (2014) 364 ITR 597 (Del.). The relevant portion of the judgment of the Hon'ble Delhi High Court is reproduced as under : "The revenue has preferred this appeal claiming to be aggrieved by an order of the Income Tax Appellant Tribunal (ITAT) dated 17.03.2006. The question of law framed in this case is:- (i) Whether the Income Tax Appellate Tribunal was right in holding that the entire expenditure incurred by the assessee on production of programmes which became part of news archives should be allowed as a revenue expense under Section 37 of the Income Tax Act, 1961 and should not be treated as incurred for creating a capital asset? The assessee, at the relevant time, was in the business of television programme production. The assessee reflected Rs. 88,83,128/- being 10% of the total expenditure incurred by it as value of "news archives" under the head of fixed assets. In the re....
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....he future likelihood of these resources being a possible source of revenue, cannot in the opinion of this Court justify its inclusion in the capital stream. Furthermore, this Court notices that the expenditure i.e. 10% Rs. 88,83,128/- is a part of the entire total expenditure incurred by the assessee which is concededly treated as revenue, even otherwise. In view of the above discussions, this Court is of the opinion that the question of law framed is answered in favour of the assessee and against the revenue. The appeal is dismissed." 9.3. Thus, it is seen that the issue is fairly covered in favour of the assessee by the above decision and the A.O. is directed to treat the expenditure incurred by the assessee on cost of production of TV programmes as revenue expenditure. This ground of appeal of the assessee is accordingly allowed. 9. Respectfully following the same, these grounds of appeal are treated as allowed for statistical purposes. 10. As regards Ground of appeal No.6, now filed as additional ground of appeal, the learned Counsel for the assessee submitted that in the return of income, the assessee had claimed the TDS credit for a sum of Rs.....