TaxTMI 
TaxTMI 
2018 (9) TMI 705
X X X X Extracts X X X X
X X X X Extracts X X X X
....t income of Rs. 52,90,40,793/- and subsequently the case was reopened u/s 147 of the Act. The reassessment was completed at income of Rs. 213,68,71,494/- by making the following disallowances: i) Cost of production of TV serials and programmes relating to the year under consideration claimed as revenue expenditure - Rs. 143,49,17,000/- ii) Excess depreciation claimed on 'film software library - Rs. 125,72,32,479/-. 3. When the assessee preferred an appeal before the CIT(A), the CIT(A) confirmed the disallowance on account of excess depreciation of Rs. 143,49,17,000/- and deleted the disallowance of Rs. 125,72,32,479/- on account depreciation on enhanced value of software library. 4. Aggrieved by the order of CIT(A), both the assessee and revenue are in appeal before us. 5. As regards the addition of Rs. 143,49,17,000/-, the AO observed that the assessee debited an amount of Rs. 148,07,48,000/- towards cost of production of TV serials and programmes during the year under consideration. He noted that instead of claiming depreciation, the entire expenditure was claimed as revenue expenditure and debited to P&L account. The AO observed that the definition of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....material on record, we find that the 'A' Bench of this Tribunal at Chennai in the case of ACIT, Media Circle-II, Chennai vs. M/s. Sun TV Network Ltd., Chennai in ITA.Nos.1515 to 1520/Mds/2013 by its order dated 31.10.2013 has held as under : "8. Now, we take up the common issue involved in all the appeals. The assessee is in the business of running satellite television channels. These channels telecast films, serials etc., through satellite channels. The rights over these films are purchased from the producers of the respective films for broadcasting through satellite television. These rights come with an embargo that the films shall not be broadcasted or aired for a specified period from the date of release in theatres depending upon the success at the box office and other factors. Till the time, such films are broadcasted, they are to be treated as stock in trade. Once the films are broadcasted, the purchase value of the films is written-off. The expenditure on purchase of films is claimed in the first year itself. The assessee has got only satellite telecasting rights and has no universal rights for airing the films or serials. Once the film or the serial is air....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on the issue. Accordingly, the findings of the CIT (Appeals) on the issue are affirmed and this ground of appeal of the Revenue in respect of all the AYs is dismissed." 9.1. In the case of Zee Media Corporation Ltd., (Formerly known Zee News Limited), Mumbai vs. DCIT, Circle-7(3), Mumbai, the 'G' Bench of Tribunal at Mumbai in ITA.No.1590/Mum/2015 by order dated 12.08.2015 has held as under : "25. We have heard both the parties and perused the orders of the Revenue Authorities as well as the cited precedents and paper book filed before us. The case of the assessee on the merits is that the assessee has a method of valuation of the news items/non fictional in nature, TV programs and the film rights. The details are given in the aforementioned 'Note No 7' to the financial statements. According to the same, while the news items purchased are debited to the P and L account as they do not have the repeat telecast value, other items like the TV program and the film rights constitutes 'current assets', which are amortised over the years and the period of such amortization is given in the said Note. Per contra, the case of the revenue on these issu....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Act without any sustainable reasoning. We have perused he judgment of Honble High Court of Delhi and the order of the Tribunal of Chennai Bench in the case of M/s Sun TV Networks Ltd (supra). We have also extracted the relevant paragraphs and already placed in this order above. We find similar issue of amortization of the TV Programs/Film rights came up before the Chennai Bench of the Tribunal wherein the issue was decided in favour of the assessee and rejected the AD's proposal to invoke the provisions of section 32(ii) of the Act in respect of the above programs/rights. As such, the Ld DR's argument on the applicability of the AS-26 to the TV Programs and Film rights is not supported by any precedents and therefore, the arguments raised by the Revenue are not allowed. Thus, considering the covered nature of the issue as well as the consistent method of accounting followed by the assessee in this regard and also in the absence of any contrary material to support the arguments of the Revenue against the assessee's claim, we are of the opinion that the decision taken by the CIT (A) in the impugned order is required to be reversed. Accordingly, Ground nos. 2 and 3 raised....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e which could be used for the production of programme in future. The assessee, therefore, estimated 10% expenditure incurred as reasonable to be attributable to the News Archives library. The assessee has been engaged in the production of such programmes since assessment year 1994-95 and all along the cost of production of such expenditure has been treated as revenue expenditure and also allowed by the Department. Learned A.R. has referred to judgment of Hon'ble Supreme Court in the case of Alembic Chemical Works Ltd. vs. CIT177 ITR 377 which laid down that what is capital expenditure and what is revenue are not eternal verities but must needs to be flexible so as to respond to the changing economic realities of business. Viewed in that perspective, we are of the opinion that the estimated value assigned to the News Archives cannot be treated to be an expenditure incurred in the capital field. We, therefore, uphold the order of CIT (A) on this ground. In this case, there is no dispute that the data base of the programmes which are utilised for the creation of "news archives" belonged to the assessee. The future likelihood of these resources being a possible source of r....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... as the written submissions filed by the Ld. Counsel for the assessee, we find that the first issue before us is about the nature of the asset the 'film software library' i.e., whether it is an intangible or tangible asset and the rate of depreciation allowable thereon ? The rate of depreciation allowable on an asset would depend on the nature of the asset. 10. To adjudicate this issue, we need to go into the facts of the case once again. We find that the assessment was initially completed under section 143(3) of the Act on 31.12.2009 allowing the depreciation on the film library @ 25% treating the same as an intangible asset. The CIT assumed jurisdiction under section 263 of the Act both on the ground of the valuation of the asset as well as on the ground of depreciation granted @ 25% treating the asset as an intangible asset. Assessee has submitted its detailed explanation as to why the asset 'Film Software Library' should be treated as an intangible asset. It was submitted that in the hands of Shri Ramoji Rao (HUF) also, the asset was treated as an intangible asset and depreciation @ 25% was granted from A.Y. 2006-07. It was also submitted that the softw....
X X X X Extracts X X X X
X X X X Extracts X X X X
....was not satisfied with assessee's contentions even on the nature of the asset and the rate of depreciation allowable thereon. Therefore, we do not agree with the finding of the CIT(A) on this issue. 11. Even with regard to the merits of the issue, i.e., the nature of the asset, we find that undisputedly, before its transfer to the assessee, the asset was treated as an 'intangible asset' in the hands of its previous owner, i.e., Shri. Ramoji Rao (HUF) and depreciation thereon was allowed at 25%. We find that the CIT(A), while holding that the AO has exceeded his mandate, has also held that even on merits, the films which are copied on disks cannot be treated as plant. However, he has not given any reasons for holding so, while the reasoning given by the AO for treating the films as 'Plant and Machinery' is that the asset 'Film Software Library' is mostly contained in CDs and other storage media and that the assessee would not be in a position to telecast anything without the 'Film Software Library' i.e., the films and TV programmes therein and therefore, they are the vital tools of trade for the assessee company and hence Plant and Machin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mpany has to telecast only these films and programmes and none other for assessee's business. Further, not only the films and programmes in the 'Film Software Library', but the assessee may also telecast any other programmes or films on its channels. By purchasing the library, the assessee is gaining exclusive right over the asset but this library cannot be held as a tool for carrying on of its business as assessee can carry on its business even without the 'Film Software Library'. The said library only assists in determining the content of the telecast, but does not limit the telecast and is not essential for the operations of the assessee's business and therefore cannot be termed as the tool of the trade. Thus, it fails the functional test adopted by the assessing officer. Therefore, we hold that the asset which consists of 'Copyrighted Films and Programmes' is an 'Intangible Asset' eligible for depreciation at the rate of 25%. Thus, the ground of appeal No.3 of the revenue is rejected." Following the above, decision, we dismiss the ground raised by the revenue on this issue. 13. In the result, assessee's appeal is allowed and the app....
X X X X Extracts X X X X
X X X X Extracts X X X X
....irectly or indirectly and failure to deduct tax at source calls for disallowance u/s 40(a)(ia) of the Act. 20. Ld. AR besides relying on the decision of CIT(A), relied on the orders of ITAT in its own case. 21. Considered the rival submissions and perused the material on record. Similar issue came for consideration before the coordinate bench of this Tribunal in assessee's own case for AY 2007-08 in ITA No. 1552/Hyd/2010, order dated 10/05/2013, wherein the bench has held as under: "17. At the outset, it has been brought to our notice that this issue is covered by the decisions of the Tribunal in assessee's own case for the assessment year 2006-07 in ITA No. 426/Hyd/2010 dated 9.7.2012, which in turn has followed the still earlier decision of the Tribunal in assessee's own case for the assessment years 2004-05 to 2006-07, vide order dated 22.3.2012, referred to above. Copies of both the decisions of the Tribunal have been furnished before us. In the absence of any decision to the contrary brought to our notice by the Revenue, following the consistent view taken by the Tribunal in assessee's own cases for the earlier years noted above, we do not find any i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d on the order of AO while the ld. AR relied on the decision of coordinate bench in assessee's own case for AY 2002-03 & 2003-04 in ITA Nos. 1241/H/08 & 591/H/10, vide order dated 31/10/2013. 25. Considered the rival submissions and perused the material on record. Similar issue came up for consideration in assessee's own case for AY 2002-03 and 2003-04 (supra), wherein the bench has held as under: "14. The only issue in the aforesaid appeal is with regard to the disallowance of depreciation amounting to Rs. 2,30,96,110/- made by the Assessing Officer and confirmed by the CIT (A) on certain equipment and peripherals by treating them as not forming part of computer. 15. Since we have already dealt with the facts quite exhaustively in assessee's appeal in ITA No.1241/Hyd/2008, it is not necessary to deal with them over again in this appeal. However, suffice it to say that, in the impugned year also during the scrutiny assessment proceedings the Assessing Officer noticed that the assessee has claimed depreciation at 60% on various items like printers, scanners, modems, switches, hubs, cables/cards and software etc., by treating them as computer. Though the asse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....1) or as deferred revenue expenditure. However, during the appeal proceedings, the assessee withdrew the additional ground as not pressed. 30. As regards ground No. 2, the assessee acquired sister concerns M/s Usha Kiron Television (UKT) and M/s Usha Kiron Movies (UKM). In the AY 2007-08 the assessee company entered into a non-compete fee agreement on 30/01/2008 with the aforementioned companies for not competing in the business directly or indirectly for a period of 5 years from the date of agreement. Accordingly, the assessee paid Rs. 670 crores towards non-compete fee and claimed depreciation of Rs. 109.92 crores. The AO observe that Shri Ch. RamojiRao as Chairman of the assessee company holds substantial shares in all the related companies and the two entities i.e. Usha Kiron Movies and Usha Kiron Television are only the business units of the HUF concern of Shri Ch. Ramoji Rao. According to AO, both payer and payee are related parties. He, therefore, disallowed the depreciation claimed on non-compete fee relying on the cases of ITAT. 31. Before the CIT(A), the assessee submitted, inter-alia, that non-compete fee rights acquired by it are 'intangible assets' u/s 32(1)(ii) ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ompete fee at Rs. 670 crores. However, the CIT(A) has rejected assessee's claim by holding that as Shri Ramoji Rao, who is the kartha of HUF, which owns UKT and UKM and also in his individual capacity is the Chairman of the assessee company, therefore, there is no question of paying non-compete fee as a person cannot compete with himself. Of course the CIT()A) has also held that as non-compete fee does not provide any asset of enduring nature, deprecation cannot be allowed. In this context, it is to be noted that assessee on 25/01/2008 has entered into subscription agreement and share purchase agreement with a domestic company, Viz.; Equator Trading Enterprises Pvt. Ltd. as per which the said domestic company agreed to make substantial investment in purchase of equity shares of the assessee company. However, as a precondition for making such investment, the said domestic company required the assessee company to enter into a non-compete agreement with UKT and UKM. Though, copies of the share purchase agreement and subscription agreement are not available on record before us, however, on perusal of the closing agreement dated 30/01/08 between assessee and M/s Equator Trading Enterpri....
X X X X Extracts X X X X
X X X X Extracts X X X X
....a colourable device adopted by the parties merely on presumptions and surmises without proving the fact that either the promoters of both the companies are same or M/s Equator Trading Enterprises Pvt. Ltd. is a front company of either the assessee or the Ramoji Rao group. In these circumstances, the inference drawn on mere assumptions and presumptions that the agreement is a colourable device to reduce the tax burden cannot be accepted. Therefore, without examining the impact of investment made in equity shares to the extent of 39% by the domestic investor and condition imposed by it, the conclusion drawn by the CIT(A) that there is no necessity of payment of non-compete fee as the same person is controlling the assessee company as well as UKT and UKM, in our view, is without proper appreciation of facts and evidences brought on record, hence, cannot be sustained. 28. Even though the AO in the assessment order has also raised the issue of payment of non-compete fee for the purpose of setting off the loss sustained by the HUF and also has questioned the value of non-compete fee but the learned CIT(A) has not at all dealt with these issues. Be that as it may, it needs to be observ....