TaxTMI 
TaxTMI 
2018 (12) TMI 2037
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....ed on the facts and in law in holding that "film software library" is an intangible assets and allowing depreciation @25% without appreciating that "film software library" is only a business tool used by the assessee in its business." The assessee in its appeal in ITA No.1483/H/2016 has raised the following grounds of appeal: "1. That the Learned Commissioner of Income Tax (Appeals) ["the CIT(A)"] erred in law and on facts in upholding the action of the Learned Assessing Officer ["the AO"] in disallowing depreciation on intangible asset by way of non-compete fee. 1.1 That the CIT(A) failed to appreciate that the written down value of the intangible asset in the hands of the demerged company had automatically become the written down value in the hands of the resulting company pursuant to scheme of demerger sanctioned by the Hon'ble High Court of Andhra Pradesh and therefore it was not open to a fresh determination in the case of the Appellant whether such intangible asset qualified for depreciation u/s 32 of the Act. 1.2 Without prejudice, the CIT(A) erred in not appreciating that the intangible asset on account of non-compete as a commercial right ....
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....s other materials on record and also gone through the decisions cited. A perusal of the assessment order as well as the order passed by CIT(A) would leave no room for doubt that assessee's claim of depreciation on non-compete fee has been rejected basically for the following two reasons: 1. Genuineness of the payment made and necessity of paying non-compete fee. 2. Non-compete fee not being in the nature of an intangible asset as defined in section 32(1)(ii), depreciation is not allowable. 26. Before examining 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 competi....
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....quator Trading Enterprises Pvt. Ltd is a major stakeholder in assessee company. As can be seen from the assessment order as well as order passed by the CIT(A) before coming to their respective conclusion that the transaction entered into by parties for payment of non-compete fee is not genuine or there is no necessity for paying the non-compete fee as the same person is controlling both the assessee company and the two other companies acquired by the assessee, the role of M/s Equator Trading Enterprises Pvt. Ltd. in any 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 ta....
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....s as additional evidence. A perusal of the said documents reveal that Shri Ramoji Rao HUF for the assessment year 2008-09 has not only shown the non compete fee received by it as income but has also adjusted it against the brought forward losses of earlier years. AO i.e. JCIT, Range -16, while completing assessment in case of Shri Ramoji Rao HUF has accepted not only the income but also its adjustment against brought forward losses in an assessment order passed u/s 143(3) on 24/12/2010. Therefore, when the 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....
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....ideration. Instead of claiming depreciation, the entire expenditure was claimed as revenue expenditure and debited to the P & L account. The A.O. observed that the cost of production of TV serials and programmes is not covered under Rule 9A or 9B of I.T. Rules. As these Rules are applicable only to production of feature films. The A.O. treated the entire expenditure as capital expenditure and allowed the depreciation thereon. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A) who confirmed the order of the A.O. and the assessee is in second appeal before us. 7. The Ld. Counsel for the assessee, while reiterating the submissions made by the assessee before the authorities below, has relied upon the decision of the Coordinate Bench of this Tribunal at Chennai and Mumbai and also the decision of Hon'ble High Court at Delhi in support of his contention that the expenditure incurred on production of television programmes should be allowed as revenue expenditure under section 37 of the I.T. Act. Copies of the said decisions are also filed before us. 8. The Ld. D.R. on the other hand, supported the orders of the authorities below. 9. Having regard....
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....ts acquired in films and serials and they do not expire on the date of first telecast as contemplated by the assessee. The rights are intangible assets within the meaning of Explanation (iii) to Section 32 and do not fall within the purview of Section 37(1). The assessee is entitled to claim depreciation on same. 9. The issue of amortization of cost of movie and serial rights, programme production expenses, consumable and media expenses by treating them as intangible assets u/s. 32(1)(ii) has been dealt in detail by the CIT (Appeals) in his order dated 23-02-2013 relevant to the A Y. 2006-07 and 2007-08. We fully agree with the detailed findings and the reasoning given by the CIT(Appeals) in his order allowing this ground of appeal of the assessee. For the sake of brevity, we are not reproducing the findings of CIT (Appeals) in accordance with the judgment of the Hon'ble Supreme Court of India in the case of CIT Vs. K. Y. Pillah & Sons reported as 63 ITR 411 subsequently followed by the Hon'ble Delhi High Court in the case of CIT Vs. Global Vantedge (P) Ltd., reported as 354 ITR 21 (Del). The Id. DR has not been able to controvert the well reasoned order of the CIT....