TaxTMI 
TaxTMI 
2026 (7) TMI 790
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....e expenditure as against the AO's action in treating the same as capital expenditure? 2. Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is justified in allowing the cost of production of TV Serials and programmes as revenue expenditure, when incurring of such expenditure resulted in creation of asset with enduring benefit because of its repeat telecast value? 3. Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is justified in ignoring that Rules 9A and 9B are applicable only for production of feature films and not for production of TV Serials and programmes? 4. Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is justified in not considering that the expenses in production of TV Serials and programmes created an Intangible asset which has to be depreciated over its lifetime? 5. Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is justified in allowing depreciation @ 25% on 'Film Software Library" holding the same as intangible asset? 6. Whether, on the facts and in the circumstances o....
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....enue expenditure Rs.7.77,19,635 3) Disallowance of excess depreciation claimed on "Film Software Library" Rs.54,17,770 4) Restriction of depreciation on computer accessories to 15%. Rs.40,439 5) ROC fee Rs. 14,03,500 TOTAL TAXABLE INCOME Rs.43, 16,15,887 3. Being aggrieved with the aforesaid additions/disallowances made by the Ld. AO, the assessee preferred an appeal before the Ld. CIT(A), who had partly allowed the appeal of assessee, but all the substantive additions are directed to be deleted. Being dissatisfied with the decision of Ld. CIT(A), the Revenue is in appeal before us. 4. After hearing both the parties on the issues wherein the Ld. AR of the assessee supported the order of Ld. CIT(A) and also furnished written submission qua each of the additions made by the Ld. AO and deleted by the Ld. CIT(A). 5. On the other hand, Ld. Senior DR representing the Revenue vehemently supported the order of Ld. AO, requested to set aside the order of Ld. CIT(A) and restore the additions made by the Ld. AO. 6. To deal with each and every ground raised by the Revenue, the submissions of the parties, facts of th....
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....he use of computer and also provided by the assessee under the head "Computers including computer software". This issue was decided in assessee's favour by the Ld. CIT(A) for AY 2012-13, which was not contested by the department any further. Also, the issue has been deliberated upon in assessee's own case by ITAT Hyderabad, while the assessee was M/s. Ushodaya Enterprises Pvt Ltd., which was demerged and the present assessee is one of the demerged entities. The issue was decided by ITAT Hyderabad in ITA No.1535/Hyd/2010 for the AY 2007-08 by deciding it in favour of the assessee following the decision of Hon'ble Delhi High Court in the case of ACIT vs. Amadeus India Private Ltd. (79 ITD 407). Further since there was no contrary decision or facts could be placed on record by the Revenue, we do not find any infirmity in the finding of Ld. CIT(A) in the present case. Accordingly, Ground of Appeal No.1 of the Revenue challenging the rate of depreciation of computer peripherals needs to be dismissed in absence of any plausible reason to allow the same. 11. Ground No.2-5 - Regarding allowing the claim of cost of production of TV Serials and Programmes as the revenue expenditure for Rs....
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.... of serials and programme. Accordingly, the assessee has debited such amounts in profit and loss account and claimed the same as deductible u/s 37(1) of the Act. It is submitted by the Ld. AR that in AY 2012-13 the Ld. CIT(A) has decided the issue in favour of the assessee and the claim of assessee was further upheld by Hon'ble Mumbai Tribunal following the decision of Co-ordinate Bench in the case of ETPL (Eenadu Television Private Limited) vs. ACIT in ITA No.760/Hyd/2016 for the AY 2011-12. It is further submitted that the decision of ETPL was rendered by Hon'ble Hyderabad Tribunal by following the case of Prism TV which was one of the resulting companies from demerger of UEPL. Accordingly, the Ld. AO was directed to treat the cost of production of TV programme as revenue expenditure. 13. On a thoughtful consideration of the aforesaid issue, since it is decided by the Tribunal in assessee's own case in ITA No.6507/Mum/2016 for the AY 2012-13 vide order dated 14.12.2018 in favour of the assessee under identical facts and circumstances, without any deviating fact or decision brought on record by the Revenue, we find substance in the decision of Ld. CIT(A) in allowing the expendi....
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.... 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. Therefore, the assessee gets enduring benefit from the rights 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 ac....
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....ion 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 32(ii) of the Act. We rely on the above referred Delhi High Court's Judgment in the case of Television Eighteen India Ltd (supra). Further, we find that the assessee has a declared method of accounting relating to accounting of these transactions. He has been consistently following the same without any change. In fact, the Revenue has consistently allowed the claim in the past. This is for the first time, AO disturbed the claim of the assessee and invoked the provisions of section 32 (ii) of the Act, without any sustainable reasoning. Therefore, considering all the points mentioned above, we are of the firm opinion that the decision of the AO/CIT(A) is unsustainable legally. Hence, the assessee is entitled to claim the purchases of news items/non-fictional allowable expenditure. Accordingly, we direct the AO to delete the relevant addition. b. On the debits relating to the purchases of....
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....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 return filed by the assessee for the Assessment Year 1997, the said amount was claimed as revenue expenditure. According to the assessee this expenditure was allocated for the creation of "news achieves", which comprised of its published or telecasted programmes. The AO capitalised this amount holding that the expenditure led to creation of an asset of enduring advantage. The CIT (Appeals) on appeal, however, reversed the findings of the AO. It was noticed that the news archives were not in the nature of plant or income generating apparatus but part of the product. It was also held that the unavailability of any objective basis, to quantify with any decree of accuracy future revenue that were likely to be generated and the proportionate cost of production that could be deferred, led to the conclusion that the 10% of the total expenditure earmarked for creation of "news archives" could not be treated as a capital ex....
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.... revenue on the basis of their persuasion before the Hon'ble High unless there is a decision or stay by the Hon'ble court. Thus, having justification in the opinion of Ld. CIT(A) based on existing decisions, we find force in the contentions raised by Ld. AR, therefore, uphold the decision of Ld. CIT(A) which, otherwise has no infirmity so as to interfered with. In result, Ground of Appeal Nos. 2-5 of the Revenue stands dismissed in terms of our aforesaid observations. 15. Ground of Appeal No.6 - The depreciation film on software library: This ground pertains to the restriction of depreciation on film software library at 15% instead of 25% claimed by the assessee. Regarding this activity, Ld. AO was of the view that the assessee is in the business of satellite television broadcasting and the film software library forms an important apparatus of its business which squarely falls within the definition of Plant and Machinery eligible for 15% of depreciation, therefore, the excess depreciation claimed by the assessee is disallowed and added back to the income of the assessee to the tune of Rs. 54,17,770/-. The Ld. CIT(A) had discussed the issue at length and observed that the soft....
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....s are signatories) in ITA.No. 1265/Hyd/13 in the case of M/s. UEPL for the A.Y. 2007-08 and after considering the issue at length, we have held that the film software library is in the nature of an intangible asset and the depreciation thereon is allowable at the rate allowable on an intangible asset. However, as regards the valuation of the asset, this Tribunal has pointed out that certain circumstances leading to the valuation of the asset have not been considered by the authorities below and hence, has set aside the same for re-valuation. Respectfully following the same, we deem it fit and proper to remand this issue also to the file of the A.O. with similar directions and direct the A.O. to allow depreciation as is allowable on an intangible asset. This ground of appeal No.4 is treated as allowed for statistical purposes. Facts and circumstances being identical and in the absence of any freshevidence to take a contrary view, respectfully following the said decision of the Tribunal, we dismiss the ground raised by the Revenue." 19. We, in terms of aforesaid deliberations are of the considered view that the Ld. CIT(A) had rightly allowed the claim of assessee of 25% o....
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....n the hands of UEPL. The AO of UEPL has given effect to aforesaid order of Ld. CIT(A) and accordingly, depreciation was allowed on non-compete fee of Rs. 618.45 crores. 22. The findings of Ld. AO are broughtto our notice wherein the Ld. AO has allowed the depreciation to the assessee (UEPL). The findings of Ld. AO in the consequential order dated 19.05.2023 u/s 143(3) r.w.s 254 are as under: "4. Aggrieved with the order u/s 143(3) rws 254 of the I.T. Act dated 31.03.2017, the assessee preferred appeal before the CIT(A) on non consideration of the issue of disallowance of the depreciation claim of Rs. 83,75,00,000/- on the non-compete fee payment without appropriately considering the directions of the Hon'ble ITAT. In A.Y. 2008-09, the assessee paid an amount of Rs. 670,00,00,000/-towards non-compete fees to the promoters of UKT and UKM for not competing in the business for a period of five years. The said non-compete fee was paid pursuant to an agreement with a domestic investor for investment of upto 39% equity stake in Ushodaya. Consequently, the assessee claimed an amount of Rs. 83,75,00,000/- as depreciation on the noncompete fees in A.Y. 2008-09. The Assessing ....
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....f of 25%) on the value of non-compete fee as determined by the Valuer works out to Rs. 77,30,62,500/-, and the same is allowed." 23. It is further submitted by Ld. AR that since assessee is one of the demerged entities from UEPL, once the issue on non-compete fee was decided and consequential effect is given by the Ld. AO in the case of UEPL, the consequential allocation effected in the case of present assessee would also eligible for depreciation. However, the Ld. AO, in the present case has repeated the same reasoning, which was adopted in the case of UEPL in 2008-09, stating that there was no necessity to make payment of non-compete fee and, accordingly, has disallowed the depreciation. It is argued that since the valuation of non-compete fee has attained finality at Rs. 618.45/- crores as against Rs. 670/- crores claimed by UEPL, the proportionate WDV allocated to the present assessee needs to be recognized accordingly and the depreciation should be allowed on the WDV so arrived. It is clarified that the Ld. CIT(A) had rightly observed that the department's own acceptance of the revised WDV and depreciation in subsequent years for UEPL demonstrates a de facto acceptance of b....
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....dings of the Tribunal in the case of UEPL are reproduced as under: "25. We have heard the submissions of the parties and perused the orders of revenue authorities as well as 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 allowable26. Before examining whether non-compete lee 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 ka....
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....ny in future, the domestic company invested substantial amount by acquiring 39% of share in the assessee company. 27. From the aforesaid facts it cannot be denied that Equator 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 examin....
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....o adjust it against its huge brought forward losses. In this context, it is to be observed that in course of hearing before us the learned AR has submitted certain documents 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....