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2016 (3) TMI 820 - ITAT HYDERABADDisallowance of depreciation - Addition towards Film Software Library as the same is not intangible asset and it is to be treated as Plant & Machinery - depreciation @ 15% or 25% - Held that:- an intangible asset can also be treated as plant, provided, it becomes an integral part of the tools used by the entity to carry on its business. In the case before us, the films and TV programmes are essential for the assessee company to carry on its business of telecasting of films and other programmes, but there is no caveat that the assessee company 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%. - Decided against revenue Invoking Explanation 3 to Section 43(1) - order of the CIT u/s 263 adopting the WDV of the film software Library in the hands of the previous owner as the ‘Actual cost of the asset to the Assessee’ and allowed depreciation on that value only - Held that:- There is no dispute that the asset ‘Film Software Library’ was used by its previous owner i.e., Shri Ramoji rao (HUF) for the purpose of its business and also by the assessee herein before the transfer of the same to the assessee exclusively. Therefore, undisputedly the first condition is satisfied. CIT(A) has not referred to or verified the circumstances leading to the transfer of the asset to come to the conclusion but has granted relief on the ground that the A.O. has not recorded his satisfaction before invoking the above provisions. Though, the Ld. D.R. has not been able to rebut the factual submissions of the assessee on the circumstances leading to the transfer of the asset, we find that the same needs verification by the authorities below. In view of the same, we deem it fit and proper to remand this issue to the file of the A.O. for the limited purpose of verification of the facts and circumstances stated to be the cause of transfer of the asset to the assessee herein which are reproduced in the above paragraphs and we hold that if the said circumstances are proved to have existed, then the provisions of Explanation-3 to Section 43(1) are clearly not attracted. However, if the above circumstances are not proved or are found to be not the reason/purpose for transfer of the asset, only then shall the A.O. invoke the above provision. But in such circumstances, we direct that if the A.O. is not satisfied with the valuation done by Ernst & Young, then after giving a speaking order for not accepting the same, the A.O. shall revalue the asset in accordance with the provisions of law and shall not adopt the WDV of the asset in the hands of the previous owner.- Decided in favour of revenue for statistical purposes.
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