2013 (10) TMI 1368 - AT - Income Tax

Expenditure towards programme production expenses amortization of film and serial broadcasting rights cost of programme content (rights) and expenditure towards consumables and media - revenue or capital expenditure - Held that - 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. Write-off of advances given for production of films - Held that - In the course of purchasing movie/serial rights advances are given to the producers/production houses of the serials and the movies. In some of the cases the amounts given as advance become bad-debt and hence become ir-recoverable. The assessee has no other option but to write-off the same. The Assessing Officer disallowed the claim of the assessee on the ground that the assessee is not in the business of purchase and sale of movies. On appeal the CIT(Appeals) reversed the findings of Assessing Officer by following the judgment in the case of Turner Morrison & Co. Ltd. Vs. CIT (2000 (3) TMI 34 - CALCUTTA High Court) and CIT Vs. Bhagwarprasad (1999 (9) TMI 5 - GUJARAT High Court ). We do not find any infirmity in the findings of the CIT(Appeals) on this issue. Deferred income - assessment year - Held that - It is not disputed that the income generated by selling the time-slot is offered as income in the year of broadcasting/airing the programme. The monies received are shown as deferred revenue in the year of receipt and are offered as income in the year when programme is aired. We do not find any illegality or irregularity in methodology adopted by assessee in registering the revenue in the year of telecast of programme. There is no merit in this ground of appeal of the Revenue

Issues Involved:
1. Re-opening of assessment for AYs 2004-05 and 2005-06.
2. Write-off of movie advances for AY 2007-08.
3. Disallowances under Section 14A read with Rule 8D for AYs 2008-09 and 2009-10.
4. Deferred income for AYs 2008-09 and 2009-10.
5. Common issue of capitalizing expenditure on programme, production expenses, amortization of film and serial broadcasting rights, and cost of programme content for all AYs.

Detailed Analysis:

1. Re-opening of Assessment for AYs 2004-05 and 2005-06:
The re-opening of assessment for AY 2004-05 was beyond the four-year period, thus invalid under the proviso to Section 147 of the Income Tax Act. For AY 2005-06, although within the four-year limit, the re-opening was based on a change of opinion regarding the classification of film rights as revenue expenditure versus intangible assets. The CIT(Appeals) found that the Assessing Officer had previously examined and accepted the expenditure details. The Tribunal upheld the CIT(Appeals) decision, confirming that the re-opening was invalid for both years.

2. Write-off of Movie Advances for AY 2007-08:
The assessee wrote off advances given to producers for acquiring movie rights, which became irrecoverable. The Assessing Officer disallowed the write-off, claiming the assessee was not in the business of purchasing and selling movies. The CIT(Appeals) reversed this, recognizing the write-off as a legitimate business expense, citing relevant case law. The Tribunal confirmed the CIT(Appeals) decision, dismissing the Revenue's appeal on this ground.

3. Disallowances under Section 14A read with Rule 8D for AYs 2008-09 and 2009-10:
The Revenue contended that the assessee must have incurred administrative and other expenses related to its investments, invoking Rule 8D to disallow expenses. The CIT(Appeals) found no nexus between the exempt income and the claimed expenses, but the Tribunal remitted the issue back to the CIT(Appeals) for fresh consideration, emphasizing the need for a reasonable disallowance of expenses incurred on managing the investment portfolio.

4. Deferred Income for AYs 2008-09 and 2009-10:
The assessee recognized revenue from the sale of time-slots only when the programs were broadcasted, treating advance collections as deferred revenue. The Revenue argued that the income should be recognized in the year of receipt. The Tribunal upheld the assessee's method, finding it consistent with the mercantile system of accounting and dismissing the Revenue's appeal on this issue.

5. Common Issue of Capitalizing Expenditure for All AYs:
The core issue was whether the expenditure on programme production, film and serial rights, and related costs should be capitalized as intangible assets or treated as revenue expenditure. The CIT(Appeals) ruled in favor of the assessee, treating these costs as revenue expenditure, citing relevant case law. The Tribunal agreed with the CIT(Appeals), affirming that the rights were not perpetual and the expenditure should be written off in the year of first telecast. The Tribunal dismissed the Revenue's appeals on this common issue.

Conclusion:
The Tribunal dismissed the Revenue's appeals for AYs 2004-05, 2005-06, 2006-07, and 2007-08, and partly allowed the appeals for AYs 2008-09 and 2009-10 for statistical purposes, remanding the Section 14A disallowance issue back to the CIT(Appeals) for fresh adjudication.

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