2010 (6) TMI 861 - AT - Income Tax

Summary

Issues involved: Disallowance of expenditure incurred on replacement of traditional cable line with optical fiber cable.

Revenue's Argument:
The departmental representative argued that the replacement of traditional cable with optical fiber cable should be considered capital expenditure as it provides enduring benefit to the assessee. The representative highlighted that the optical fiber cable was an upgrade and would be useful if the assessee switched to DTH method of signal transmission. It was emphasized that the replacement was necessary due to damage caused by rival operators, and only traditional cable could be replaced by another traditional cable, not optical fiber cable.

Assessee's Argument:
The counsel for the assessee contended that the replacement was essential to continue the business of distributing television channels through cable network, especially after damage caused by rival operators. It was argued that laying optical fiber cable did not provide enduring benefit, and the risk of damage by rivals remained. The counsel emphasized that the replacement was necessary for maintaining signal quality, and there was no guarantee of additional benefits from the optical fiber cable.

Judgment:
The Tribunal noted that the assessee's business involved distributing television channels through cable network and that the replacement from traditional cable to optical fiber cable was necessitated by damage caused by rival operators. The Tribunal agreed with the assessee that the replacement was crucial for maintaining signal quality and continuing the business. It was observed that the optical fiber cable did not provide an enduring benefit beyond signal quality improvement for viewers. The Tribunal concluded that the replacement expenditure was revenue in nature, as it was essential for business continuity and did not result in the acquisition of a new enduring asset. Therefore, the Tribunal confirmed the lower authority's decision to allow the expenditure, dismissing the Revenue's appeal.

Result:
The appeal of the Revenue was dismissed, and the order was pronounced in the open court on 30.6.2010.