2015 (12) TMI 633 - HC - Income Tax

Entitlement to additional depreciation - machinery used to broadcast radio programs in the FM channel - ITAT allowed the claim - Held that - In the facts and circumstances of the present case, the Assessee can be said to have used the plant and machinery acquired and installed by it after 31st March 2005 for manufacture/production of an article or thing. Since the Assessee has satisfied the requirements of Section 32 (1) (iia) of the Act, it is entitled to the additional depreciation as claimed by it for the AY in question. The Revenue has also no answer to the submission of the Assessee for AYs 2009-10 and 2010-11 its claim for additional depreciation has been allowed by the AO. - Decided in favour of assessee. Depreciation on Licence Fee i.e. a non-intangible asset - Held that - No provision of the Act has been brought to the notice of the Court which states that an Assessee would be denied the claim of depreciation on intangible assets only because there was no claim also on the tangible asset. For the purpose of Section 32 it is sufficient that assets be kept ready for use in order to claim depreciation thereon. As decided in Capital Bus Service Pvt. Ltd. (1980 (2) TMI 69 - DELHI High Court ) it was held that while interpreting the expression used it would be more appropriate to envisage the expression as comprehending cases where the machinery is kept ready by the owner for its use in the business and the failure to use it actively in the business is not on account of its incapacity for being used for that purpose or its non-availability. - Decided in favour of assessee.

Summary

Issues Involved:
1. Eligibility for additional depreciation on machinery used for broadcasting radio programs.
2. Depreciation on broadcasting rights for centers where assets were not put to use.

Issue-wise Detailed Analysis:

Issue 1: Eligibility for Additional Depreciation

Background Facts:
The Respondent-Assessee, engaged in FM radio broadcasting, claimed additional depreciation for machinery used in producing radio programs, arguing that these programs qualify as "articles or things" under Section 32(1)(iia) of the Income Tax Act, 1961.

Assessment Order:
The Assessing Officer (AO) disallowed the additional depreciation, stating that "production of radio programs" does not constitute "production of articles or things."

Order of the CIT (A):
The Commissioner of Income Tax (Appeals) [CIT (A)] upheld the AO's decision, emphasizing that radio programs are not tangible products that can be sold or commercially exploited.

Order of the ITAT:
The Income Tax Appellate Tribunal (ITAT) reversed the CIT (A)'s decision, citing the Supreme Court's ruling in *CIT v. Oracle Software India Limited*, which recognized the production of software as manufacturing. The ITAT concluded that producing radio programs involves processes like recording and editing, thus qualifying as production of "articles or things."

High Court Analysis:
The High Court agreed with the ITAT, noting that:
- The production of radio programs involves recording, editing, and making copies, which results in an intangible "thing."
- The definition of "manufacture" includes transformation processes that produce a new and distinct article or thing.
- The Assessee's activities meet the criteria for additional depreciation under Section 32(1)(iia).

Conclusion:
The Court held that the Assessee is entitled to additional depreciation for the machinery used in producing radio programs, as these programs qualify as "articles or things."

Issue 2: Depreciation on Broadcasting Rights for Centers Not Put to Use

Background Facts:
The Assessee claimed depreciation on the One Time Entry Fee (OTEF) paid for FM channels, including those at Jodhpur, Patiala, and Amritsar, which were ready but not operational.

Assessment Order:
The AO disallowed the claim, arguing that depreciation cannot be allowed unless the asset is "actually used for the business."

Order of the CIT (A):
The CIT (A) upheld the AO's decision, stating that the Assessee did not air programs from the non-operational stations and thus could not claim depreciation on the license fee.

Order of the ITAT:
The ITAT allowed the claim, referencing decisions in *CIT v. Reetu Finleys Pvt. Ltd.* and *CIT v. Refrigeration & Allied Ind. Ltd.*, which support the notion that assets kept ready for use qualify for depreciation.

High Court Analysis:
The High Court concurred with the ITAT, noting:
- The AO did not dispute that the intangible assets were kept ready for use.
- Depreciation on intangible assets should not be denied solely because there was no claim on tangible assets.
- Section 32 allows depreciation on assets kept ready for use, as supported by previous case law.

Conclusion:
The Court held that the Assessee is entitled to claim depreciation on the license fee for the non-operational stations, as the assets were kept ready for use.

Final Judgment:
The appeal by the Revenue was dismissed, with both issues decided in favor of the Assessee. The Assessee was entitled to additional depreciation on machinery used for producing radio programs and depreciation on the license fee for non-operational stations.