2022 (2) TMI 1454 - AT - Income Tax

Nature of expenses - cost of production expenses of tele serial - revenue or capital expenditure - HELD THAT - Admittedly, cost of production of tele serials and films is not governed by Rule 9A 9B of Income-tax Rules, 1962. Therefore, this issue needs to be considered without going into rules prescribed for allowing deduction for expenditure incurred for production of feature films. Admittedly, major expenditure of the assessee involved in production and exhibition of tele serials is cost of production of tele serials. The revenue derived from exhibition of tele serials is offered as income from operations, but may be in one or two or three years, however, except cost of production of feature films, the assessee does not have any other major expenses. Therefore, in case where assessee involved in production and exhibition of tele serials, expenditure incurred for production of tele serials cannot be considered as capital in nature, because it does not give enduring benefit to the assessee or it does not lead to creation of any asset. Therefore, expenditure incurred for production of feature films of an assessee involved production and exhibition of tele serials is definitely revenue in nature, which cannot be considered as capital expenditure. This view is fortified by the decision of Television Eighteen India Ltd. 2014 (5) TMI 626 - DELHI HIGH COURT after considering CBDT circular No.16/2015 dated 06.10.2015 has clearly held that production of abandoned feature film is to be treated as revenue expenditure and allowed as per provisions of section 37 of the Income Tax Act, 1961. Although, in the said case, it was cost of production of abandoned feature film, but in our considered view, it does not make any difference whether tele serial or films is abandoned or continued for exhibition to the audience. Since major expenditure of the assessee involved in production and exhibition of tele serials, is cost of production of said tele serial and thus, we are of the considered view that same needs to be allowed as revenue expenditure as and when such expenditure has been incurred by the assessee, even though revenue from exhibition of tele serial or film is spread over for more than one year. CIT(A), after considering relevant facts has rightly deleted additions made by the Assessing Officer towards cost of production of tele serial and hence, we are inclined to uphold findings of the learned CIT(A) and dismiss appeal filed by the Revenue.

Summary

Issues Involved:
1. Disallowance of production expenses of tele serials as capital expenditure.
2. Appeal against the order of the Commissioner of Income Tax (Appeals) regarding assessment year 2009-10.

Analysis:

Issue 1: Disallowance of production expenses of tele serials as capital expenditure
The Revenue raised grounds of appeal against the order of the Commissioner of Income Tax (Appeals) regarding the disallowance of Rs. 2,33,58,021/- on expenditure incurred on the cost of production of tele serials. The Assessing Officer disallowed the expenses claimed by the assessee, considering them as capital expenditure. The Revenue contended that the enduring benefits of tele serials, such as re-telecasting and dubbing, make the expenditure capital in nature. However, the CIT(A) deleted the additions, holding that expenses for production of tele serials are revenue in nature and should be allowed as and when incurred. The CIT(A) relied on various judicial precedents, including a decision of the Hon'ble Delhi High Court, emphasizing that such expenses are revenue in nature and do not lead to the creation of any asset. The Tribunal upheld the CIT(A)'s decision, stating that the production expenses of tele serials are revenue in nature and not capital expenditure. The Tribunal emphasized that even if revenue from the exhibition of tele serials is spread over multiple years, the expenses should be allowed as revenue expenditure when incurred.

Issue 2: Appeal against the order of the Commissioner of Income Tax (Appeals)
The appeal filed by the Revenue against the order of the Commissioner of Income Tax (Appeals) for the assessment year 2009-10 was dismissed. The Tribunal considered that the cost of production of tele serials and films should be treated as revenue expenditure, following the decision of the Hon'ble Delhi High Court. The Tribunal highlighted that the major expenditure of the assessee was related to the production and exhibition of tele serials, and such expenses should be treated as revenue in nature. The Tribunal emphasized that the cost of production of tele serials does not result in enduring benefits or the creation of assets, supporting the view that it should be considered as revenue expenditure. Therefore, the Tribunal upheld the findings of the CIT(A) and dismissed the appeal filed by the Revenue.

In conclusion, the Tribunal affirmed that the production expenses of tele serials should be treated as revenue expenditure and not as capital expenditure, as they do not lead to the creation of assets or enduring benefits. The decision was based on established judicial precedents and the nature of expenses incurred for the production and exhibition of tele serials.