2014 (6) TMI 69 - AT - Income Tax

Disallowance of deduction under Rule 9B(4) acquisition of the satellite and terrestrial television rights - FM Broadcasting Services. - business of printing and publishing of newspapers and magazines - Held that - The AO has given a categorical finding that the assessee did not generate any income by using those films - assessee could not furnish the details of results of the appeal - as on date, the decision rendered by the co-ordinate bench of the Tribunal on the issue remains in force and CIT(A) has followed the decision of the Tribunal thus, there is no reason to interfere with the decision rendered by the CIT(A) Decided against Assessee. Deletion of disallowance of depreciation on the FM radio equipments - Held that - Relying upon Bharat Aluminium Co. Ltd. v. CIT 2010 (8) TMI 26 - DELHI HIGH COURT - the FM radio equipments are new machineries purchased by the assessee during the year under consideration, that too after September, 2005 - The depreciation is allowed u/s 32(1) of the Act only if the assets are owned wholly or partly by the assessee and used for the purposes of the business and further depreciation is allowed on any block of assets at such percentage on the written down value thereof, as may be prescribed - the assessee has not brought any material on record to substantiate its claim that it was using the central technical area equipments for preparing programmes - the FM radio business can be considered as set up only when both central technical area and common transmission infrastructure divisions are made functional - the assets would enter into the block only upon using them for the purposes of business claim of depreciation denied Decided in favour of Revenue. Disallowance of additional depreciation claimed on EM radio equipments Held that - The object of allowing additional depreciation, an accelerated depreciation, is to encourage new investments - the proviso lists out machineries (and not assessees) which are not eligible for deduction u/s 32(1) (iia) of the Act, even if the assessee is engaged in the manufacture or production of articles or thing - the purpose of allowing additional depreciation under section 32(1) (iia) is to allow deduction only on those assets, which are used for the purpose of manufacture or production of article or thing thus, additional depreciation is asset specific . In our view also, the FM radio operations do not result in manufacture or production of any article or thing - Further the assessee may also broadcast the programmes produced by others also - the primary objective of the assessee in FM radio business is only broadcasting only thus, the order of the CIT(A) is upheld Decided against Assessee. Right of the Department to file appeal before the Tribunal Held that - The assessee has raised this contention without properly appreciating the scheme of the Act - The remedy by way of appeal is provided only to the aggrieved party under the scheme of the Income-tax Act - the right to appeal accrues to the AO only against the appellate order passed by the CIT(A) - Since the Assessing Officer does not have right to file appeal before the learned CIT(A) against his own order cannot be said that his absence would disentitle him to file appeal before the Tribunal against the order passed by the CIT(A) Decided against Assessee.

Summary

Issues Involved:
1. Disallowance of deduction claimed under rule 9B(4) of the Income-tax Rules.
2. Disallowance of claim of additional depreciation on FM radio equipment.
3. Deletion of disallowance of depreciation claim on FM radio equipment.

Detailed Analysis:

1. Disallowance of Deduction Claimed Under Rule 9B(4):
The assessee claimed a deduction of Rs. 77,50,000 under rule 9B(4) for the cost of acquisition of satellite and terrestrial television rights of five Malayalam films. The Assessing Officer (AO) disallowed this deduction as the assessee did not generate any income from these films in the relevant financial years. The AO cited rule 9B, which requires income generation from the rights either in the year of purchase or the subsequent year for the deduction to be allowed. The AO supported his decision with precedents from CIT v. Prakash Pictures and Madathil Brothers v. Deputy CIT. The Commissioner of Income-tax (Appeals) [CIT(A)] upheld the AO's decision, referencing a prior Tribunal decision in the assessee's own case. The Tribunal found no reason to interfere with the CIT(A)'s decision, as the assessee failed to provide details of any successful appeal against the Tribunal's earlier decision.

2. Disallowance of Claim of Additional Depreciation on FM Radio Equipment:
The assessee claimed additional depreciation of Rs. 17,06,593 on FM radio equipment under section 32(1)(iia) of the Act. The AO disallowed this on the grounds that the FM radio business activities did not qualify as manufacturing or production activities and were unrelated to the assessee's existing manufacturing activities. The CIT(A) agreed with the AO, stating that FM radio operations do not result in the manufacture or production of articles or things. The Tribunal upheld the CIT(A)'s decision, emphasizing that additional depreciation is "asset specific" and should be applicable only to assets used for manufacturing or production purposes.

3. Deletion of Disallowance of Depreciation Claim on FM Radio Equipment:
The AO disallowed the depreciation claim of Rs. 12,79,945 on FM radio equipment, arguing that the assets were not put to use as the necessary license for FM operations was obtained only in the subsequent year. The assessee contended that the assets were ready for use and were used for preparing programs. The CIT(A) accepted the assessee's argument, citing that the process of producing programs should be considered as the commencement of business. However, the Tribunal reversed the CIT(A)'s decision, noting the lack of evidence to substantiate the claim that the equipment was used for preparing programs. The Tribunal agreed with the AO that the FM radio business could only be considered "set up" when both the central technical area and common transmission infrastructure were operational. The Tribunal cited the jurisdictional High Court's decision in CIT v. Air Travel Enterprises India Ltd., which held that assets could not be considered ready for use without the necessary operational licenses.

Conclusion:
The Tribunal dismissed the assessee's appeal and allowed the Revenue's appeal, confirming the disallowance of the deduction under rule 9B(4) and the additional depreciation on FM radio equipment, and restoring the disallowance of normal depreciation on FM radio equipment.