2018 (8) TMI 1060 - AT - Income Tax

Disallowance of cost of production of TV serials and programmes - revenue expenditure or capital expenditure - claim of depreciation on Film Software Library at 25% by treating it as an intangible asset. - Held that - Claim of the assessee allowed - Both the ground are answered against the revenue.

Issues Involved:

1. Deletion of disallowance of the cost of production of TV serials and programs claimed as revenue expenditure.
2. Allowing depreciation on Film Software Library at 25% by treating it as an intangible asset.

Detailed Analysis:

Issue 1: Deletion of Disallowance of Cost of Production of TV Serials and Programs Claimed as Revenue Expenditure

The Revenue challenged the CIT (A)'s decision to delete the disallowance of the cost of production of TV serials and programs claimed as revenue expenditure. The CIT (A) had relied on previous ITAT orders in the assessee's own case for the assessment years (AYs) 2008-09 and 2011-12 to 2012-13. The ITAT had allowed the expenditure following its own order in the case of the assessee's sister concern, M/s Prism TV Ltd.

The Tribunal noted that the assessee is in the business of running satellite television channels, which telecast films and serials. The rights over these films are purchased for broadcasting through satellite television and are treated as stock in trade until they are aired. Once broadcasted, the purchase value is written off, and the expenditure on the purchase of films is claimed in the first year itself. The Tribunal referred to the Chennai Bench's decision in the case of ACIT, Media Circle-II, Chennai vs. M/s. Sun TV Network Ltd., where it was held that the film and serial broadcasting rights acquired by the assessee are not perpetual but diminish in value after the first telecast. Therefore, the expenditure should be treated as revenue expenditure.

The Tribunal also cited the case of Zee Media Corporation Ltd., where it was held that news items and TV programs lose their value post-telecast and should be treated as revenue expenditure. The Delhi High Court's judgment in CIT vs. Television Eighteen India Limited supported the view that the expenditure on production of programs, which become part of news archives, should be allowed as revenue expense under Section 37 of the Income Tax Act, 1961.

Based on these precedents, the Tribunal upheld the CIT (A)'s decision and dismissed the Revenue's grounds on this issue, directing the AO to treat the expenditure incurred by the assessee on the cost of production of TV programs as revenue expenditure.

Issue 2: Allowing Depreciation on Film Software Library at 25% by Treating it as an Intangible Asset

The Revenue also contested the CIT (A)'s decision to allow depreciation on the Film Software Library at 25% by treating it as an intangible asset. The CIT (A) had directed the remand of the issue to the file of the AO by following the Tribunal's order in the assessee's own case for AY 2012-13. In that case, the Tribunal had directed the AO to allow depreciation at 25% subject to revaluation of the asset.

The Tribunal found no reason to interfere with the CIT (A)'s order, as it was consistent with the previous Tribunal decision. Consequently, the Tribunal upheld the CIT (A)'s decision and dismissed the Revenue's grounds on this issue as well.

Conclusion:

In conclusion, the Tribunal dismissed the Revenue's appeal, upholding the CIT (A)'s decisions on both issues. The cost of production of TV serials and programs was correctly treated as revenue expenditure, and the depreciation on the Film Software Library was appropriately allowed at 25% as an intangible asset. The order was pronounced in the Open Court on 17th August 2018.

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