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TMI Blog2016 (6) TMI 419X X X X Extracts X X X X X X X X Extracts X X X X ..... Disallowance of depreciation on film software library - Held that:- We find that this issue has arisen for the first time in the assessment year 2007-2008 when M/s. Ushodaya Enterprises P. Ltd., had taken over the business of M/s. Ushakiran Movies and M/s. Ushakiran Television. The issue had come up for adjudication before the ‘A’ Bench of this Tribunal [2016 (3) TMI 820 - ITAT HYDERABAD] and this Tribunal vide its order has remitted the issue to the file of the A.O. for the limited purpose of verification of facts and circumstances stated to be the cause of the transfer of the asset i.e., the ‘Film Software Library’ to the assessee and also for the re-valuation of the asset in accordance with the provisions of Law. The issue in the ground before us is consequential to the decision given by this Tribunal in the case of M/s. Ushodaya Enterprises Limited. Therefore, this issue is also remitted to the file of the A.O. with a direction to give consequential effect after a decision is taken in the case of M/s. Ushodaya Enterprises Limited in accordance with the directions of the Tribunal. - Decided in favour of assessee for statistical purposes. - ITA.No.466/Hyd/2015, ITA.No.1249/Hyd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee claimed a sum of ₹ 28,08,12,656 as depreciation on non-compete fee. The A.O. therefore, examined the allowability or otherwise of depreciation on the non-compete fee and inferred that one cannot compete with itself and that the transaction of non-compete fee is a sham one to reduce the tax burden of M/s. Ushodaya Enterprises P. Ltd., in the guise of payment of non-compete fee to HUF concerns having huge brought forward losses. While disallowing the depreciation on the non-compete fee, the A.O. also discussed about the necessity of the non-compete fee and the valuation done for arriving at the huge figure of ₹ 670 crores in the hands of M/s. Ushodaya Enterprises P. Ltd., and allowability of depreciation on non-compete fee. He, therefore, disallowed the claim of depreciation on noncompete fee. Against this disallowance, the assessee filed an appeal before the Ld. CIT(A) who confirmed the order of the A.O. and the assessee is in second appeal before us. 3. At the time of hearing, Shri Arvind Sonde, Ld. Counsel for the assessee, reiterated the submissions made by the assessee before the authorities below and submitted that the issue of the allowability of the nonco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any. As such, assessee cannot be considered to be competing with himself. As it is an arrangement between related parties, there is no necessity for payment of noncompete fee. AO further observed that the assessee has entered into agreement for payment of noncompete fee to reduce its tax burden by allowing Shri Ramoji Rao HUF to adjust the non-compete fee against the huge brought forward losses suffered by it. AO also raised doubts with regard to the value of non-compete fee at ₹ 670 crores. However, the CIT(A) has rejected assessee s claim by holding that as Shri Ramoji Rao, who is the kartha of HUF, which owns UKT and UKM and also in his individual capacity is the Chairman of the assessee company, therefore, there is no question of paying non-compete fee as a person cannot compete with himself. Of course the CIT()A) has also held that as non-compete fee does not provide any asset of enduring nature, deprecation cannot be allowed. In this context, it is to be noted that assessee on 25/01/2008 has entered into subscription agreement and share purchase agreement with a domestic company, Viz.; Equator Trading Enterprises Pvt. Ltd. as per which the said domestic company agreed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement entered into between the parties to reduce the tax burden by claiming depreciation on payment of non-compete fee. However, such inference drawn by AO, in our view, is more on presumptions and surmises rather than on the basis of strong evidence. When two independent parties enter into an agreement on certain terms and conditions, it cannot be termed as sham or collusive without bringing sufficient evidence to prove such fact. AO cannot treat the transaction as a colourable device adopted by the parties merely on presumptions and surmises without proving the fact that either the promoters of both the companies are same or M/s Equator Trading Enterprises Pvt. Ltd. is a front company of either the assessee or the Ramoji Rao group. In these circumstances, the inference drawn on mere assumptions and presumptions that the agreement is a colourable device to reduce the tax burden cannot be accepted. Therefore, without examining the impact of investment made in equity shares to the extent of 39% by the domestic investor and condition imposed by it, the conclusion drawn by the CIT(A) that there is no necessity of payment of non-compete fee as the same person is controlling the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee s appeal and further as the additional evidences produced before us were not examined either by the AO or by CIT(A), which certainly have a crucial bearing on the issue as to whether the payment of non-compete fee is genuine and necessary, we are inclined to remit the matter back to the file of AO for deciding afresh. ... 5.1. This appeal before us being for the subsequent assessment year, also needs to be remanded to the file of the A.O. to give consequential effect to the decisions taken by him for the A.Y. 2009-2010. This ground of appeal is accordingly treated as allowed for statistical purposes. 6. As regards ground No.2, against the treating of the cost of production of TV serials and programmes as capital expenditure, brief facts are that the assessee company debited an amount of ₹ 123,63,94,000 towards cost of production of TV serials and programmes for the year under consideration. Instead of claiming depreciation, the entire expenditure was claimed as revenue expenditure and debited to the P L account. The A.O. observed that the cost of production of TV serials and programmes is not covered under Rule 9A or 9B of I.T. Rules. As these Rules are applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g any expenditure. The assessee also generates revenue from broadcasting serials through satellite channels. The assessee gets revenue from production and broadcasting serials on the lines of feature films, the rights of broadcasting such serials are also treated as stock in trade till the time they are aired and the expenses are debited to the Profit Loss account. The assessee treats the films and the serials at par and applied the provisions of Rule 9A and 98 of the Income Tax Rules, as are applicable in case of films on serials as well. On the other hand, the contention of the Revenue is that the film and serial broadcasting rights acquired by assessee are perpetual in nature. After first telecast, the assessee does not discard the films but carefully store the same in digital library for airing the same again. Therefore, the assessee gets enduring benefit from the rights acquired in films and serials and they do not expire on the date of first telecast as contemplated by the assessee. The rights are intangible assets within the meaning of Explanation (iii) to Section 32 and do not fall within the purview of Section 37(1). The assessee is entitled to claim depreciation o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tems purchased by the assessee and debited to the P and L account, we find it is in the common knowledge of every citizen that the news items do not have enduring benefit. Normally, the news items/non fictional items purchased by the assessee lose its value once they are telecast. Therefore, such items do not have repeat telecast value in terms of the revenue generation by way of advertisement from the sponsors. As such, it is a settled issue at the level of Hon'ble Delhi High Court in the case of Television Eighteen India Ltd (supra) that the claims of the assessee relating to news/non-fictional items are allowable. Even otherwise, even if some income generated, that is not criterion for describing the items as 'intangible assets' for the purpose of invoking the provisions of section 32(ii) of the Act. We rely on the above referred Delhi High Court's Judgment in the case of Television Eighteen India Ltd (supra). Further, we find that the assessee has a declared method of accounting relating to accounting of these transactions. He has been consistently following the same without any change. In fact, the Revenue has consistently allowed the claim in the past. This is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e revenue has preferred this appeal claiming to be aggrieved by an order of the Income Tax Appellant Tribunal (ITAT) dated 17.03.2006. The question of law framed in this case is:- (i) Whether the Income Tax Appellate Tribunal was right in holding that the entire expenditure incurred by the assessee on production of programmes which became part of news archives should be allowed as a revenue expense under Section 37 of the Income Tax Act, 1961 and should not be treated as incurred for creating a capital asset? The assessee, at the relevant time, was in the business of television programme production. The assessee reflected ₹ 88,83,128/- being 10% of the total expenditure incurred by it as value of news archives under the head of fixed assets. In the return filed by the assessee for the Assessment Year 1997, the said amount was claimed as revenue expenditure. According to the assessee this expenditure was allocated for the creation of news achieves , which comprised of its published or telecasted programmes. The AO capitalised this amount holding that the expenditure led to creation of an asset of enduring advantage. The CIT (Appeals) on appeal, however, reversed the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w framed is answered in favour of the assessee and against the revenue. The appeal is dismissed. 9.3. Thus, it is seen that the issue is fairly covered in favour of the assessee by the above decision and the A.O. is directed to treat the expenditure incurred by the assessee on cost of production of TV programmes as revenue expenditure. This ground of appeal of the assessee is accordingly allowed. 10. As regards ground No.3 against the disallowance of depreciation on film software library, we find that this issue has arisen for the first time in the assessment year 2007-2008 when M/s. Ushodaya Enterprises P. Ltd., had taken over the business of M/s. Ushakiran Movies and M/s. Ushakiran Television. The issue had come up for adjudication before the A Bench of this Tribunal in ITA.No.1265/Hyd/2013 and this Tribunal vide its order dated 16.02.2016 has remitted the issue to the file of the A.O. for the limited purpose of verification of facts and circumstances stated to be the cause of the transfer of the asset i.e., the Film Software Library to the assessee and also for the re-valuation of the asset in accordance with the provisions of Law. The issue in the ground before us is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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