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TMI Blog2016 (6) TMI 426X X X X Extracts X X X X X X X X Extracts X X X X ..... ets 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 on same - Decided in favour of assessee Valuation of film software library - rate of depreciation allowable therein - Held that:- This issue has been dealt with by this Tribunal (to which both of us are signatories) in the case of M/s. UEPL [2016 (3) TMI 820 - ITAT HYDERABAD] for the A.Y. 2007-08 and after considering the issue at length, we have held that the film software library is in the nature of an intangible asset and the depreciation thereon is allowable at the rate allowable on an intangible asset. However, as regards the valuation of the asset, this Tribunal has pointed out that certain circumstances leading to the valuation of the asset have not been considered by the authorities below and hence, has set aside the same for re-valuation. Respectfully following the same, we deem it fit and proper to remand this issue also to the file o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5% only against @ 25% claimed by the appellant. The Commissioner of Income Tax (Appeals) is not justified in upholding the Assessing Officer's view holding that Film Software Library is only a business tool used by the appellant in its business and is therefore general plant and machinery only but not an intangible asset. 5. For all of the above and such other grounds as may be urged at the time of hearing it is most respectfully prayed that this Hon'ble Tribunal may be pleased to allow the appeal and suitable directions be given to the Assessing Officer to delete disallowances made in the Assessment Order in the interest of justice. 1.1. Vide letter dated 11.04.2016, the assessee modified ground No.4 as under : 4. The Commissioner of Income Tax (Appeals) erred in confirming the action of the Assessing Officer in allowing depreciation of ₹ 8,87,73,860/- only on WDV of Film Software Library of ₹ 59,18,25,732/- at the rate of 15% against WDV of ₹ 185,16,46,289/- at the rate of 25% claimed by the Appellant. The Commissioner of Income Tax (Appeals) is not justified in upholding the Assessing Officer's view that the WDV of Film Software Lib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... method adopted for valuation of the non-compete fee needs to be examined. Thereafter, he proceeded to examine the valuation of the non-compete fee and ultimately held that the valuation adopted by the assessee company is not sustainable. Thereafter, he also examined as to whether the non-compete fee is eligible for depreciation and held that the assessee s claim for substantial depreciation is nothing short of a colourable device in the name of non- compete fee when there is no case of competing. He, therefore, rejected the assessee s claim of depreciation. Assessee preferred an appeal before the Ld. CIT(A) who confirmed the order of the A.O. and the assessee is in appeal before us against the disallowance of the depreciation. 3. At the time of hearing, Ld. Counsel for the assessee submitted that this issue is covered in favour of the assessee by the decision of B Bench of this Tribunal in the case of parent company i.e., M/s. UEPL for the A.Y. 2008-09 in ITA.No.26/Hyd/2011 wherein the Tribunal has set aside the issue to the file of the A.O. to examine the impact of acquisition of 39% of the equity shares by M/s. Equator Trading Enterprise P. Ltd., as it has a crucial bearing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpete fee not being in the nature of an intangible asset as defined in section 32(1)(ii), depreciation is not allowable. 26. Before examining whether non-compete fee can be considered to be an intangible asset so as to entitle the assessee to claim depreciation on it, it is necessary, at the outset, to address the issue of genuineness of payment of non-compete fee and necessity to make such payment. As can be seen from the assessment order, AO has treated the agreement entered into between assessee for payment of non-compete fee as a sham transaction as Shri Ramoji Rao is not only the owner of UKT and UKM being the karta of HUF to which these concerns belong but he also in his individual capacity is the Chairman of the assessee company. 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee company and the two other companies acquired by the assessee, the role of M/s Equator Trading Enterprises Pvt. Ltd. in any decision taken by assessee company has not at all been considered. Neither the AO nor the CIT(A) has examined the effect of acquisition of 39% of equity shares by another entity and whether after such acquisition of shares, it can still be held that Shri Ramoji Rao is the controlling authority of assessee company and it is a transaction between related parties. Unfortunately, the assessment order and order of CIT(A) is totally silent on this aspect. Though in the remand report, AO has examined the issue of investment made by the domestic investor and has alleged that it as a sham transaction and a collusive 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also its adjustment against brought forward losses in an assessment order passed u/s 143(3) on 24/12/2010. Therefore, when the non-compete fee paid by assessee has been accepted at the hands of Shri Ramoji Rao HUF and allowed to be set off against the brought forward losses, it needs to be examined whether still the payment of non-compete fee made by the assessee to Shri Ramoji Rao HUF can be held to be either non-genuine or not necessary. Therefore, considering the totality of the facts and circumstances we are of the view that as the impact of acquisition of 39% of equity shares by M/s Equator Trading Enterprises Pvt. Ltd. has not at all been examined by AO at the time of assessment proceeding or by the learned CIT(A) while disposing of assessee 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... programmes should be allowed as revenue expenditure under section 37 of the I.T. Act. Copies of the said decisions are also filed before us. 8. The Ld. D.R. on the other hand, supported the orders of the authorities below. 9. Having regard to the rival contentions and the material on record, we find that the A Bench of this Tribunal at Chennai in the case of ACIT, Media Circle-II, Chennai vs. M/s. Sun TV Network Ltd., Chennai in ITA.Nos.1515 to 1520/Mds/2013 by its order dated 31.10.2013 has held as under : 8. Now, we take up the common issue involved in all the appeals. The assessee is in the business of running satellite television channels. These channels telecast films, serials etc., through satellite channels. The rights over these films are purchased from the producers of the respective films for broadcasting through satellite television. These rights come with an embargo that the films shall not be broadcasted or aired for a specified period from the date of release in theatres depending upon the success at the box office and other factors. Till the time, such films are broadcasted, they are to be treated as stock in trade. Once the films are broadcaste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pillah Sons reported as 63 ITR 411 subsequently followed by the Hon'ble Delhi High Court in the case of CIT Vs. Global Vantedge (P) Ltd., reported as 354 ITR 21 (Del). The Id. DR has not been able to controvert the well reasoned order of the CIT (Appeals) on the issue. Accordingly, the findings of the CIT (Appeals) on the issue are affirmed and this ground of appeal of the Revenue in respect of all the AYs is dismissed. 8.1. Respectfully following the same, the alternate ground No.3 of the assessee is treated as allowed. 9. As regards ground No.4, the Ld. Counsel for the assessee submitted that this issue had arisen in the case of M/s. UEPL both as regards the valuation of film software library and also the rate of depreciation allowable therein. He has submitted that this Tribunal in the case of M/s. UEPL had remanded the issue of valuation of the film software library to the file of the A.O. and as regards the rate of depreciation to be allowed, the Tribunal has held that the same allowable as on intangible asset. 10. The Ld. D.R. however, supported the orders of the authorities below. 11. Having regard to the rival contentions, we find that this issue has be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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