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TMI Blog2018 (9) TMI 705X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee company to carry on its business of telecasting of films and other programmes, but there is no caveat that the assessee company has to telecast only these films and programmes and none other for assessee’s business. Further, not only the films and programmes in the ‘Film Software Library’, but the assessee may also telecast any other programmes or films on its channels. By purchasing the library, the assessee is gaining exclusive right over the asset but this library cannot be held as a tool for carrying on of its business as assessee can carry on its business even without the ‘Film Software Library’. Therefore, we hold that the asset which consists of ‘Copyrighted Films and Programmes’ is an ‘Intangible Asset’ eligible for depreciation at the rate of 25%. - Decided against revenue TDS u/s 194H - non deduction of tds on commission amount - Held that:- As decided in assessee's own case [2014 (1) TMI 250 - ITAT HYDERABAD] TDS is not required to be made on payments made by TV channels/News paper companies to the advertising agency for booking or procuring or canvassing for advertisement. In view of that, we do not see any reason to defer from the findings. Disallowanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and, therefore, a common order is passed for the sake of convenience. ITA No. 1733/H/2014 and 1597/H/14 for AY 2009-10 by the assessee and the revenue. 2. Brief facts of the case are, assessee a company, engaged in the business of publishing of newspapers and satellite television broadcasting, filed its original return of income on 30/09/2009 admitting loss of ₹ 260,47,64,091/-. The assessment was completed u/s 143(3) dated 29/12/2011 at income of ₹ 52,90,40,793/- and subsequently the case was reopened u/s 147 of the Act. The reassessment was completed at income of ₹ 213,68,71,494/- by making the following disallowances: i) Cost of production of TV serials and programmes relating to the year under consideration claimed as revenue expenditure ₹ 143,49,17,000/- ii) Excess depreciation claimed on film software library ₹ 125,72,32,479/-. 3. When the assessee preferred an appeal before the CIT(A), the CIT(A) confirmed the disallowance on account of excess depreciation of ₹ 143,49,17,000/- and deleted the disallowance of ₹ 125,72,32,479/- on account depreciation on enhanced value of software library. 4. Aggrieved by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f this Tribunal at Chennai and Mumbai and also the decision of Hon'ble High Court at Delhi in support of his contention that the expenditure incurred on production of television 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee. For the sake of brevity, we are not reproducing the findings of CIT (Appeals) in accordance with the judgment of the Hon'ble Supreme Court of India in the case of CIT Vs. K. Y. 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. 9.1. In the case of Zee Media Corporation Ltd., (Formerly known Zee News Limited), Mumbai vs. DCIT, Circle-7(3), Mumbai, the 'G' Bench of Tribunal at Mumbai in ITA.No.1590/Mum/2015 by order dated 12.08.2015 has held as under : 25. We have heard both the parties and perused the orders of the Revenue Authorities as well as the cited precedents and paper book filed before us. The case of the assessee on the merits is that the assessee has a method of valuation of the news items/non fictional in nature, TV programs and the film rights. The details are g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , we direct the AO to delete the relevant addition. b. On the debits relating to the purchases of the TV Programs/Film rights: Assessee amortised the 'inventories' as per the method of accounting consistently followed by him over the years. In fact, the Revenue has consistently allowed the claim in the past. This is for the first time, AO disturbed the claim of the assessee and invoked the provisions of section 32 (ii) of the Act without any sustainable reasoning. We have perused he judgment of Honble High Court of Delhi and the order of the Tribunal of Chennai Bench in the case of M/s Sun TV Networks Ltd (supra). We have also extracted the relevant paragraphs and already placed in this order above. We find similar issue of amortization of the TV Programs/Film rights came up before the Chennai Bench of the Tribunal wherein the issue was decided in favour of the assessee and rejected the AD's proposal to invoke the provisions of section 32(ii) of the Act in respect of the above programs/rights. As such, the Ld DR's argument on the applicability of the AS-26 to the TV Programs and Film rights is not supported by any precedents and therefore, the arguments raised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal expenditure earmarked for creation of news archives could not be treated as a capital expenditure. On the revenue's appeal, the ITAT held as follows:- 12. It is admitted that no separate account was maintained wherein any expenditure was debited which could be earmarked towards creation of News Archives library. The assessee felt a part of footage of the news based on programmes produced has repeat value which could be used for the production of programme in future. The assessee, therefore, estimated 10% expenditure incurred as reasonable to be attributable to the News Archives library. The assessee has been engaged in the production of such programmes since assessment year 1994-95 and all along the cost of production of such expenditure has been treated as revenue expenditure and also allowed by the Department. Learned A.R. has referred to judgment of Hon'ble Supreme Court in the case of Alembic Chemical Works Ltd. vs. CIT177 ITR 377 which laid down that what is capital expenditure and what is revenue are not eternal verities but must needs to be flexible so as to respond to the changing economic realities of business. Viewed in that perspective, we are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the order of AO, while ld. AR of the assessee submitted that this issue is squarely covered in assessee s own case for AY 2007-08 in ITA No. 1265/hyd/2013, vide order dated 16/02/2016. 12. Considered the rival submissions and perused the material on record. In assessee s own case for AY 2007-08 (supa), the coordinate bench has held as under: 9. Having regard to the rival contentions and the material on record as well as the written submissions filed by the Ld. Counsel for the assessee, we find that the first issue before us is about the nature of the asset the 'film software library' i.e., whether it is an intangible or tangible asset and the rate of depreciation allowable thereon ? The rate of depreciation allowable on an asset would depend on the nature of the asset. 10. To adjudicate this issue, we need to go into the facts of the case once again. We find that the assessment was initially completed under section 143(3) of the Act on 31.12.2009 allowing the depreciation on the film library @ 25% treating the same as an intangible asset. The CIT assumed jurisdiction under section 263 of the Act both on the ground of the valuation of the asset as well as on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... course for the commissioner would be not to express any final opinion as regards the controversial points. Similar view was also expressed by the Hon'ble Madras High Court in the case of CIT Vs Seshasayee Paper and Boards Ltd, reported in (2000) 242 ITR 490 (Mad). In the case before us, the fact that the CIT has set aside the whole of the assessment and directed the A.O. to re-do the assessment makes it clear that he was not satisfied with assessee's contentions even on the nature of the asset and the rate of depreciation allowable thereon. Therefore, we do not agree with the finding of the CIT(A) on this issue. 11. Even with regard to the merits of the issue, i.e., the nature of the asset, we find that undisputedly, before its transfer to the assessee, the asset was treated as an 'intangible asset' in the hands of its previous owner, i.e., Shri. Ramoji Rao (HUF) and depreciation thereon was allowed at 25%. We find that the CIT(A), while holding that the AO has exceeded his mandate, has also held that even on merits, the films which are copied on disks cannot be treated as plant. However, he has not given any reasons for holding so, while the reasoning given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tandard and also the judgments relied upon by the AO, we find that an intangible asset can also be treated as plant, provided, it becomes an integral part of the tools used by the entity to carry on its business. In the case before us, the films and TV programmes are essential for the assessee company to carry on its business of telecasting of films and other programmes, but there is no caveat that the assessee company has to telecast only these films and programmes and none other for assessee's business. Further, not only the films and programmes in the 'Film Software Library', but the assessee may also telecast any other programmes or films on its channels. By purchasing the library, the assessee is gaining exclusive right over the asset but this library cannot be held as a tool for carrying on of its business as assessee can carry on its business even without the 'Film Software Library'. The said library only assists in determining the content of the telecast, but does not limit the telecast and is not essential for the operations of the assessee's business and therefore cannot be termed as the tool of the trade. Thus, it fails the functional test adopted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is liable to deduct tax on the said payments and failed to deduct TDS, the AO disallowed the said expenditure of ₹ 101,35,38,405/- u/s 40(a)(ia) of the Act. 18. The CIT(A) deleted the disallowance following the decision of his predecessor in assessee s own case for AY 2006-07. 19. Ld. DR submitted that the CIT(A) was wrong in deleting the addition as the commission amount falls within the ambit of section 194H whether paid directly or indirectly and failure to deduct tax at source calls for disallowance u/s 40(a)(ia) of the Act. 20. Ld. AR besides relying on the decision of CIT(A), relied on the orders of ITAT in its own case. 21. Considered the rival submissions and perused the material on record. Similar issue came for consideration before the coordinate bench of this Tribunal in assessee s own case for AY 2007-08 in ITA No. 1552/Hyd/2010, order dated 10/05/2013, wherein the bench has held as under: 17. At the outset, it has been brought to our notice that this issue is covered by the decisions of the Tribunal in assessee's own case for the assessment year 2006-07 in ITA No. 426/Hyd/2010 dated 9.7.2012, which in turn has followed the still earlier deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eciation @ 60% under the head computers on computer accessories. According to AO, printers, scanners, modems, etc. are not part of computer systems and hence not eligible for depreciation @ 60% and restricted to 15%. Therefore, excess depreciation claim of ₹ 17,61,897/- was disallowed. 23. The CIT(A) following the decision of his predecessor in assessee s own case for earlier years, deleted the disallowance. 24. The ld. DR relied on the order of AO while the ld. AR relied on the decision of coordinate bench in assessee s own case for AY 2002-03 2003-04 in ITA Nos. 1241/H/08 591/H/10, vide order dated 31/10/2013. 25. Considered the rival submissions and perused the material on record. Similar issue came up for consideration in assessee s own case for AY 2002-03 and 2003-04 (supra), wherein the bench has held as under: 14. The only issue in the aforesaid appeal is with regard to the disallowance of depreciation amounting to ₹ 2,30,96,110/- made by the Assessing Officer and confirmed by the CIT (A) on certain equipment and peripherals by treating them as not forming part of computer. 15. Since we have already dealt with the facts quite exhaustively ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... four grounds of appeal, out of which ground Nos. 1 4 are general in nature and ground No. 2 is regarding disallowance of depreciation of ₹ 109.92 crore on non-compete fee. Ground No. 3 is disallowance of ₹ 148,07,48,000/- towards cost of production on TV Serials and programmes. 29.1 The assessee also filed an additional ground of appeal seeking an alternate relief for allowance of the amount of non compete fee as deduction u/s 37(1) or as deferred revenue expenditure. However, during the appeal proceedings, the assessee withdrew the additional ground as not pressed. 30. As regards ground No. 2, the assessee acquired sister concerns M/s Usha Kiron Television (UKT) and M/s Usha Kiron Movies (UKM). In the AY 2007-08 the assessee company entered into a non-compete fee agreement on 30/01/2008 with the aforementioned companies for not competing in the business directly or indirectly for a period of 5 years from the date of agreement. Accordingly, the assessee paid ₹ 670 crores towards non-compete fee and claimed depreciation of ₹ 109.92 crores. The AO observe that Shri Ch. RamojiRao as Chairman of the assessee company holds substantial shares in all the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be considered to be competing with himself. As it is an arrangement between related parties, there is no necessity for payment of non-compete fee. AO further observed that the assessee has entered into agreement for payment of non-compete 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 to make substantial inves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 assessee company as well ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther 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. Only after the issue relating to genuineness of non-compete fee paid and necessity to pay such fee is resolved, AO will decide the allowability of depreciation claimed on such non-compete fee by keeping in view the statutory provision as well as the ratio laid down in the decisions referred to hereinabove and any other decision brought to his notice. It is needless to mention that AO must afford a fair opportunity of hearing to assessee in the matter before deciding the issue. This ground is considered to be allowed for statistical purposes. As the issue in the current AY is materially identical to AY 2008-09, following the decision of coordinate bench in that AY, we remit the issue to the file of AO for adjudicating the same in line with the direction of the coordinate bench in AY 2008-09. This ground is allowed for statistical purposes. 36. As regards ground No. 3, disallowa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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