FUTURE MEDIA (I) LTD, MUMBAI V. ACIT 8(1), MUMBAI

ITA 1134/MUM/2012

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0759 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 4 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-07-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 25-02-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 17-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PAWAN KU MAR BEERLA
• Keywords: Depreciation; Revenue expenditure

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI . . , , , BEFORE SHRI A.D. JAIN , JUDICIAL MEMBER AND SHRI N.K . BILLAIYA, A CCOUNTANT M EMBER / I .T.A. NO S . 1134 & 1135 /MUM/201 2 ( / ASSESSMENT YEAR S : 2007 - 08 & 2008 - 09 A N D / I .T.A. NO. 5404 /MUM/2013 ( / ASSESSMENT YEAR : 2009 - 10 M/S. FUTURE MEDIA (INDIA) LTD., GROUND FLOOR, KNOWLEDGE HOUSE, OFF. JOGESHWARI VIKHROLI LINK ROAD, SHYAM NAGAR, JOGESHWARI (E), MUMBAI - 400 060 / VS. THE ACIT - 8(1), AAYAKAR BHAVAN, MUMBAI - 400 020 ./ ./ PAN/GIR NO. : AAACF 9652Q ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY: SHRI VIPUL JOSHI / RESPONDENT BY : SHRI PAWAN KUMAR BEERLA / DATE OF HEARING : 06 . 0 7 .2015 / DATE OF PRONOUNCEMENT :10. 0 7 .2015 ITA. NO. 1134/ 35 / M 2012 & ITA NO. 5404/M/13 2 / O R D E R PER N.K. BILLAIYA, AM: T H ESE THREE APPEAL S ARE BY THE ASSESSEE FOR ASSESSMENT YEAR S 2007 - 08 , 2008 - 09 & 2009 - 10 PREFERRED AGAINST THREE SEPARATE ORDERS OF THE LD. CIT(A) . IN ALL THESE YEARS, THE ASSESSEE HAS TAKEN COMMON GROUNDS OF APPEAL THEREFORE ALL THESE APPEALS WERE HEARD TOGETHER AND DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE . 2. THE APPEALS FOR A.YRS 2007 - 08 AND 2008 - 09 ARE LATE BY 4 DAYS. THE ASSESSEE HAS GIVEN REASONS SUPPORTED BY AFFIDAVIT. 3. WE HAVE CAREFULLY CONSIDERED THE CONTENTS OF THE AFFIDAVIT. WE FIND THAT THE ASSESSEE WAS PREVENTED BY REASONABLE AND SUFFICIENT CAUSE FOR NOT FILING THE APPEAL ON TIME, ACCORDINGLY, THE DELAY IS CO NDONED. 4. THE COMMON GRIEVANCE IN ALL THESE YEARS RELATE TO THE DISALLOWANCE OF THE CLAIM OF DEPRECIATION ON THE TANGIBLE ASSET AMOUNTING TO RS. 3 , 1 2 ,5 0 ,000/ - . THE ALTERNATIVE CLAIM OF THE ASSESSEE IS THAT IF NO DEPRECIATION IS ALLOWED ON TANGIBLE ASSET , THEN THE COMPENSATION PAID SHOULD BE ALLOWED AS DEFERRED REVENUE EXPENDITURE. 5. BRIEFLY STATED THE FACT OF THE MATTER IS THAT THE ASSESSEE IS IN THE BUSINESS OF ADVERTISING. THE RETURN FOR THE YEAR WAS SELECTED FOR SCRUTINY ASSESSMENT. DURING THE COU RSE OF THE SCRUTINY ASSESSMENT PROCEEDINGS AND ON PERUSAL OF THE DEPRECIATION CHART, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS CLAIMED DEPRECIATION OF RS.3,12,50,000/ - ON INTANGIBLE RIGHT. THE AO FOUND THAT THE ASSESSEE HAS TREATED THE COMPENSAT ION PAID TO M/S. PANTALOON RETAIL (INDIA) LTD.,(PRIL) AS INTANGIBLE ASSETS AND HAS CLAIMED DEPRECIATION THEREON. THE ASSESSEE WAS ASKED TO EXPLAIN THE ALLOWABILITY ITA. NO. 1134/ 35 / M 2012 & ITA NO. 5404/M/13 3 OF DEPRECIATION CLAIMED. THE ASSESSEE FILED A REPLY DT. 20.10.2009 AND STATED THAT VIDE AG REEMENT DT. 19.9.2007 PURSUANT TO THE MEMORANDUM OF UNDERSTANDING DT. 30.12.2006 EXECUTED BETWEEN PRIL AND THE ASSESSEE BY WHICH PRIL HAD AGREED TO GRANT/ASSIGN VARIOUS EXCLUSIVE ADVERTISING AND MARKETING RIGHTS ON A PRINCIPAL TO PRINCIPAL BASIS IN RESPECT OF ADVERTISING SPACES AND ADVERTISING MEDIA AVAILABLE IN THE PRIL STORES. IT WAS SUBMITTED TO THE AO THAT THE ASSESSEE HAS ACQUIRED THE SAID MARKETING RIGHTS OF COMMERCIAL NATURE BEING INTANGIBLE ASSETS AND THEREFORE CLAIM OF DEPRECIATION SHOULD BE ALLOWED. IN SUPPORT, THE ASSESSEE RELIED UPON CERTAIN JUDICIAL DECISIONS OF THE TRIBUNAL. 5.1. THE CLAIM OF THE ASSESSEE DID NOT FIND ANY FAVOUR WITH THE AO WHO WAS OF THE FIRM BELIEF THAT SINCE THE ASSESSE E IS NOT THE OWNER OF THE ADVERTISING RIGHT, NO DEPRECIATION CAN BE ALLOWED TO THE ASSESSEE. THE ALTERNATIVE CLAIM OF THE ASSESSEE WAS DISMISSED BY THE AO WHO OBSERVED THAT THE ASSESSEE HAS PAID RS. 25 CRORES WITHOUT DEDUCTING TAX AT SOURCE THEREFORE THE SAME CANNOT BE ALLOWED AS PER THE PROVISIONS OF SEC. 40(A)(IA) OF THE ACT. 6. AGGRIEVED BY THIS, THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) BUT WITHOUT ANY SUCCESS. THE LD. CIT(A) IN HIS ORDER WHILE DECIDING THE GRIEVANCE OF THE ASSESSEE HAS DISTINGUISHED THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF TECHNO SHARES & STOCKS LTD. 327 ITR 323. WHILE NOT ACCEPTING THE DECISION OF THE HONBLE SUPREME COURT (SUPRA), THE LD. CIT(A) OBSERVED THAT THE JUDGEMENT OF THE HONBLE SUPREME COUR T CONFINED TO THE RIGHT OF THE MEMBERSHIP CONFERRED UPON THE MEMBER UNDER THE BSE MEMBERSHIP. THE SAID RIGHT OF MEMBERSHIP IS A BUSINESS OR COMMERCIAL RIGHT. THIS JUDGEMENT SHOULD NOT BE UNDERSTOOD TO MEAN THAT EVERY BUSINESS OR COMMERCIAL RIGHT WOULD C ONSTITUTE A ITA. NO. 1134/ 35 / M 2012 & ITA NO. 5404/M/13 4 LICENSE OR A FRANCHISES IN TERMS OF SEC. 32(1)(II) OF THE ACT. THE LD. CIT(A) ALSO DECLINE TO INTERFERE WITH THE FINDINGS OF THE AO SO FAR AS THE ALTERNATIVE PLEA OF DEFERRED REVENUE EXPENDITURE IS CONCERNED. 7. AGGRIEVED BY THIS, THE ASSESSEE IS BEFORE US. 8. THE LD. COUNSEL FOR THE ASSESSEE REITERATED WHAT HAS BEEN STATED BEFORE THE LOWER AUTHORITIES. THE LD. COUNSEL ONCE AGAIN PLACED RELIANCE ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF TECHNO SHARES & STOCK (SUPRA ), HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS H INDUSTAN COCO COLA BEVERAGES PVT. LTD. 331 ITR 192, AREVA T AND D INDIA LTD. VS DCIT AND ON THE DECISION OF THE TRIBUNAL MUMBAI BENCH IN THE CASE OF WEIZMANN FOREX LTD. 51 SOT 525. REFERRING TO THE VA RIOUS CLAUSES OF THE COMPENSATION AGREEMENT DT. 19 TH SEPTEMBER, 2007, THE LD. COUNSEL CONCLUDED BY SAYING THAT WHAT THE ASSESSEE HAS ACQUIRED IS NOTHING S H ORT OF A COMMERCIAL RIGHT WHICH IS AN INTANGIBLE ASSET AS PER THE VARIOUS DECISIONS OF THE HONBLE SUPREME COURT /HIGH COURT AND THE TRIBUNAL, THEREFORE, THE ASSESSEE IS ELIGIBLE FOR THE CLAIM OF DEPRECIATION. 9. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY SUPPORTED THE ORDER OF THE REVENUE AUTHORITIES. 10. WE H AVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ORDERS OF THE LOWER AUTHORITIES. WE HAVE ALSO CONSIDERED THE JUDICIAL DECISIONS RELIED UPON BY THE ASSESSEE AND BROUGHT TO OUR NOTICE D URING THE COURSE OF THE PROCEEDINGS AND WITH THE ASSISTANCE OF THE LD. COUNS EL, WE HAVE PERUSED VARIOUS CLAUSES OF THE COMPENSATION AGREEMENT DT. 19.9.2007 . THE ENTIRE DISPUTE REVOLVES AROUND WHETHER THE COMPENSATION PAID BY THE ASSESSEE TO PRIL FITS WITHIN THE FOUR WALL OF INTANGIBLE ASSETS ELIGIBLE FOR ITA. NO. 1134/ 35 / M 2012 & ITA NO. 5404/M/13 5 DEPRECIATION U/S. 32(1)( II) OF THE ACT. INTANGIBLE ASSETS ACQUIRED ON OR AFTER THE 1 ST DAY OF APRIL 1998 ARE ELIGIBLE FOR DEPRECIATION. ALL WE HAVE TO SEE IS WHETHER THE IMPUGNED COMMERCIAL RIGHT TAKEN BY THE ASSESSEE FROM PRIL IS ELIGIBLE FOR DEPRECIATION OR NOT. IT IS PROVID ED IN THE AGREEMENT DT. 19.9.2007 THAT PRIL HAS AGREED TO GRANT/ASSIGN FUTURE MEDIA VARIOUS EXCLUSIVE MARKING RIGHTS ON A PRINCIPAL - TO - PRINCIPAL BASIS IN RESPECT OF THESE ADVERTISING RIGHTS IN THE FORM OF ADVERTISING SPACES AND ADVERTISING MEDIA AVAILABLE IN THE PRIL STORE. 10.1. UNDER THE HEAD DEFINITIONS AND INTERPRETATION ADVERTISING RIGHTS HAS BEEN DEFINED AS UNDER: ADVERTISING RIGHTS MEANS ALL TELEVISION, RADIO AND INTERNET RIGHTS, AS WELL AS VARIOUS PLACES, THINGS AND MATERIAL, INCLUDING, BUT NOT LIMITED TO WALL SPACES, TROLLEYS, CARRY BAGS, BILL BACKS, UNUSED SPACES ON FLOORS, LIFT WALLS/ PANELS, WASHROOMS/ RESTROOMS, PARKING, CORRIDORS, GLASS PANELS, AVAILABLE WITH PRIL IN THE PRIL STORES WHICH CAN BE USED FOR MARKETING OR PROMOTIONAL PURPOS ES, BY WAY OF DISPLAY, SIGNAGES, LOGOS, ADVERTISING, ETC. AND IDENTIFIED BY PRIL AS CAPABLE OF BEING USED FOR ADVERTISING. 10.2. UNDER THE HEAD RIGHTS DUTIES AND OBLIGATION S , IT IS PROVIDED THAT FUTURE M ED I A SHALL HAVE THE FOLLOWING RIGHTS DUTIES AND OBL IGATION S: (A) SUBJECT TO THE PROVISIONS OF THIS CLAUSE 4, FUTURE MEDIA SHALL BE FREE TO BE ENGAGED BY WHICHEVER CLIENTS IT DEEMS FIT, PROVIDED THAT ALL OF FUTURE MEDIAS DEALINGS WITH ANY CLIENT SHALL BE AT AN ARMS LENGTH BASIS (FM CLIENTS) AND SUBJECT TO THE RIGHTS OF PRIL UNDER THIS AGREEMENT. (B) FUTURE MEDIA SHALL USE ON ITS OWN ACCOUNT OR RENT OR LET ON HIRE, ANY OF THE SAID ADVERTISING RIGHTS OR PROVIDE SUCH SERVICES IN ANY PRIL STORES TO FM CLIENTS FOR ANY LAWFUL USE OR PURPOSES BEST SUITED TO T HEIR NEEDS FOR MARKETING OF THE FM CLIENTS PRODUCTS. (C) FUTURE MEDIA SHALL BE FREE TO CHARGE ANY RENTS, SPACE HIRING CHARGES, MARKETING FEES OR ANY OTHER SERVICE FEES OF ANY KIND FROM FM CLIENTS, AND SHALL BE ENTITLED TO ITA. NO. 1134/ 35 / M 2012 & ITA NO. 5404/M/13 6 UNINTERRUPTEDLY ENJOY AND COMMER CIALLY EXPLOIT THE BENEFITS ACCRUING IN RESPECT THEREOF FOR ITSELF. (D) FUTURE MEDIA MAY DO ALL SUCH ACTS AND DEEDS AS MAY BE REQUIRED FOR EFFECTIVELY EXPLOITING THE EXCLUSIVE RIGHTS OR PROVIDING THE SERVICES. 11. AFTER GIVING A THOUGHTFUL CONSIDERATION TO THE AFOREMENTIONED CLAUSES OF THE AGREEMENT, A PERUSAL OF THE STATEMENT OF ACCOUNTS OF THE ASSESSEE SHOW S THAT THE ONLY SOURCE OF INCOME OF THE ASSESSEE IS FROM ADVERTISEMENT. THEREFORE, IT CAN BE SAFELY CONCLUDED THAT BY TAKING SUCH COMMERCIAL RIGHT FROM PRIL, THE ASSESSEE IS DOING ITS BUSINESS WHICH ALSO MEANS THAT THE ASSESSEES BUSINESS TOTALLY DEPEND S ON THE ADVERTISEMENT RIGHT ACQUIRED FROM PRIL. BY ACQUIRING THIS COMMERCIAL RIGHT, THE ASSESSEE IS DOING ITS BUSINESS. THEREFORE, IN THE LIGHT OF THE DECISIONS REFERRED TO ELSEWHERE, WE HAVE NO HESITATION TO HOLD THAT THE RIGHT ACQUIRED BY THE ASSESSEE IS AN INTANGIBLE ASSET ELIGIBLE FOR DEPRECIATION. 11.1. IT IS CLEAR THAT THE ASSESSEE HAS PAID THE CONSIDERATION FOR THE PURPOSE OF ITS BUSINESS IN THE FIE L D OF ADVERTISING BY ACQUIRING THE RIGHTS AND OTHER ADVANTAGES ATTACHED TO THE ADVERTISEMENT SPACE . FOR THE SAKE OF COMPLETENESS , THE SPECIFIC WORDS USED IN SEC. 32(1)(II) OF THE ACT REVEAL THE SIMILARITY IN THE SENSE THAT ALL THE INTANGIBLE ASSET S SPECIFIED ARE TOOLS OF THE TRADE WHICH FACILITATE THE ASSESSEE CARRYING ON THE BUSINESS. THEREFORE, IN OUR CONSIDERED OPINION, THE EXPRESSION ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE WOULD INCLUDE SUCH RIGHTS WHICH CAN BE USED AS A TOOL TO CARRY ON THE BUSINESS. IF THIS TE S T IS APPLIED, THEN THE RIGHTS ACQUIRED BY THE ASSESSEE UNDER THE AGREEMENT WOULD FALL WITHIN THE EXPRESSION MENTIONED ABOVE , SINCE THE RIGHT ACQUIRED BY THE ASSESSEE WAS USED BY IT AS A TOOL FOR ENHANCING ITS BUSINESS. THEREFORE, WE SET ASIDE THE FINDINGS OF THE LD. CIT(A) AND DIRECT THE AO TO ALLOW THE CLAIM OF DEPRE CIATION ON THE RIGHT SO ACQUIRED AS INTANGIBLE ASSET. ITA. NO. 1134/ 35 / M 2012 & ITA NO. 5404/M/13 7 12. SINCE WE HAVE ALLOWED THE CLAIM OF DEPRECIATION, THE ALTERNATIVE CLAIMS OF THE ASSESSEE BECOME OTIOSE. 13. IN THE RESULT, ALL THE APPEALS FILED BY THE ASSESSEE ARE ALLOWED. OR DER PRONOUNCED IN THE OPEN COURT ON 10 TH JU LY , 2015 SD/ - SD/ - ( A.D. JAIN ) (N.K. BILLAIYA) /JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED : 10 TH JU LY , 2015 . . ./ RJ , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . / BY ORDER, //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI