Kal Cables Pvt Ltd., CHENNAI V. ACIT, CHENNAI

ITA 1169/CHNY/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 5989 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-10-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 09-05-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PALANICHAMY
• Assessee Lawyers: DEVANATHAN; K RAMAKRISHNAN
• Keywords: Capital asset; Revenue expenditure; Capital expenditure

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: CHENNAI . , ' , % & BEFORE SHRI ABRAHAM P.GEORGE, ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, JUDICIAL MEMBER ./ ITA NO.1169/MDS/2017 %' ' /ASSESSMENT YEAR: 2009-10 M/S.KAL CABLES PVT. LTD., #229, KUTCHERRY ROAD, MYLAPORE, CHENNAI-600 004. VS. THE ASST. COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE-4(2), CHENNAI-600 034. PREVIOUSLY COMPANY CIRCLE- II(4). [PAN: AACCK 1367 M ] ( ( /APPELLANT) ( )*( /RESPONDENT) ( + / APPELLANT BY : MR.K.RAMAKRISHNAN, FCA & MR.DEVANATHAN, ADV. )*( + /RESPONDENT BY : MR.PALANICHAMY, JCIT + /DATE OF HEARING : 11.10.2017 + /DATE OF PRONOUNCEMENT : 11.10.2017 / O R D E R PER GEORGE MATHAN , JUDICIAL MEMBER : ITA NO.1169/MDS/2017 IS AN APPEAL FILED BY THE ASS ESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEAL S)-8, CHENNAI, IN ITA NO.43/2011-12 DATED 06.03.2017 FOR THE AY 2009- 10. 2. MR.PALANICHAMY, JCIT, REPRESENTED ON BEHALF OF T HE REVENUE AND MR.K.RAMAKRISHNAN, FCA & MR.DEVANATHAN, ADV., REPRE SENTED ON BEHALF OF THE ASSESSEE. ITA NO.1169/MDS/2017 :- 2 -: 3. IT WAS SUBMITTED BY THE LD.AR THAT THE ASSESSEE IS A MULTI SYSTEM OPERATOR RE-DISTRIBUTING THE SIGNALS FROM TELEVISIO N BROADCASTER TO INDIVIDUAL HOMES THROUGH CABLES AND SET TOP BOXES ( IN SHORT STBS) WITH THE HELP OF OTHER CABLE OPERATORS. IT WAS A SUBMIS SION THAT IN THE COURSE OF THE ASSESSMENT, THE ASSESSING AUTHORITY HAD DISA LLOWED AN AMOUNT OF RS.5,07,81,570/- REPRESENTING THE EXPENDITURE INCUR RED BY THE ASSESSEE IN RESPECT OF THE STBS PURCHASED AND WRITTEN OFF IN TH E P&L A/C. IT WAS A SUBMISSION THAT THE ASSESSEE HAD TO BUY AND SUPPLY THE STBS WHICH HAD A COST OF RS.1,388/- EACH. IT WAS A SUBMISSION THAT THE STBS WERE PROVIDED TO EACH INDIVIDUAL HOUSEHOLDS ON THE BASIS OF THE C ABLE CONNECTION TAKEN BY THEM. IT WAS A SUBMISSION THAT DUE TO HIGH COMP ETITION IN CHENNAI, THE ASSESSEE HAD TO PROVIDE THE STBS FREE OF COST T O THE HOUSEHOLDS. IT WAS A SUBMISSION THAT STBS ONCE GIVEN WERE NEVER RE TURN TO THE ASSESSEE AND EVEN WHEN THEY ARE RETURNED, THEY ARE UNUSABLE AS NO NEW CONNECTION WOULD TAKE AN OLD STBS. IT WAS A SUBMIS SION THAT TO MAINTAIN UNIFORMITY IN THE STBS, THE SAME WAS PROVIDED BY TH E ASSESSEE FREE OF COST TO THE HOUSEHOLDS. THE ASSESSEE HAS NOT RECEI VED/COLLECTED ANY MONEY FOR THE STBS NOR WAS THE ASSESSEE COLLECTING ANY DEPOSIT FOR THE SAME. IT WAS A SUBMISSION THAT CONSEQUENTLY SUCH S TBS PURCHASED WAS CONSUMABLE IN THE ASSESSEES BUSINESS, THE ASSESSEE HAD CLAIMED THE SAME AS REVENUE EXPENDITURE. IT WAS A SUBMISSION T HAT THE AO HAD REJECTED THE ASSESSEES CLAIM OF SUCH EXPENDITURE A ND HAD HELD THAT THE STBS WAS AN ASSET OF ENDURING ADVANTAGE TO THE BUSI NESS OF THE ASSESSEE AND CONSEQUENTLY, TREATED THE SAID EXPENDITURE AS C APITAL EXPENDITURE. IT ITA NO.1169/MDS/2017 :- 3 -: WAS A SUBMISSION THAT ON APPEAL, THE LD.CIT(A) HAD ALSO UPHELD THE VIEW OF THE AO. THE LD.AR FURTHER STATED THAT THE STBS ARE BASICALLY DEVICES THAT CONNECTS EXTERNAL SIGNAL SOURCE AND DECODES TH E SIGNAL INTO CONTENTS THAT MAY BE VIEWED ON A TV. THE STBS ARE CONTINUOU SLY EVOLVING AND SOMETIMES REQUIRE TO BE REPLACED. IT WAS A SUBMISS ION THAT THE REGULAR STBS WHICH WERE EARLIER BEING USED AFTER THE INTROD UCTION OF THE DIGITAL SIGNAL HAD TO BE CHANGED TO DIGITAL STBS. IT WAS A SUBMISSION THAT THE STBS BEING AN ELECTRONIC ITEM, THE LIFE OF THE STBS , MANY A TIME, VARY AND THE SAME ARE ALSO TO BE REPLACED IF THE CUSTOMER RE PORTS THE SAME TO BE DAMAGED. IT WAS A SUBMISSION THAT THE SAID STBS DI D NOT GIVE ANY ENDURING BENEFIT TO THE ASSESSEE BUT WAS ONLY AN AP PARATUS WHICH WAS PROVIDED TO THE CUSTOMER FOR THE PURPOSE OF CONVERT ING THE DIGITAL SIGNAL RECEIVED THROUGH THE CABLE TO VIEWABLE FORMAT ON TH E TV. THE STBS WAS SIGNAL SPECIFIC AND STBS PROVIDED BY ONE SERVICE PR OVIDER CANNOT BE USED WITH THE SERVICES PROVIDED BY ANOTHER SERVICE PROVI DER. IT WAS A SUBMISSION THAT THE EXPENDITURE INCURRED BY THE ASS ESSEE ON THE PURCHASE AND PROVIDING OF THE STBS TO THE CUSTOMERS WAS A RE VENUE EXPENDITURE. IT WAS SUBMITTED BY THE LD.AR THAT THE ASSESSEE WAS ONLY IN THE BUSINESS OF THE DISTRIBUTION OF ELECTRONIC SIGNAL FROM THE T ELEVISION BROADCASTERS AND THE STBS PROVIDED BY THE ASSESSEE WAS ONLY FOR THE PURPOSE OF DECODING THE SAID ELECTRONIC SIGNAL. IT WAS A SUBMISSION TH AT STBS WAS GIVEN TO THE CUSTOMERS AND THE ASSESSEE HAVING NO CONTROL OVER S UCH STBS ONCE PROVIDED TO THE CUSTOMERS, THE SAME COULD NOT BE HE LD TO BE A CAPITAL ASSET HAVING ANY ENDURING BENEFIT TO THE ASSESSEE. THE LD.AR PLACED ITA NO.1169/MDS/2017 :- 4 -: RELIANCE ON THE DECISION OF THE HONBLE SUPREME COU RT IN THE CASE OF EMPIRE JUTE CO. LTD., REPORTED IN 124 ITR 001 TO SU BMIT THAT THE COST OF THE STBS WAS LIABLE TO BE ALLOWED AS A REVENUE EXPE NDITURE. THOUGH, THE SAID STBS ARE REQUIREMENT IN THE BUSINESS OPERATION S OF THE ASSESSEE, THE SAID STBS ARE NOT UNDER THE CONTROL OF THE ASSESSEE AND ONCE THE STBS WERE PROVIDED TO THE CUSTOMERS FREE OF COST, THE ST BS ARE MOSTLY NEVER RETURNED. IT WAS A SUBMISSION THAT THE ORDER OF TH E LD.CIT(A) AND THE AO WAS LIABLE TO BE REVERSED. 4. IN REPLY, THE LD.DR SUBMITTED THAT WITHOUT THE S TBS, THE BUSINESS OF THE ASSESSEE COULD NOT FUNCTION. THUS, THE STBS WA S IN THE NATURE OF CAPITAL ASSET. IT WAS A SUBMISSION THAT THE ORDER OF THE LD.CIT(A) AND THE AO WAS LIABLE TO BE CONFIRMED. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. AT TH E OUTSET, IT MUST BE APPRECIATED THAT THERE ARE SOME CASES WHETHER THE E XPENDITURE DOES LOOK LIKE A CAPITAL EXPENDITURE BUT THE EXPENDITURE IS I N EFFECT IN REVENUE IN NATURE. THIS HAS BEEN EXPRESSLY CONSIDERED BY THE HONBLE SUPREME COURT IN THE CASE OF EMPIRE JUTE MILLS CO. LTD., REFERRED TO SUPRA. THE REVENUE EXPENDITURE ARE NORMALLY EXPENDITURE INCURRED IN TH E NORMAL COURSE OF BUSINESS, EXPENDITURES INCURRED TO MAINTAIN BUSINES S, COST OF GOODS PURCHASED FOR RESALE, ETC. CAPITAL EXPENDITURE ARE NORMALLY EXPENDITURE INCURRED FOR INCREASING QUALITY OF THE FIXED ASSETS OR FOR INCREASING USEFUL LIFE OF THE FIXED ASSET OR THE CAPACITY, EFFICIENCY OR OPERATING ECONOMY OF A ITA NO.1169/MDS/2017 :- 5 -: PARTICULAR FIXED ASSET. EXPENDITURE CANNOT BE SAID TO BE A CAPITAL EXPENDITURE, JUST BECAUSE, THE EXPENDITURE IS A LAR GE AMOUNT OR THE AMOUNT IS PAID IN LUMP SUM. IN THE PRESENT CASE, I T SHOULD BE APPRECIATED THAT THOUGH THE TOTAL EXPENDITURE CLAIMED IS RS.5,0 7,81,570/- THE ACTUAL COST OF EACH STBS IS ONLY ABOUT RS.1,388/-. EARLY C ABLE TV WAS RECEIVED THROUGH A PLAIN CABLE SYSTEM. SUBSEQUENTLY ON ACCO UNT OF PILFERAGE IN THE CABLE SYSTEM, THE SIGNAL STARTED TO BE ENCODED WHIC H REQUIRED STBS BEING THE SPECIALIZED EQUIPMENT FOR DECODING SUCH SIGNALS . THEN TO IMPROVE CLARITY DIGITALIZATION TOOK PLACE AND THE DIGITAL S TBS CAME INTO EXISTENCE. AT EACH LEVEL ON ACCOUNT OF THE COMPETITION, IMPROV EMENTS AND INNOVATIONS, KEEPS ON BEING BUILT. ADMITTEDLY, THE COMPETITION IN THE CABLE TV BUSINESS ITSELF IS VERY HIGH AND UNLESS QU ALITY IS PROVIDED, AN OPERATOR WOULD NOT BE ABLE TO MAINTAIN ITS CUSTOMER BASE. IT IS AN ADMITTED AND UNDISPUTED FACT BY BOTH THE AO AND TH E LD.CIT(A) THAT THE STBS ARE PROVIDED FREE OF COST BY THE ASSESSEE TO I TS SUBSCRIBERS. IT IS ALSO AN ADMITTED AND UNDISPUTED FACT BY BOTH THE AO AND THE LD.CIT(A) THAT THE ASSESSEE HAS NO CONTROL OVER THE STBS SUP PLIED TO THE CUSTOMERS. IT IS ALSO AN UNDISPUTED FACT THAT WITHOUT THE STBS , THE SIGNAL DISTRIBUTED BY THE ASSESSEE CANNOT BE DECODED FOR VIEWING BY IT S CUSTOMERS. THE ASSESSEE IS A DISTRIBUTOR OF BROAD CAST SIGNALS NOT STBS. CONSEQUENTLY, THE STBS IS IN EFFECT AN EXPENDITURE I.E. TO BE INC URRED BY THE ASSESSEE FOR THE PURPOSE OF ITS BUSINESS IN SO FAR AS NO CUSTOME R WOULD BE WILLING TO PURCHASE THE STBS WHEN SUCH STBS ARE BEING PROVIDED FREE BY OTHER SERVICE PROVIDERS. FURTHER, JUST BECAUSE THE ASSES SEE HAS PROVIDED THE ITA NO.1169/MDS/2017 :- 6 -: STBS TO A PARTICULAR CUSTOMER ALSO DOES NOT MEAN TH AT THE CUSTOMER IS GOING TO BE PERMANENTLY WITH THE ASSESSEE. THIS IS BECAUSE, IF THE CUSTOMER RECEIVES A BETTER OFFER FROM A COMPETITOR, THE CUSTOMER IMMEDIATELY JUMPS FROM THE ASSESSEE TO THE COMPETIN G SERVICE PROVIDER. A CUSTOMER WHO CHANGES HIS ACCOMMODATION OR WHO SHI FTS FROM THE ASSESSEE TO ANOTHER SERVICE PROVIDER OR WHO DECIDED TO DISCONTINUE THE CABLE TV WOULD ALSO NOT NORMALLY RETURN THE STBS TO THE ASSESSEE. CONSEQUENTLY, IT WOULD HAVE TO BE HELD THAT ONCE TH E ASSESSEE PROVIDES THE STBS TO THE CUSTOMER THE ASSESSEE HAS ALREADY L OST CONTROL OVER THE STBS AND THE SAME WOULD BE AN EXPENDITURE IN THE AS SESSEES ENDS. THIS BEING SO, WE ARE OF THE VIEW THAT THE COST OF THE S TBS IS LIABLE TO BE ALLOWED AS REVENUE EXPENDITURE AS THE ASSESSEE DOES NOT DERIVE ANY ENDURING BENEFIT AND ENHANCEMENT OF THE QUALITY OR QUANTITY OR ECONOMIC CONDITION ON ACCOUNT OF STBS. IT CAN ONLY FACILITAT E HIS BUSINESS AND IT HAS NO CONTROL OVER THE BUSINESS NOR INCOME GENERATING ASSET IN THE HANDS OF THE ASSESSEE. CONSEQUENTLY, THE SAME IS LIABLE TO BE HELD ONLY AS A REVENUE EXPENDITURE AND WE DO SO. IN THESE CIRCUMS TANCES, THE AO IS DIRECTED TO ALLOW THE ASSESSEES CLAIM OF REVENUE E XPENDITURE IN RESPECT OF THE COST OF THE STBS PURCHASED BY THE ASSESSEE F OR SUPPLYING TO HIS CUSTOMERS. ITA NO.1169/MDS/2017 :- 7 -: 6. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE STANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON OCTOBER 11, 2017, AT CHENNAI. SD/- SD/- ( . ) ( ABRAHAM P GEORGE ) /ACCOUNTANT MEMBER ( ' ) (GEORGE MATHAN) % /JUDICIAL MEMBER /CHENNAI, 2 /DATED: OCTOBER 11, 2017. TLN + )%34 54 /COPY TO: 1. ( /APPELLANT 4. 6 /CIT 2. )*( /RESPONDENT 5. 4 )%% /DR 3. 6 ( ) /CIT(A) 6. ' /GF