AY Broadcast Foundation, Thiruvalla V. The ITO, Thiruvalla

ITA 119/COCH/2014

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 81317 (ITAT-COCHIN)
• Duration Of Justice: 4 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-08-2014
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 14-07-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 19-03-2014
• Court: TRIBUNAL
• Department Lawyers: M ANIL KUMAR
• Assessee Lawyers: VENKITACHALAM
• Keywords: Revenue expenditure
• Section: 143(3); 12A; 12AA; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND CHANDRA POOJ ARI, AM I.T.A. NO. 119/COCH/2014 ASSESSMENT YEAR : 2007-08 A.Y. BROADCAST FOUNDATION, PB NO. 24, GA BUILDING, MANJADI P.O., THIRUVALLA. [PAN: AAFCA 3216Q] VS. THE INCOME TAX OFFICER, WARD-1, THIRUVALLA. (ASSESSEE -APPELLANT) (REVENUE-RESPONDEN T) ASSESSEE BY SHRI M.S. VENKITACHALAM, CA REVENUE BY SHRI M. ANIL KUMAR, CIT(DR) DATE OF HEARING 14/07/2014 DATE OF PRONOUNCEMENT 14 /08/2014 O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER DATED 16- 01-2014 PASSED BY THE LD. CIT(A), TRIVANDRUM FOR TH E ASSESSMENT YEAR 2007-08. 2. THE SOLITARY ISSUE WHICH CAME UP FOR OUR CONS IDERATION IS WITH REGARD TO DISALLOWANCE OF ADVANCES RECEIVED AGAINST TIME SLOT S, THOUGH IT WAS CONSIDERED AS INCOME IN ITS ACCOUNTS ORIGINALLY, WAS NOT AN I NCOME AT ALL BUT WAS REPAYABLE TO BE ADJUSTED AS AND WHEN THE TIME SLOTS INVOICES WERE RAISED. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS ENGAGED IN TV BROADCASTING. THE ASSESSMENT WAS ORIGINALLY COMPLE TED U/S. 143(3) OF THE I.T. I.T.A. NO.119/COCH/2014 2 ACT ON 11-11-2009 WHEREIN EXEMPTION WAS GRANTED ON THE BASIS OF REGISTRATION GRANTED TO THE ASSESSEE U/S. 12AA OF THE ACT BY CIT , KOTTAYAM VIDE ORDER C.NO. 305/TECH/(83)/12AA/CIT-KTM/205-06 DATED 19-11-2008 WHICH IS IN CONSEQUENT TO TRIBUNALS ORDER. IN THE MEANTIME, THE GRANTING OF REGISTRATION U/S. 12AA OF THE ACT BY ITAT WAS THE SUBJECT MATTER OF LITIGATIO N BEFORE THE HONBLE HIGH COURT AND THE HONBLE HIGH COURT VIDE JUDGMENT DATE D 22-03-2011 REVERSED THE ORDER OF THE TRIBUNAL AND OPINED THAT THE ASSESSEE WAS NOT ENTITLED FOR REGISTRATION U/S. 12AA OF THE ACT AND THUS THE EARL IER ORDER OF THE CIT, CANCELLING THE REGISTRATION U/S. 12AA WAS RESTORED. ACCORDING LY, THE ASSESSING OFFICER WHILE PASSING THE GIVING EFFECT ORDER TO THE HIGH COURT J UDGMENT, PASSED THE IMPUGNED ASSESSMENT ORDER VIDE ORDER DATED 19-12-2011, DENIE D THE EXEMPTION U/S. 11 OF THE ACT AND BROUGHT INTO TAX THE AMOUNT OF RS. 1.5 CRORES RECEIVED BY THE ASSESSEE AS CONTRACT ADVANCE FOR TELECASTING AND BR OADCASTING THE PROGRAMME BY M/S. BELIEVERS CHURCH INDIA IN THIS ASSESSMENT YEAR . ON APPEAL, THE CIT(A) CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OF FICER. 4. BEFORE US, THE LD. AR SUBMITTED THAT THE ASSE SSEE IS A COMPANY REGISTERED U/S. 25 OF THE COMPANIES ACT ENGAGED IN BROADCASTIN G OF TELEVISION PROGRAMS. IT IS THE ONLY CHANNEL WHICH DO NOT BROADCAST ANY COMM ERCIAL PROGRAMME, OR COLLECT ADVERTISEMENT CHARGES. THE COMPANY WAS GIVE N REGISTRATION U/S. 12A IN ACCORDANCE WITH THE ORDER OF THE COCHIN BENCH OF TH E TRIBUNAL IN I.T.A. NO. 528/COCH/2006 DATED 31/01/2008. THE LD. AR SUBMITTE D THAT IN THE DEPARTMENT I.T.A. NO.119/COCH/2014 3 APPEAL, THE HONBLE HIGH COURT OF KERALA REVERSED T HE ORDER AND REGISTRATION GRANTED WAS WITHDRAWN BY THE CIT, KOTTAYAM AND IN C ONSEQUENCE TO THE WITHDRAWAL OF 12A REGISTRATION BY GIVING EFFECT TO THE ORDER OF THE HONBLE HIGH COURT OF KERALA, THE ASSESSMENT OF THE COMPANY FOR A.Y. 2007-08 WAS REOPENED AND COMPLETED ON 19-12-2011. THE LD. AR SUBMITTED THAT THE ASSESSEE WENT IN APPEAL AGAINST THIS ORDER OF THE ITO ASSESSING THE TOTAL INCOME AT RS.2,42,76,690/- AND THE TOTAL TAX DEMANDED TOGETHE R WITH INTEREST WAS RS.1,28,08,160/- FOR A.Y. 2007-08. 5. THE LD. AR SUBMITTED THAT THE COMPANY MAINTAINED THE BOOKS OF ACCOUNTS ON CASH BASIS. DURING THE A.Y. 2007-08, THE COMPAN Y RECEIVED RS. 1,50,00,000/- AS ADVANCE FOR TIME SLOTS FOR TELECASTING PROGRAMME . IN THE ACCOUNTS OF THE COMPANY IT WAS SHOWN AS INCOME AS THE COMPANY WAS F OLLOWING CASH BASIS AND THE COMPANY WAS HAVING 12A REGISTRATION. IN THE OR IGINAL ASSESSMENT FOR A.Y. 2007-08 COMPLETED U/S. 143(3) OF THE ACT, THERE WAS NO TAX LIABILITY, SINCE THE COMPANY WAS GIVEN EXEMPTION U/S. 12A OF THE ACT. T HE LD. AR SUBMITTED THAT LATER THE ASSESSMENT WAS REOPENED DUE TO CANCELLATI ON OF 12A REGISTRATION. THEREAFTER, THE COMPANY SUBMITTED A REVISED COMPUTA TION STATEMENT SINCE THE ADVANCE RECEIVED ON TIME SLOTS WAS A LIABILITY. HO WEVER, THE AO DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE. I.T.A. NO.119/COCH/2014 4 6. THE LD. AR SUBMITTED THAT IT IS AN UNDISPUTED FA CT THAT THE AMOUNT OF RS.150,00,000/- RECEIVED IN A.Y. 2007-08 WAS ONLY A N ADVANCE AND THE COMPANY WAS ISSUED THE BROADCASTING LICENSE ONLY ON 30-12-2 010 DUE TO WHICH IT COULD NOT RECOGNIZE ANY INCOME TOWARDS TELECASTING OF PROGRAM ME PRIOR TO EARNING OF SUCH INCOME. THEREFORE THE LD. AR CONTENDED THAT THE RE CEIPT WAS NOTHING BUT AN ADVANCE. 7. THE LD. AR SUBMITTED THAT THE AGREEMENT WAS ENTE RED WITH ONE M/S. BELIEVERS CHURCH INDIA WHICH HAD GIVEN ADVANCE OF R S. 1,50,00,000/- IN A.Y. 2007-08 AND THE ADVANCES WERE REPAID BY THE COMPANY IN SUBSEQUENT YEARS. THE LD. AR CONTENDED THAT ALL THESE ESTABLISH THAT THE RECEIPT WAS ONLY AN ADVANCE. 8. THE LD. AR RELIED ON THE FOLLOWING CASE LAW I N SUPPORT OF HIS CONTENTIONS: SBT VS. CIT (158 ITR 102) WHEREIN THE HONBLE SUPR EME COURT HELD THAT CONCEPT OF REAL INCOME MAY HAVE TO BE GIVEN PRECEDE NCE IN COMPUTATION OF INCOME. 9. THE LD. AR CONTENDED THAT HERE THE COMPANY HAD ONLY APPLIED FOR BROADCASTING LICENSE AT THE TIME OF RECEIPT OF ADVA NCE AND THEREFORE NO REAL INCOME WAS EARNED THOUGH IT HAD SHOWN IT AS INCOME IN ITS INCOME AND EXPENDITURE ACCOUNT AND HOW THE COMPANY ACCOUNTED FO R THE RECEIPT IN ITS I.T.A. NO.119/COCH/2014 5 BOOKS WAS ONLY INDICATIVE OF THE NATURE OF RECEIPT AND CANNOT BE THE SOLE DETERMINANT, WHEN OTHER CIRCUMSTANCES SHOW THAT NO INCOME WHATSOEVER WAS EARNED AND NO EFFORT WHATSOEVER WAS EXPENDED BY THE COMPANY FOR EARNING ANY INCOME. R.S. SURYA VS. DCIT (2 ITR 746), WHEREIN THE CHENNA I BENCH OF THE ITAT HELD THAT EVEN WHEN ASSESSEE IS FOLLOWING CASH SYSTEM OF ACCOUNTING ADVANCE RECEIVED COULD NOT BE TREATED AS INCOME, UNLESS AN EVENT HAD HAPPENED WHICH WOULD SHOW THAT THERE WAS ACTUAL EARNING OF INCOME. CIT VS. PUNJAB STAINLESS STEEL INDUSTRIES (CA NO. 5 592 OF 2008 DATED 5/05/2014) WHEREIN THE HONBLE APEX COURT HEL D THAT MEANINGS AND INTERPRETATIONS GIVEN BY ICAI CAN BE A CCEPTED. 10. THE LD. AR SUBMITTED THAT THIS IS CLEARLY APPLI CABLE TO THIS CASE ALSO AND INCOME IS EARNED ONLY WHEN THE PROGRAMME IS ACTUALL Y AIRED BEFORE THE PUBLIC. 11. THE LD. AR ALSO RELIED ON AS 9 ISSUED BY ICAI O N REVENUE RECOGNITION ON COMPLETED SERVICE CONTRACT METHOD WHICH CLEARLY STA TES AS FOLLOWS: REVENUE IS RECOGNIZED WHEN THE SOLE OR FINAL ACT T AKES PLACE AND THE SERVICE BECOMES CHARGEABLE. REVENUE SHOULD BE RECOGNIZED WHEN THE SERVICE IS COMPLETE. FOR ADVERTISING AGEN CIES, MEDIA COMMISSION WILL NORMALLY BE RECOGNIZED WHEN THE REL ATED ADVERTISEMENT OR COMMERCIAL APPEARS BEFORE THE PUBL IC. I.T.A. NO.119/COCH/2014 6 12. THUS THE LD. AR SUBMITTED THAT THE COMPANYS ASSESSMENT FOR A.Y. 2009- 10 WAS COMPLETED U/S. 143(3) OF THE ACT WHEREIN THE REPAYMENT OF ADVANCE RECEIVED FOR TIME SLOTS IN THE EARLIER YEAR WAS DIS ALLOWED AS EXPENDITURE. THE LD. AR CONTENDED THAT ONCE THE REVENUE HAS AGREED THAT REPAYMENT OF ADVANCE IS NOT AN EXPENDITURE, IT CANNOT TAKE A STANCE THAT AD VANCE RECEIVED IS AN INCOME. 13. ON THE OTHER HAND, THE LD. DR RELIED ON THE ORD ER OF THE LOWER AUTHORITIES. FURTHER, HE SUBMITTED THAT THE ASSESSEE HAS SHOWN T HE RECEIPT OF RS. 1.5 CRORES AS CONTRIBUTIONS RECEIVED IN THE INCOME AND EXPENDI TURE ACCOUNT FILED ALONG WITH THE RETURN OF INCOME AND THERE WAS SURPLUS OF INCOM E OVER EXPENDITURE AS PER INCOME AND EXPENDITURE ACCOUNT AND THE SAME WAS BRO UGHT TO TAX BY THE ASSESSING OFFICER. ACCORDING TO THE LD. DR THE ASSE SSEE WAS NOT HAVING VALID REGISTRATION U/S. 12AA OF THE ACT, SO THE SURPLUS F UNDS SHOULD BE TAXED AS INCOME OF THE ASSESSEE. 14. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORD. ACCORDING TO THE LD. AR THE ASSESSEE RECEIVED AN AMOUNT OF RS. 1.5 C RORES AS ADVANCE FROM M/S. BELIEVERS CHURCH INDIA, MANJADI THIRVALLA TO FUND D AY TO DAY ADMINISTRATIVE OPERATIONS AND RUNNING EXPENSES FOR PRODUCTION AND DEVELOPMENT OF TV-VIDEO PROGRAMMES OF THE ASSESSEE THAT IT WOULD BROADCAST AND TELECAST THE PROGRAMME AFTER OBTAINING THE BROADCAST AND TELECAST LICENSE FROM THE MINISTRY OF I.T.A. NO.119/COCH/2014 7 INFORMATION AND BROADCASTING, NEW DELHI. AS PER AG REEMENT DATED 1 ST JANUARY, 2009, , THE AMOUNT WAS ADVANCED TO THE ASSESSEE PRI OR TO THIS AGREEMENT ON 30- 10-2006 AS ADVANCE FOR TELECAST TIME SLOT. FURTHER , THE BELIEVERS CHURCH INDIA HAS CONFIRMED THE ADVANCE VIDE THEIR LETTERS DATED 20 TH FEBRUARY, 2008, 27 TH FEBRUARY, 2008 AND 29 TH FEBRUARY, 2008 AND THERE WAS ALSO A REQUEST FROM T HEM FOR RETURN OF ADVANCE VIDE THESE LETTERS. THE LD. ARS CONTENTION IS THAT THIS AMOUNT IS ONLY RECEIVED AS ADVANCE FOR TELECASTING AND BROADCASTING PROGRAMMES OF M/S. BELIEVERS CHURCH INDIA. SINCE T HERE WAS NO VALID LICENSE OR PERMISSION FROM MINISTRY OF INFORMATION AND BROADCA STING TO TELECAST AND BROADCAST THE PROGRAMMES, IT WAS KEPT WITH THE ASSE SSEE AS ADVANCE ONLY AND BEING SO, THE INCOME IS NOT ACCRUED TO THE ASSESSEE . THE LD. AR SUBMITTED THAT SINCE THE ENTIRE AMOUNT IS RECEIVED AS ADVANCE ONLY , IT CANNOT BE TAXED IN THE ASSESSMENT YEAR UNDER CONSIDERATION. 15. IT IS AN ADMITTED FACT THAT THE ASSESSEE HAS NO VALID REGISTRATION U/S. 12AA OF THE ACT AS PER THE JUDGMENT OF HONBLE HIGH COUR T. THEREFORE, THE ASSESSING OFFICER HAS NO OPTION BUT TO DENY THE EXEMPTION U/S . 11 OF THE I.T. ACT. TO THAT EXTENT, WITHDRAWING OF EXEMPTION U/S. 11 OF THE I.T . ACT BY THE ASSESSING OFFICER WAS RIGHT, BUT AS FAR AS THE ASSESSEE WAS CONCERNED , THE RECEIPT OF ADVANCE IS PART OF THE ASSESSEES BUSINESS. HOWEVER, WE HAVE TO SEE WHETHER THE RECEIPT HAS TAKEN THE CHARACTER OF PART OF THE INCOME OR IT SHOULD BE TREATED AS ADVANCE RECEIPT ONLY. THE AMOUNT RECEIVED BY THE ASSESSEE WAS FOR SPECIFIC PURPOSE, I.E., I.T.A. NO.119/COCH/2014 8 TELECASTING AND BROADCASTING THE PROGRAMMES OF M/S. BELIEVERS CHURCH INDIA. IN THE ASSESSMENT YEAR UNDER CONSIDERATION, THE ASSESS EE HAS NO LICENSE TO TELECAST AND BROADCAST PROGRAMMES. THE ASSESSEE SHOULD HAVE ACTUALLY CREDITED THE AMOUNT OF RS. 1.5 CRORES AS ADVANCE RECEIPT AND IT SHOULD BE RECOGNIZED AS INCOME OF THE ASSESSEE ONLY AFTER CARRYING OUT THE ACTIVITY FOR WHICH IT WAS ADVANCED. THE INCOMINGS AND OUTGOINGS NEED NOT BE R EFLECTED IN THE INCOME AND EXPENDITURE ACCOUNT OF THE ASSESSEE FOR THIS ASSESS MENT YEAR. AT THE END OF THE COMPLETION OF THE PROGRAMME, THE AMOUNT HAS TO BE C REDITED TO THE INCOME AND EXPENDITURE ACCOUNT OF THE ASSESSEE AND IT SHOULD B E TREATED AS INCOME OF THE ASSESSEE. THE AMOUNT RECEIVED AS ADVANCE HAS TO BE TAKEN OUT OF THE COMPUTATION OF INCOME FROM THE INCOME SIDE AND THE MONIES SPENT FOR TELECASTING AND BROADCASTING THE PROGRAMME OF M/S. BELIEVERS CHURCH INDIA, IF IT IS CHARGED TO THE INCOME AND EXPENDITURE ACCOUNT, H AS TO BE TAKEN OUT OF THE COMPUTATION OF INCOME FROM THE EXPENSES SIDE AND TH E INCOME GENERATED FROM THE TRANSACTION TO BE TREATED AS INCOME IN THE YEAR IN WHICH THE PROGRAMME WAS TELECASTED AND BROADCASTED, IF SO. THE EXPENSES IN CURRED FOR TELECASTING AND BROADCASTING THE PROGRAMME OF M/S. BELIEVERS CHURCH INDIA SHOULD BE TREATED AS REVENUE EXPENDITURE IN THE YEAR IN WHICH THE PROGRA MME WAS TELECASTED AND BROADCASTED BY M/S. BELIEVERS CHURCH INDIA. IF IT WAS FOR THE SPECIFIC PURPOSE, THE ADVANCE WAS RECEIVED BY THE ASSESSEE AND IF IT WAS IN RESPONSE TO THE REQUEST THAT THE AMOUNT HAD BEEN GIVEN BY M/S. BELI EVERS CHURCH INDIA TO THE ASSESSEE, THEN IT WAS CLEAR THAT THE INTENTION OF M /S. BELIEVERS CHURCH INDIA AND I.T.A. NO.119/COCH/2014 9 THE ASSESSEE WAS TO TREAT THE MONEY AS ADVANCE TO B E SPENT FOR THE PURPOSE OF TELECASTING AND BROADCASTING THE PROGRAMME. THAT AM OUNT COULD NOT BE SAID TO BE INCOME UNLESS THE ASSESSEE CARRIED OUT THE TELEC ASTING AND BROADCASTING OF THE PROGRAMME OF THE BELIEVERS CHURCH AND IT COULD NOT BE INCLUDED AS PART OF THE ASSESSABLE INCOME OF THE ASSESSEE. IN OUR OPI NION, THE INCOME OF THE ASSESSEE SHOULD BE COMPUTED ON STRICT COMMERCIAL PR INCIPLES. THOUGH THE ASSESSEE IS NOT ENTITLED FOR EXEMPTION U/S. 11 OF T HE I.T. ACT, THE MAIN CHARGING SECTION IS SEC. 4(1) OF THE I.T. ACT WHICH LEVIES I NCOME TAX AS ONLY ONE TAX, ON THE TOTAL INCOME OF THE ASSESSEE AS INCOME U/S. 2 (45) OF THE I.T. ACT. THE INCOME, IN ORDER TO COME WITHIN THE PURVIEW OF THE DEFINITION MUST SATISFY TWO CONDITIONS. FIRSTLY, IT MUST COMPRISE THE TOTAL A MOUNT OF THE INCOME REFERRED TO IN SEC. 5 AND SECONDLY, IT MUST BE PAID IN THE MANN ER LAID DOWN IN THIS ACT. IF EITHER OF THESE CONDITIONS FAILS, THE INCOME WILL N OT FORM PART OF THE TOTAL INCOME THAT CAN BE BROUGHT TO TAX AS HELD BY THE HONBLE S UPREME COURT IN THE CASE OF CIT VS. HARPRASAD & CO. (1975) (99 ITR 118 & 125) A ND TREATMENT GIVEN BY THE ASSESSEE IN ITS BOOKS OF ACCOUNTS IS NOT CONCLUSIVE OR DECISIVE SO AS TO BRING IT INTO TAX AND IN ORDER TO BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF THE ACT AS HELD BY THE HONBLE SUPREME COURT IN THE CASE OF KEDARNATH JUTE MFG. CO. LTD. VS. CIT (82 ITR 363) (SC). 16. IN VIEW OF THE ABOVE DISCUSSION, WE ARE OF THE OPINION THAT THE ASSESSING OFFICER SHALL NOT INCLUDE THE AMOUNT RECEIVED AS AD VANCE AS INCOME OF THE I.T.A. NO.119/COCH/2014 10 ASSESSEE IF IT DOES NOT CONTAIN THE INCOME ELEMENT IN IT. WITH THESE OBSERVATIONS, WE ARE INCLINED TO DIRECT THE ASSESSING OFFICER TO EXAMINE THE ABOVE ISSUE IN THE LIGHT OF THE ABOVE OBSERVATIONS AND DECIDE ACCORDIN GLY. 17. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED ACCORDINGLY ON 14 - 08-2014. SD/- SD/- (N.R.S.GANESAN) (CHANDRA POOJARI) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 14TH AUGUST, 2014 GJ COPY TO: 1. A.Y. BROADCAST FOUNDATION, PB NO. 24, GA BUILDIN G, MANJADI P.O., THIRUVALLA. 2. THE INCOME TAX OFFICER, WARD-1, THIRUVALLA. 3. THE COMMISSIONER OF INCOME-TAX(APPEALS), TRIVAND RUM. 4. THE COMMISSIONER OF INCOME-TAX, TRIVANDRUM. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T. COCHIN