Dy.CIT, Circle-16(2), Hyderabad V. M/s Deccan Chronicle Holdings Ltd., Hyderabad

ITA 1249/HYD/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 87263 (ITAT-HYDERABAD)
• Duration Of Justice: 7 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-01-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 25-06-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAMAKRISHNA BANDI
• Assessee Lawyers: S RAMA RAO
• Keywords: Capital asset; Depreciation; Cost of acquisition; Revenue expenditure; Capital expenditure
• Section: 37

Judgement Text

ITA NOS.1247 TO 1249 OF 2014 DECCAN CHRONICLE HOLDI NGS LTD HYDERABAD PAGE 1 OF 13 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SMT.ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NOS.1247 TO 1249/HYD/2014 (ASSESSMENT YEARS: 2007-08 TO 2009-10) DY. COMMISSIONER OF INC OME TAX, CIRCLE 16 (2) HYDERABAD VS. M/S. DECCAN CHRONICLE HOLDINGS LTD HYDERABAD PAN: AABCD 6737 D (APPELLANT) (RESPONDENT) DEPARTMENT BY: SHRI RAMAKRISHNA BANDI, DR ASSESSEE BY: SHRI S. RAMA RAO, AD VOCATE DATE OF HEARING: 08/12/2014 DATE OF PRONOUNCEMENT: 30/01/2015 O R D E R PER SMT. ASHA VIJAYARAGHAVAN, J.M. THESE ARE THE APPEALS FILED BY THE REVENUE, DIRECT ED AGAINST THE ORDER OF THE CIT (A)-V HYDERABAD FOR THE A.YS 2 007-08 TO 2009-10. ITA NOS.1247 & 1248/HYD/2014 A.YS 2007-08 & 2008- 09 COMMON ISSUES FCCB & DEBENTURE ISSUE EXPENSES: 2. THE COMMON GROUND OF APPEAL RAISED BY THE DEPART MENT FOR BOTH THE A.YS 2007-08 & 2008-09 AS FOLLOWS: GROUND NOS.2 & 3 2. THE CIT (A) ERRED IN ALLOWING EXPENDITURE ON F CCB AND DEBENTURE ISSUE U/S 35D CONSIDERING THE EXPENDITURE AS PUBLIC ISSUE. 3. THE CIT(A) ERRED IN ALLOWING THE APPEAL ON EXPENDIT URE ON FCCB AND DEBENTURE ISSUE U/S.35D ON THE BASIS THAT DEPARTMENT ACCEPTED IN THE EARLIER YEAR A.Y. 2006-0 7, WHEREAS FOREIGN CURRENCY CONVERTIBLE BONDS IS INVES TMENT ITA NOS.1247 TO 1249 OF 2014 DECCAN CHRONICLE HOLDI NGS LTD HYDERABAD PAGE 2 OF 13 THROUGH SEBI IN FOREIGN CURRENCY WHICH CONSTITUTES CAPITAL AND HENCE CAPITAL EXPENDITURE. 3. WE FIND THAT THE ASSESSING OFFICER HAD DISALLOWE D THE FCCB & DEBENTURE ISSUE EXPENSES IN THE AY 2006-07 AND THE CIT(A) ALLOWED THE SAME. WE FIND THAT THE DEPARTMENT DID NOT FILE FURT HER APPEAL AGAINST THE ORDER OF THE LD CIT (A) IN A.Y 2006-07. HENCE SINCE THE I TAT HAS HELD IN VARIOUS DECISIONS THAT THE DEPARTMENT CANNOT CONTEST/AGITAT E THE SAME ISSUES FOR SUBSEQUENT YEARS, IF THEY ACCEPTED THE ORDER OF THE CIT (A) IN THE EARLIER YEAR (I.E. 2006-07), WE ARE OF THE OPINION THAT THE CIT (A) HAS RIGHTLY HELD THAT THE FCCB AND DEBENTURE ISSUES UNDER SECTION 35D ARE TO BE ALLOWED. THE RELEVANT PORTION IS THE CIT (A)S ORDER IN A.Y 2006 -07 IS REPRODUCED HEREUNDER: THE FACTS ARE THAT THE APPELLANT INCURRED AN EXPEN DITURE OF RS.10,49,79,022/- ON THE DEBENTURE AND FCCB ISSUE. IN THE COMPUTATION OF INCOME, THE APPELLANT CLAIMED 1/5 TH OF THIS AS ALLOWABLE EXPENDITURE UNDER SECTION 35D. BY GIVING THE FOLLOWING REASONS, THE ASSESSING OFFICER DISALLOWED THE SAME: 6 THE ASSESSEE COMPANY HAS INCURRED EXPENDITURE OF RS.10,49,79,022/- ON ACCOUNT OF EXPENDITURE ON DEBE NTURE AND FCCB ISSUE. THE ASSESSEE COMPANY IN ITS COMP0UTATI ON OF INCOME HAS CLAIMED AS UNDER: 1/5 TH OF MISC. EXPENSES ALLOWABLE NU/S.35D NOT DEBITED TO P&L 05-06 DURING THE COURSE OF SCRUTINY, THE ASSESSEE WAS AS KED TO SUBSTANTIATE ITS CLAIM. THE ASSESSEE COMPANY VIDE LETTER DATED 15.12.2008 SUBMITTED ON 22.12.2008 HAS STATED AS UN DER: DURING THE CURRENT FINANCIAL YEAR UNDER CONSIDERAT ION, THE COMPANY INCURRED DEBENTURE AND FCCB ISSUE EXPENDITU RE OF RS.10,49,79,022/- 1/5 TH OF THIS EXPENDITURE AMOUNTING TO RS.2,09,95,804/- WAS WRITTEN OFF UNDER SECTION 35D READ WITH SECTION 37 OF THE INCOME TAX ACT FROM THE A.Y. 2006 - 07ONWARDS. THE ASSESSEE DURING THIS FINANCIAL YEAR HAS BORROWE D FOREIGN CAPITAL IN FULLY CONVERTIBLE FOREIGN CURRENCY CONV ERTIBLE BONDS WHICH IS ZERO COUPON CONVERTIBLE BONDS DUE O N 2010 ITA NOS.1247 TO 1249 OF 2014 DECCAN CHRONICLE HOLDI NGS LTD HYDERABAD PAGE 3 OF 13 OF 54,33,000 US$. THE ASSESSEE HAS ENTERED INTO AG REEMENT WITH M/S. J.P. MORGAN SECURITIES LTD AND HAS RAISED RS.242,34,26,290/-. AS PER AGREEMENT J.P. MORGAN S ECURITIES LTD., HAS AGREED TO BRING FOREIGN PRIVATE EQUITY (P E) FOR DECCAN CHRONICLE HOLDINGS AND HAS SUBMITTED THAT 2.85 PER CENT OF THE AGGREGATE PRINCIPAL AMOUNT OF THE BONDS. SUCH FEE SHALL BE DEDUCTED FROM THE SUBSCRIPTION MONIES FOR THE BONDS . THE TOTAL RECEIPT FOR FCCB, IS NET OF THE PAYMENTS MADE IN LONDON. THE FOREIGN CURRENCY MONIES RECEIVED IS NET OF PAYM ENTS TO M/S. J.P MORGAN SECURITIES LTD., LONDON. THE ASSESSEE F URTHER SUBMITTED THAT THE PAYMENTS IS FROM FOREIGN BRANCH OF M/S. J.P. MORGAN SECURITIES LTD., LONDON, HENCE, NO TDS WAS D EDUCTED AS THE RECEIPT OF THE TOTAL AMOUNT FROM THE FOREIGN EQUITY WAS NET OF THIS PAYMENT. ON VERIFICATION IT IS SEEN THAT AS PER AGREEMENT J. P. MORGAN SECURITIES LTD., HAS RECEIVED 1539627 US$ AS A FEE. THE ASSESSEE HAS SUBMITTED THAT THE PRIVATE EQUITY WAS FACILITATED BY J.P. MORGAN SECURITIES LTD.,LONDON. THAT IS TO SAY THAT THE NET RECEIPT FOR FCCB ISSUE IS FOREIGN CURRENCY CONVERTI BLE BOND IS NET OF COMMISSION/BROKERAGE PAID. THIS EXPENDITURE IS ALREADY CLAIMED BY THE ASSESSEE, HENCE 35D IS NOT APPLICABL E IN THIS CASE. HENCE, THE EXPENDITURE ATTRIBUTABLE TO FCCB IS ALRE ADY EXCLUDED IN THE RECEIPTS. NO EXPENDITURE/ALLOWANCE CAN BE GI VEN IN THIS TRANSACTION. FOR THE REASONS CITED ABOVE, 35D CANN OT BE ALLOWED AND HENCE THE CLAIM OF THE ASSESSEE IS BEING DISALL OWED. 4. THE LD CIT (A) HELD AS FOLLOWS: 6.1 DURING APPEAL PROCEEDINGS, THE APPELLANT STATED THAT DURING THE YEAR THE COMPANY INCURRED AN EXPENDITURE OF RS.2.59 CRORES ON DEBENTURE ISSUE AND RS.7.91 CRORES ON FOR EIGN CURRENCY CONVERTIBLE BONDS. THIS TOTAL EXPENDITURE AMOUNTING TO RS.10.50 CRORES WAS ADJUSTED AGAINST THE SHARE PREM IUM ACCOUNT. BEING DEFERRED REVENUE EXPENDITURE, THE C LAIM WAS MADE UNDER SECTION 35D OF THE ACT AND 1/5 TH OF THE EXPENDITURE WAS CLAIMED. THE FOLLOWING WRITTEN SUBMISSIONS WER E GIVEN BY THE APPELLANT: THE AO IN PAGE 3 OF THE ORDER HAS STATED THAT 2.85 PERCENT OF THE AGGREGATE PRINCIPAL AMOUNT OF FCCB BONDS AND SUCH F EE SHALL BE DEDUCTED FROM THE SUBSCRIPTION MONIES OF THE BONDS . THE GROSS PROCEEDS OF THE ISSUE WAS RS.242 CRORES AND THE NET PROCEEDS ITA NOS.1247 TO 1249 OF 2014 DECCAN CHRONICLE HOLDI NGS LTD HYDERABAD PAGE 4 OF 13 WAS RS.234 CRORES, DIFFERENCE RS.7.91 CRORES WAS PA ID TOWARDS ISSUE EXPENSES. THE AO FURTHER STATES THAT THE NE T RECEIPT FOR FCCB BONDS IS NET OF COMMISSION/BROKERAGE PAID AND SINCE THIS EXPENDITURE IS ALREADY CLAIMED BY THE ASSESSEE, SEC 35D IS NOT APPLICABLE. THIS IS AN INCORRECT CONCLUSION, THE COMPANY HAS AC COUNTED FOR THE GROSS PROCEEDS OF RS.242 CRORES UNDER THE HEAD FCCB BONDS A/C, ISSUE EXPENDITURE OF RS.7.91 CRORES WAS REDUCED IT FROM THE SECURITIES PREMIUM ACCOUNT AS IT IS PERMIT TED U/S 78 OF THE COMPANIES ACT IN THE RESERVES & SURPLUS SIDE OF THE BALANCE SHEET AND NOT BY WAY OF DEBIT IN THE PROFIT & LOSS A/C. IN THE COMPUTATION OF INCOME THE COMPANY HAS SEPARA TELY CLAIMED THE DEDUCTION OF 1/5 TH OF THE EXPENDITURE OF RS.209 LAKHS. HENCE THE CONCLUSION OF THE AO THAT THE EXP ENDITURE IS A DOUBLE CLAIM I.E., ONCE DEBITED IN THE PROFIT & LOS S ACCOUNT AND THE SECOND TIME IN THE COMPUTATION OF INCOME IS INC ORRECT. 6.2 I HAVE CONSIDERED CAREFULLY THE FACTS AND CIRCU MSTANCES. THE ASSESSING OFFICER HAS NOT STATED ANYWHERE THAT THE DEDUCTION UNDER SECTION 35D IS NOT ALLOWABLE. RATH ER THE ONLY REASON FOR MAKING THE ADDITION IS THAT THE APPELLAN T HAS CLAIMED DOUBLE DEDUCTION I.E., ONCE BY EXCLUDING THE EXPEND ITURE FROM THE RECEIPT AND SECONDLY BY WAY OF DEDUCTION UNDER SECTION 35D. IN THE PRESENT CASE, I FIND THAT THE ASSESSIN G OFFICER IS FACTUALLY INCORRECT IN STATING THAT A PORTION OF TH E EXPENSE HAS TO BE DEBITED TO THE P&L A/C. NONE OF THE EXPENSE FIN DS A PLACE IN THE P&L A/C. THE EXPENSE IN QUESTION IS CAPITAL IN NATURE AND CANNOT BE TAKEN TO THE P&L A/C. THE EXPENSES HAVE BEEN TAKEN DIRECTLY TO THE BALANCE SHEET AS IS CLEARLY S EEN FROM THE STATEMENT OF ACCOUNTS SUBMITTED THE APPELLANT. ONC E THE FUNDAMENTAL PRESUME OF THE ASSESSING OFFICER IS INC ORRECT, IT IS CLEAR THAT THE APPELLANT HAS NOT CLAIMED ANY DOUBLE DEDUCTION; RATHER IT HAS BEEN CLAIMED ONLY ONCE. MOREOVER, TH E ISSUE OF ACTUAL ALLOWABILITY OF DEDUCTION U/S.35D IS NOT THE SUBJECT MATTER OF DISALLOWANCE. THEREFORE, KEEPING IN VIEW THE AB OVE FACTS AND CIRCUMSTANCES, THE CLAIM OF THE APPELLANT IS ALLOWA BLE AND THE ADDITION IS ORDERED TO BE DELETED. 5. HENCE, WE DISMISS GROUND NOS. 2 & 3 FOR THE A.YS 2007-08 AND 2008- 09. GROUND NO.4 4. THE CIT (A) OUGHT TO HAVE CONSIDERED THAT THE E XPENDITURE ON ISSUE OF QUALIFIED INSTITUTIONAL BUYERS ARE NOT PUBLIC ISSUE . ITA NOS.1247 TO 1249 OF 2014 DECCAN CHRONICLE HOLDI NGS LTD HYDERABAD PAGE 5 OF 13 6. WITH RESPECT TO GROUND NO.4 FOR THE AY 2008-09, WE FIND THAT THE AO HAS NOT DISALLOWED FOR THE AY 2006-07 & 2007-08. HO WEVER, THE AO HAS DISALLOWED THE EXPENDITURE ON THE ISSUE OF QUALIFI ED INSTITUTIONAL BUYERS FOR THE AY 2008-09 WHICH HAS BEEN ALLOWED BY THE CIT(A) HOLDING AS UNDER: 5. I HAVE GONE THROUGH THE FACTUAL AND LEGAL CONTEN TIONS OF THE APPELLANT IN SUPPORT OF ITS ARGUMENT THAT THE D EDUCTION WAS CLAIMED U/S.35D R.W.S. 37 I.E., BOTH U/S.35D AND 37 . I AGREE WITH THE ARGUMENT OF THE APPELLANT THAT THE LANGUAGE USE D IN S.35D IS SO PLAIN AND UNAMBIGUOUS THAT THE ONLY CONDITION LA ID DOWN IN THAT SECTION IS THAT THE ISSUE SHOULD BE OFFERED FO R PUBLIC SUBSCRIPTION AND THE MODE OF PLACEMENT IS IMMATERIA L. THUS, THE ONLY ISSUE FOR CONSIDERATION IS WHETHER QIB CAN BE CALLED PUBLIC OR NOT. AFTER A CAREFUL AND COMPREHENSIVE CONSIDER ATION OF THE RELEVANT PROVISIONS OF COMPANY LAW, SECURITIES CONT RACT (REGULATION) RULES, SEBI GUIDELINES/INSTRUCTIONS, I AM OF THE CONSIDERED OPINION THAT QIBS CONSTITUTE PUBLIC AN D ACCORDINGLY, THE SUBSCRIPTION MADE BY THE WOULD AMOUNT TO PUBLIC SUBSCRIPTION. IN THIS VIEW OF THE MATTER AND ALSO CONSIDERING THE FACTS WITH REGARD TO THE UTILITY OF FUNDS RAISED TH ROUGH QIB ISSUE, I HOLD THAT THE ISSUE EXPENDITURE, TO THE EXTENT ATTR IBUTABLE TO THE FUNDS UTILIZED FOR EXTENSION OF THE APPELLANTS UND ERTAKINGS, IS ELIGIBLE FOR DEDUCTION U/S.35D. SO FAR AS THE REMA INING FUNDS, UTILIZED FOR MODERNIZATION AND WORKING CAPITAL REQU IREMENTS OF THE APPELLANTS BUSINESS ARE CONCERNED, I HAVE CONSIDER ED BOTH FACTUAL AND LEGAL SUBMISSIONS OF THE APPLICANT, IN SUPPORT OF ITS CONTENTION THAT THE EXPENDITURE WAS IN THE NATURE O F REVENUE EXPENDITURE SINCE THE PRIMARY OBJECT AND INTENT OF RAISING THESE FUNDS WAS TO MEET THE OPERATIONAL REQUIREMENTS, IN ORDER TO RUN THE BUSINESS MORE EFFICIENTLY AND PROFITABLY. THE HONBLE HIGH COURT OF DELHI, AFTER ANALYZING PLETHORA OF CASE-LA W ON THIS SUBJECT, HAD LAID DOWN CERTAIN BROAD GUIDELINES, IN THE CASE OF J.K. SYNTHETICS, TO DECIDE WHETHER A PARTICULAR EXP ENDITURE IS CAPITAL OR REVENUE IN NATURE. TESTED AGAINST THESE BROAD LEGAL PRINCIPLES, I AM OF THE OPINION THAT THERE IS CONSI DERABLE FORCE IN THE ARGUMENTS OF THE APPELLANT COMPANY THAT THE EXP ENDITURE CLAIMED BY IT CLEARLY FALLS IN THE REVENUE FIELD. THESE GUIDELINES WERE IMPLIEDLY APPROVED BY THE HONBLE SUPREME COUR T, IN VIEW OF THE FACT THAT THE SLP FILED AGAINST THIS DECISIO N WAS DISMISSED. THERE IS ALSO MERIT IN THE ARGUMENT OF THE APPELLAN T COMPANY THAT THE FACTS OF ITS CASE ARE DISTINGUISHABLE FROM THOS E IN THE CASE OF BROOKEBOND, FOR THE DETAILED REASONS SUBMITTED BY I T, AND THEREFORE ITS CLAIM CANNOT BE DENIED BY RELYING ON THAT DECISION. IT WAS FURTHER CLAIMED THAT THOUGH THE ENTIRE EXPEN DITURE WAS ALLOWABLE IN ONE YEAR U/S.37, THE SAME WAS TREATED AS DEFERRED REVENUE EXPENDITURE AND CLAIMED OVER FIVE YEARS, ST ARTING FROM ITA NOS.1247 TO 1249 OF 2014 DECCAN CHRONICLE HOLDI NGS LTD HYDERABAD PAGE 6 OF 13 AY 2007-08. THE CONCEPT OF DEFERRED REVENUE EXPEND ITURE IS NOW LEGALLY RECOGNIZED BY VARIOUS JUDICIAL AUTHORIT IES AND IN FACT, THIS WAS UPHELD EVEN IN THE CASE OF THE APPELLANT B Y MY PREDECESSOR, WHILE DECIDING THE APPEAL FOR AY 2006- 07. IN VIEW OF THE ABOVE FACTS, I HOLD THAT THE EXPENDITURE OF RS.2,07,00,112/- CLAIMED FOR AY 2008-09 IS ALLOWABLE U/S.35D AND 37. AS THE CLAIM OF THIS EXPENDITURE U/S.35D R.W.S. 37 IS IN O RDER, THE DISALLOWANCE ON THIS ACCOUNT IS DELETED. 7. WE FIND THAT DURING THE YEAR 2007-08, THE COMPAN Y INCURRED DEBENTURE EXPENSES OF RS.2.07 CRORES AND QIB ISSUE EXPENDITUR E OF RS.8.28 CRORES, BOTH TOTALING TO RS.10.35 CRORES. THE EXPENDITURE REFERR ED TO ABOVE OF RS.10.35 CRORES WAS ADJUSTED AGAINST THE SHARE PREMIUM ACCOU NT AS PER THE PROVISION OF COMPANIES ACT. HOWEVER, THE EXPENDITURE BEING DE FERRED REVENUE EXPENDITURE FALLS WITHIN THE AMBIT OF SECTION 35D R .W.S. 37 OF THE I.T. ACT WHICH IS ELIGIBLE TO BE CHARTED TO PROFIT AND LOSS A/C. A CCORDINGLY AS PER THE PROVISIONS OF SECTION 35D OF THE I.T. ACT, 1/5 TH OF THE QIB ISSUE EXPENDITURE I.E. RS.207.00 LAKHS WAS WRITTEN OFF. QUALIFIED INSTITUT IONAL BUYERS (QIBS) ARE A CLASS OF INVESTORS AS A PART OF THE LARGE INVESTOR COMMUNITY AND THE COMPANIES SOUGHT FOR QIB ISSUES BECAUSE THE FUNDS CAN BE RAIS ED WITHIN A SHORT SPAN. THIS IS AN EXTREMELY IMPORTANT INVESTMENT FOR LARGE R INVESTORS AND SINCE THE BUYERS ARE ONLY A CLASS OF INVESTORS, THE ISSUE OF SHARES TO QIB HAVE BEEN CONSIDERED AS PUBLIC ISSUE. THE EXPENSES IN CONNECT ION WITH PUBLIC ISSUE OF SHARES OR DEBENTURES OF THE COMPANY ARE ALLOWABLE. RELIANCE IS PLACED ON CIT VS. SHREE SYNTHETICS LTD (162 ITR 819 (MP). HENCE O N THE MERITS OF THE ISSUE, THE QIB EXPENDITURE CAN BE TREATED AS REVENUE EXPEN DITURE AND ELIGIBLE FOR DEDUCTION U/S 35D OF THE I.T. ACT IS CONFIRMED. HEN CE ON MERITS OF THE ISSUE AS WELL AS THE FACT THAT THE SAME ISSUE HAS BEEN ALLOW ED IN THE EARLIER YEARS AND THE DEPARTMENT CANNOT CAME UPON IN APPEALS IN THE S UBSEQUENT YEARS WOULD BE THE REASON TO DISMISS THE DEPARTMENTAL APPEAL. WE CONFIRM THE ORDER OF CIT(A) WITH RESPECT TO QUALIFIED INSTITUTIONAL BUYE RS EXPENSES AND DISMISS THE DEPARTMENTAL APPEAL ON THIS ISSUE. IN THE RESULT, THE DEPARTMENTAL APPEAL FOR THE AY 2007-08 AND 2008-09 ARE DISMISSED. ITA NOS.1247 TO 1249 OF 2014 DECCAN CHRONICLE HOLDI NGS LTD HYDERABAD PAGE 7 OF 13 ASSESSMENT YEAR 2009-10 8. THE FIRST GROUND IS GENERAL IN NATURE. WITH RES PECT TO SECOND GROUND THAT THE CIT(A) ERRED IN ALLOWING THE CLAIM OF EXPENDIT URE ON ACCOUNT OF THE EDITORIAL CONTENT AND BRAND RIGHT EXPENDITURE AMOUN TING TO RS.90.80 LACS AS REVENUE EXPENDITURE EVEN THOUGH THE EXPENSES WERE I NCURRED FOR ACQUISITION OF RIGHT HAVING ENDURING BENEFIT AS SUCH CAPITAL IN NATURE, THE ISSUE HAS BEEN DEALT WITH IN THE AY 2006-07, WHICH IS AS FOLLOWS: THE AO HELD AS BELOW: THE ASSESSEE HAS PAID RS.9.08 CRORES AS CONTENT RI GHTS TO M/S. ASIAN AGE HOLDINGS LTD. THE ASSESSEE WAS ASKE D TO SUBMIT THE DETAILS AND IT HAS SUBMITTED VIDE ITS SU BMISSIONS DATED 15.12.2008 AS UNDER: ADVANCES PAID TO AAHL TOWARDS PURCHASE OF PAST EDI TORIAL CONTENT WAS REFLECTED AS RECEIVABLE FROM AAHL, PART OF THESE PAYMENTS WERE SUBSEQUENTLY CAPITALIZED AS BRAND 8S EDITORIAL CONTENT PURCHASE UNDER THE GROUP MISCELLANEOUS EXP ENDITURE TO BE WRITTEN OFF IN THE FINANCIAL YEAR 2005-06. T HESE AMOUNTS ARE OFFERED AS INCOME IN AAHL IN EARLIER YEARS WHIC H WAS CAPITALIZED IN DCHL BOOKS IN CURRENT YEAR. ON SCRUTINIZATION, IT WAS FOUND THAT THESE EXPENDIT URES WERE NOT MADE DURING THE RELEVANT FINANCIAL YEAR, THESE PAYMENTS WERE MADE FOR PURCHASE OF CONTENT AND BRAND RIGHTS OF ASIAN AGE HOLDINGS LTD., NEWSPAPER COMPANY IN DELHI, WHIC H WAS SUBSEQUENTLY ACQUIRED BY DECCAN CHRONICLE HOLDINGS LTD. WHILE SCRUTINY PROCEEDINGS IT WAS FOUND THAT THE AS SESSEE HAS NOT TAKEN THIS AS AN INTANGIBLE CAPITAL ASSET. THE Y HAVE TAKEN UNDER THE HEAD AS MISCELLANEOUS EXPENDITURE TO BE W RITTEN OFF UNDER THE HEAD CURRENT LIABILITIES AND PROVISIONS. AS PER PROFIT & LOSS ACCOUNT, UNDER THE HEAD SALES AND ADMINISTRA TIVE EXPENSES RS.45.20 LACS UNDER THE COMPOSITE HEAD OF MISCELLANEOUS EXPENDITURE THEY HAVE BEEN CLAIMED AS REVENUE EXPENDITURE. AS THESE EXPENDITURES HAVE NOT BEEN CLAIMED U/S.35A , NOR CAPITALIZED UNDER THE HEAD ASSETS, IT CANNOT BE TAK EN AS REVENUE EXPENDITURE FOR THE RELEVANT FINANCIAL YEAR . HENCE, AN ITA NOS.1247 TO 1249 OF 2014 DECCAN CHRONICLE HOLDI NGS LTD HYDERABAD PAGE 8 OF 13 AMOUNT OF RS.45.20 LACS IS DISALLOWED, NOT BEING A REVENUE EXPENDITURE. 8.1 THE CIT (A) HELD AS FOLLOWS: DURING APPEAL PROCEEDINGS, THE APPELLANT CONTENDED THAT IT HAD PAID RS.9.08 CRORES FOR CONTENT RIGHTS TO M/S. ASIA N AGE HOLDINGS. THIS AMOUNT WAS TAKEN TO THE BALANCE SHE ET AND THE COMPANY ADOPTED AN ACCOUNTING POLICY TO WRITE OFF I TS EXPENDITURE OVER A PERIOD OF 10 YEARS. IN VIEW OF THE ABOVE, THE SAID EXPENDITURE WAS BEING WRITTEN OFF EVERY YEAR. IT WAS STATED THAT THE AMOUNT COULD BE TAKEN HAS DEFERRED REVENUE EXPENDITURE AND ALLOWED OR IT COULD BE CAPITALIZED AS AN INTANGIBLE ASSET SO AS TO ALLOW AMORTIZATION @ 25%. THE FOLLOWING ARE THE IMPORTANT PORTIONS OF THE ARGUMEN TS OF THE APPELLANT : THE COMPANY ADOPTED AN ACCOUNTING POLICY TO WRITE OFF THIS EXPENDITURE OVER A PERIOD OF 10 YEARS I.E. 120 MONT HS, KEEPING IN VIEW THE UTILITY OF SUCH BRAND RIGHT AND EDITORIAL CONTENT WHICH AMOUNTED TO RS.45,20,000/- AND FORMED PART OF THE MISCELLANEOUS EXPENDITURE WRITTEN OFF WHICH WAS DEBITED TO PROFIT AND LOSS ACCOUNT. THE AO DISALLOWED THE EXPENDITURE ON THE GROUNDS TH AT THE EXPENDITURE HAS NOT BEEN CLAIMED U/S.35A.. IT IS PERTINENT TO NOTE ARE EPHEMERAL AND TRANSITORY IN NATURE IN AS M UCH AS THEY ARE A PART OF A CONTINUOUS PROCESS AND NEED TO BE E XPENDED IN ORDER TO GENERATE AND INCREASE THE BRAND RECALL AND SUSTAIN IT IN THE MINDS OF CUSTOMER. THE SUPREME COURT IN THE CASE OF ALEMBIC CHEMICAL WORKS CO LTD VS. CIT (1989) 177 IT R 377 HAS ITSELF OBSERVED THAT THE IDEA OF ONCE FOR ALL PAYMENT AND ENDURING BENEFIT ARE NOT TO BE TREATED AS SOM ETHING AKIN TO STATUTORY CONDITIONS; NOR ARE THE NOTIONS OF CA PITAL OR REVENUE A JUDICIAL FETISH. WHAT IS CAPITAL EXPEN DITURE AND WHAT IS REVENUE ARE NOT ETERNAL VERITIES BUT MUST N EED TO BE FLEXIBLE SO AS TO RESPOND TO THE CHANGING ECONOMIC REALITIES OF BUSINESS. THE EXPRESSION ASSET OR ADVANTAGE OF AN ENDURING NATURE, WAS EVOLVED TO EMPHASIZE THE ELEMENT OF A SUFFICIENT DEGREE OF DURABILITY APPROPRIATE TO THE CONTEXT. THE EXPENDITURE IS ESSENTIALLY REVENUE IN NATURE AN D THE DECISION TO TREAT THE SAME AS DEFERRED REVENUE ONLY REPRESENTS A MANAGEMENT DECISION TAKEN IN VIEW OF THE MAGNITUD E OF THE EXPENDITURE INVOLVED. THERE HAVE BEEN A SLEW OF RE CENT JUDGMENTS OF VARIOUS BENCHES OF THE INCOME-TAX APPE LLATE ITA NOS.1247 TO 1249 OF 2014 DECCAN CHRONICLE HOLDI NGS LTD HYDERABAD PAGE 9 OF 13 TRIBUNAL WHEREIN THE ABOVE ISSUE HAS BEEN ADDRESSED DIRECTLY AND ALMOST UNIVERSALLY THE DECISION HAS BEEN IN FAV OUR OF THE ASSESSEES. MORE PARTICULARLY REFERENCE MAY BE MADE IN THIS CONTEXT TO THE FOLLOWING JUDGMENTS:- AMAR RAJA BATTERIES LTD. V ACIT[(2004) 91 ITD 280 (HYD)] JCIT V. MODI OLIVETTI LTD [(2005)4 SOT 859 (DELHI)] ACIT VS. MEDICAMEN BIOTECH LTD [(2005) 1 SOT 347 (DELHI)] HERO HONDA MOTORS LTD V. JOINT COMMISSIONER OF INCO9ME TAX [(2005) CHARAK PHARMACEUTICALS V. JCIT [(2005) 4SOT 393 (MUMBAI)] ALTERNATIVELY, THE ACQUISITION COSTS COULD HAVE BEE N CAPITALIZED UNDER THE HEAD FIXED ASSETS AS INTANGIB LE ASSETS AND AMORTIZED OVER A PERIOD OF TIME AT A RATE OF 25 %. IF THE INTANGIBLE ASSET WAS AMORTIZED U/S.32, THE CHARGE T O PROFIT AND LOSS ACCOUNT WOULD BE RS.227 LACS INSTEAD OF RS .45.20 LACS. 5.2 I HAVE CAREFULLY CONSIDERED THE FACTS AND EVIDENCE. THE APPELLANT HAS NOT SHOWN THIS ASSET I N THE BALANCE SHEET. THEREFORE, IT CANNOT CLAIM DEPRECIA TION ON THE SAME. THE APPELLANT HAS INSISTED THAT THE EXPE NDITURE IS CLASSIFIED AS DEFERRED REVENUE EXPENDITURE, IN VIEW OF THE FACT THAT IT CANNOT BE CLASSIFIED AS AN INTANGIBLE ASSET UNDER SECTION 35A AND THE BENEFITS OF THIS EXPENSE ARE AV AILABLE OVER A PERIOD OF MANY YEARS. 5.2.1 IN ORDER TO UNDERSTAND WHETHER THE ACCOUNTIN G TREATMENT GIVEN BY THE APPELLANT IS CORRECT OR NOT, ONE HAS TO UNDERSTAND WHAT EXACTLY IS THE MEANING OF DEFERRED REVENUE EXPENDITURE. 5.2.2 DEFERRED REVENUE EXPENDITURE IS ESSENTIALLY AN ACCOUNTING CONCEPT DENOTING EXPENDITURE, FOR WHI CH A PAYMENT HAS BEEN MADE OR A LIABILITY INCURRED, WHIC H IS ESSENTIALLY REVENUE IN NATURE BUT WHICH FOR VARIOUS REASONS (QUANTUM, PERIOD OF EXPECTED FUTURE BENEFIT, CONSID ERATIONS OF IMPACT ON THE BOTTOM LINE ETC) AND ALSO ON THE PRESUMPTION THAT THE SAME WILL RESULT IN BENEFIT S OVER A SUBSEQUENT PERIOD OR PERIODS IS SPREAD OUT AND WRIT TEN OFF OVER A PERIOD OF TIME. ITA NOS.1247 TO 1249 OF 2014 DECCAN CHRONICLE HOLDI NGS LTD HYDERABAD PAGE 10 OF 13 DEFERRED REVENUE EXPENDITURE CAN COMPRISE DIVERSE COMPONENTS OF EXPENDITURE AND MANIFEST ITSELF IN TH E ACCOUNTS IN A WIDE VARIETY OF WAYS. FOR INSTANCE IN RECENT YEARS, THE RISING DEMAND CONSEQUENT UPON THE INCRE ASED PURCHASING POWER IN THE HANDS OF THE CONSUMERS HAS LED, THE BUSINESS AND INDUSTRIAL WORLD TO INCUR MAJOR EX PENDITURES INTER-ALIA ON ADVERTISEMENT, SALES PROMOTION ETC WI TH A VIEW TO ENHANCE THE VISIBILITY OF THEIR PRODUCTS AND THE REBY INCREASE THEIR TOPLINE. SUCH EXPENDITURE INVARIABL Y REPRESENTS EITHER OUTLAYS ON A MAJOR ADVERTISING CA MPAIGN UNDERTAKEN IN DIFFERENT MEDIA WITH A VIEW TO ENHANC E THE VISIBILITY OR MODIFY THE IMAGE OF A PRODUCT; HOLDIN G OF CONTESTS TO EXPAND THE REACH AND PROMOTE SALES, CELEBRITY ENDORSEMENTS, ONE-TIME SPONSORSHIP OR MEGA EVENTS, DEALERSHIP INCENTIVES AND OTHER SUCH SIGNIFICANT SA LES PROMOTION INITIATIVES WHICH GO TO INCREASE AND EXPA ND THE BRAND RECALL OF THE PRODUCTS OF A PARTICULAR COMPAN Y [SANJEEVA NARAYAN; THE CHARTERED ACCOUNTANT, MAY 20 06, 1626]. ALTHOUGH THE NATURE OF SUCH EXPENDITURE IS ENTIRELY REVENUE, KEEPING IN VIEW THE FACT THAT THE BENEFITS ARISING THEREFROM ARE EXPECTED TO BE DERIVED OVER A PERIOD OF TIME, S TRETCHING SOMETIMES OVER SEVERAL ACCOUNTING PERIODS, THE BUSI NESS WORLD HAS BEEN PRONE TO TREAT SUCH EXPENDITURE AS A DEFERRED REVENUE EXPENDITURE AND CONSEQUENTLY HAS BEEN AMORTIZING THE SAME OVER THE EXPECTED TIME PERIOD O VER WHICH THE BENEFITS ARE LIKELY TO ACCRUE THERE FROM. ACCORDINGLY ONLY A PROPORTION OF THE SAME IS AMORTI ZED IN THE PROFIT AND LOSS ACCOUNT BUT AN APPROPRIATE ADJUSTME NT IS MADE IN THE COMPUTATION OF INCOME WHEREBY THE ENTIR E EXPENDITURE IS CLAIMED AS ALLOWABLE REVENUE EXPENDI TURE. 5.2.3 HOWEVER, COMING TO THE INCOME TAX ACT, FUNDAMENTALLY, ONLY TWO KINDS OF EXPENSES ARE EXPLI CITLY RECOGNIZED I.E., CAPITAL AND REVENUE. THE FORMER I S NOT DEBITED TO THE P&L A/C AND IS INEXPLICABLY LINKED T O AN ASSET, FOR WHICH DEPRECIATION IS ALLOWED EVERY YEAR. ON T HE OTHER HAND, REVENUE EXPENDITURE IS ALLOWED IN ONE FINANCI AL YEAR. 5.2.4 THE SUPREME COURT IN THE CASE OF ALEMBIC CHEMICAL WORKS CO. LTD VS. CIT (1989) 177 ITR 377 HAS ITSELF OBSERVED THAT THE IDEA OF ONCE FOR ALL PAY MENT AND ENDURING BENEFIT ARE NOT TO BE TREATED AS SOMETHI NG AKIN TO STATUTORY CONDITIONS; NOR ARE THE NOTIONS OF CAPIT AL OR REVENUE A JUDICIAL FETISH. WHAT IS CAPITAL EXPEN DITURE AND WHAT IS REVENUE ARE NOT ETERNAL VERITIES BUT MUST N EED TO BE FLEXIBLE SO AS TO RESPOND TO THE CHANGING ECONOMIC REALITIES OF BUSINESS. THE EXPRESSION ASSET OR ADVANTAGE OF AN ITA NOS.1247 TO 1249 OF 2014 DECCAN CHRONICLE HOLDI NGS LTD HYDERABAD PAGE 11 OF 13 ENDURING NATURE WAS EVOLVED TO EMPHASIZE THE ELEME NT OF A SUFFICIENT DEGREE OF DURABILITY APPROPRIATE TO THE CONTEXT. THUS WHILE, FOR THE PURPOSE OF THE ISSUE UNDER CONS IDERATION, THE TEST OF THE ENDURING BENEFIT FAILS AT THE INITI AL STAGE ITSELF, AND EVEN IF THE SAID TEST WERE TO BE EXPLICITLY APP LIED IT CANNOT BE SAID THAT THE SAID EXPENDITURE IS OF A CA PITAL NATURE. FURTHER, NO CAPITAL ASSETS COME INTO BEING AS A RESULT OF THE SAME AND CONSEQUENTLY THE SAME CANNOT BE CLASSIFIED AS A CAPITAL EXPENDITURE. THE EXPENDITU RE IS ESSENTIALLY REVENUE IN NATURE AND THE DECISION TO T REAT THE SAME AS DEFERRED REVENUE ONLY REPRESENTS A MANAGEME NT DECISION TAKEN IN VIEW OF THE MAGNITUDE OF THE EXPE NDITURE INVOLVED. FOR THE PURPOSE OF ALLOWABILITY OF ANY E XPENDITURE UNDER THE INCOME-TAX ACT 1961, WHAT IS MATERIAL IS THE CLASSIFICATION BETWEEN THE CAPITAL AND REVENUE AND THE SAME DOES NOT RECOGNIZE OF ANY CONCEPT OF DEFERRED REVEN UE EXPENDITURE. 5.2.5 IN CASE OF BAJAJ SEVASHRAM LIMITED VS DY.CIT (2006) 280 ITR 480 (RAJ), THE HONBLE RAJASTHAN HIG H COURT HELD THAT EXPENDITURE INCURRED FOR ADVERTISEMENT DU RING A YEAR CAN BE DEBITED IN PARTS OVER SEVERAL YEARS. T HE ASSESSEES POLICY OF SPREADING OVER THE EXPENSES FO R A NUMBER OF YEARS WAS IN ORDER. 5.2.6 COMING TO THIS SPECIFIC EXPENSE IN QUESTION, THE FIRST AND FOREMOST POINT IS THAT THE ASSESSING OFFICER HAS RECOGNIZED THE EXPENSE TO BE PROPER AND FOR BUSINES S PURPOSE. IN OTHER WORDS, IT IS ALLOWABLE UNDER SEC TION 37 OF THE ACT AS BEING FOR BUSINESS PURPOSE, ALTHOUGH WHE THER IT IS REVENUE OR CAPITAL HAS TO BE DECIDED. THEREFORE, T HE FIRST CONCLUSION IS THAT THE EXPENSE HAS TO BE ALLOWED BE ING FOR BUSINESS PURPOSE. THE ONLY QUESTION WHICH, THEREFO RE, IS A SUBJECT MATTER OF DEBATE IS WHETHER THE ENTIRE EXPE NSE IS TO BE ALLOWED AS REVENUE EXPENDITURE IN ONE FINANCIAL YEAR OR TO BE CAPITALIZED AS AN INTANGIBLE ASSET WITH THE ALLO WANCE OF DEPRECIATION OR IT IS TO BE TREATED AS GENUINE AND FOR BUSINESS PURPOSE, COMPLETELY DISALLOWING THE SAME I S INCORRECT. 5.2.7 THE APPELLANT HAS NOT SHOWN THIS EXPENSE AS AN ASSET IN THE BALANCE SHEET. THEREFORE, DEPRECIAT ION CANNOT BE ALLOWABLE ON IT. WITH REGARD TO THE NATU RE OF EXPENSE, IT IS TO BE SEEN THAT THE APPELLANT ACQUIR ED THE BRAND THE ASIAN AGE AND RIGHTS OVER PAST EDITORIA L CONTEST FOR A CONSIDERATION OF RS.9.80 CRORE. THERE IS NO DOUBT ABOUT THE FACT THAT THE BRAND AS WELL AS THE PAST E DITORIAL ITA NOS.1247 TO 1249 OF 2014 DECCAN CHRONICLE HOLDI NGS LTD HYDERABAD PAGE 12 OF 13 CONTEST WILL HAVE BENEFITS PERTAINING TO THE APPELL ANT FOR MORE THAN ONE FINANCIAL YEAR. 5.3 IN VIEW OF THE AFOREMENTIONED JUDGMENTS OF THE VARIOUS COURTS, IT WOULD NOT BE PROPER TO DEBIT THE ENTIRE AMOUNT IN ONE YEAR AS IT WOULD VIOLATE THE MATCHING PRINCIPLE. ON THE OTHER HAND, IT IS CLEAR THAT THE BENEFITS OF THE EXPENSE WILL ACCRUE TO THE APPELLANT OVER MANY FINANCIAL YEARS. BUT, IT CANNOT BE QUANTIFIED ACCURATELY AS TO HOW MUCH WOULD BE THE BENEFIT IN A PARTICULAR FINANCIAL YEAR. UNLIKE IN BONDS, WHERE QUANTIFICATIONS ARE SIMPLE A ND ACCURATE, IN THIS CASE, IT IS ULTIMATELY THE JUDGME NT OF THE BUSINESS HEAD BASED ON REALITIES OF THE INDUSTRY AN D ECONOMY WHICH WILL DETERMINE THE AMOUNT BY WHICH OR THE PERCENTAGE OF BENEFIT AVAILABLE IN A PARTICULAR YEA R. IN THE PRESENT CASE, THE MANAGEMENT HAS DECIDED THAT THE B ENEFITS OF THE EXPENSE WILL ACCRUE TO THE COMPANY OVER A PE RIOD OF 12 YEARS. THE ASSESSING OFFICER DOES NOT HAVE ANY CONTRARY INFORMATION TO INDICATE A SHORTER OR LONGER PERIOD. 5.3.1 IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES , I HOLD THAT THE EXPENSE IN QUESTION IS TO BE TREATED A DEFERRED REVENUE EXPENDITURE AND ALLOWED AS CLAIMED BY THE APPELLANT. THIS ISSUE IS DECIDED IN FAVOUR OF THE APPELLANT. 8.2 WITH RESPECT TO ASIAN AGE BRAND RIGHTS AND EDIT ORIAL CONTENDS RIGHTS, WE FIND THAT THE CIT(A) HAS ALLOWED THE ASIAN AGE B RAND RIGHTS AND EDITORIAL CONTENTS RIGHTS IN THE AY 2006-07 AND THE DEPARTMEN T DID NOT FILE APPEAL ACCEPTING THE ORDER OF CIT(A). HENCE, WE CONFIRM T HE ORDER OF CIT(A) WHERE AT PARA 4.2 OF CIT(A) HAS HELD AS FOLLOWS: 4.2 I HAVE GONE THROUGH THE DETAILED SUBMISSIONS OF THE APPELLANT AND THE APPEAL RECORDS FOR AY 2006 -07 TO 2009-10. AFTER A CAREFUL CONSIDERATION OF THE SAME , I AM OF THE OPINION THAT THERE IS MERIT IN THE ARGUMENT OF THE APPELLANT. AS CONTENDED BY THE APPELLANT, THE DISAL LOWANCE UNDER DISPUTE WAS MADE FOR THE FIRST TIME FOR THE A Y 2006- 07. ON APPEAL BY THE ASSESSEE, THE DISALLOWANCE WA S DELETED BY MY PREDECESSOR, VIDE HIS ORDER IN ITA NO.0007/ADDL CIT-16/CIT(A)-V/2011-12 DT.18.5.2011, AFTER A DETAILED DISCUSSION OF THE BASIS OF DISALLOWANCE AND THE FACTUAL AND LEGAL POSITION ON THE ISSUES UNDER CONS IDERATION. AS THE GROUND FOR DISALLOWANCE FOR AY 2009-10 WAS S AME AS FOR AY 2006-07, THE DECISION OF MY PREDECESSOR F OR THAT YEAR WAS FOLLOWED AND RELIEF WAS GRANTED FOR THIS Y EAR ALSO, ITA NOS.1247 TO 1249 OF 2014 DECCAN CHRONICLE HOLDI NGS LTD HYDERABAD PAGE 13 OF 13 BY DELETING THE DISALLOWANCE, VIDE ORDER IN ITA NOS.0284/ADDL CIT-16/CIT(A)-V/2011-12 DATED 22.11.2 012 FOR AY 2009-10. IT IS AN UNDISPUTED FACT THE DEPAR TMENT HAD NOT CONTESTED THE ORDER OF CIT(A) FOR AY 2006-07, B Y FILING AN APPEAL BEFORE THE ITAT, OBVIOUSLY FOR THE REASON THAT THERE WAS NO INFIRMITY IN THE CITS ORDER, BOTH ON FACTS AND IN LAW. THUS, THE ISSUE STAND CONCLUDED. IN VIEW OF THE ABOVE FACTS AND IN CONFORMITY WITH THE DIRECTIONS O F HONBLE ITAT, THAT THE DEPARTMENT CANNOT AGITATE THE SAME I SSUES FOR SUBSEQUENT YEARS IF THEY WERE ACCEPTED IN THE E ARLIER AY 2006-07, I DELETE THE DISALLOWANCE OF RS.90.80- LAK HS FOR AY 2009-10 . 8.3 WE DISMISS THE REVENUES APPEAL AS THE DEPARTME NT HAS NOT FILED APPEAL AGAINST THE ORDER OF THE CIT (A) F OR THE A.Y 2006- 07 AND HENCE IS ESTOPPED FROM FILING APPEAL ON THE SAME ISSUE IN THIS YEAR (BEING SUBSEQUENT YEAR). THE REVENUES AP PEAL FOR A.Y 2009-10 IS DISMISSED. 9. IN THE RESULT, THE REVENUES APPEAL FOR A.Y 2007 -08, 2008- 09 AND 2009-10 ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH JANUARY, 2015. S D/ - S D/ - (P.M. JAGTAP) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED 30 TH JANUARY, 2015. VNODAN/SPS COPY TO: 1. THE DCIT, CIRCLE 16(2) HYDERABAD 2. M/S DECCAN CHRONICLE HOLDINGS LTD, 6-3-898, RAJ BHA VAN ROAD, HYDERABAD 3. THE CIT(A)-V HYDERABAD 4. THE CIT HYDERABAD 5. THE DR, ITAT, HYDERABAD 6. GUARD FILE BY ORDER