ACIT, CHENNAI V. Mavis Satcom Ltd., CHENNAI

ITA 1663/CHNY/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 73768 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-03-2014
• Appeal Filed By: Department
• Bench Allotted: D
• Next Hearing Date: 21-01-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 26-08-2013
• Court: TRIBUNAL
• Department Lawyers: ANIRUDH RAI
• Assessee Lawyers: S SWAMINATHAN
• Keywords: Reopening of assessment; Depreciation; Audit objection; Cost of acquisition; Tangible material; Difference of opinion; Reason to believe; Change of opinion; Revenue expenditure; Capital expenditure
• Section: 32; 147

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI . . . , ! , ' # $ BEFORE DR. O.K. NARAYANAN, VICE PRESIDENT & SHRI VIKAS AWASTHY, JUDICIAL MEMBER I.T.A. NOS. 1659, 1660, 1661, 1662 & 1663/MDS/2013 ASSESSMENT YEARS : 2003-04, 2004-05, 2005-06, 2007- 08 & 2008-09 ASSISTANT COMMISSIONER OF INCOME TAX, MEDIA CIRCLE-I, CHENNAI 34 ( !& /APPELLANT) VS M/S.MAVIS SATCOM LTD., NO.48, N.B.JAWAHARLAL NEHRU SALAI, EKKATTUTHANGAL, CHENNAI-600 032 [PAN: AACCM 2127 K] ( '(!& /RESPONDENT) / APPELLANT BY : SHRI ANIRUDH RAI, CIT / RESPONDENT BY : SHRI S. SWAMINATHAN, CA / DATE OF HEARING : 21-01-2014 /DATE OF PRONOUNCEMENT : 18-03-2014 #) / O R D E R PER VIKAS AWASTHY, J.M: THESE FIVE APPEALS HAVE BEEN FILED BY THE REVENUE AGAINST THE COMMON ORDER OF THE COMMISSIONER OF INCOME TAX( APPEALS)- VI, CHENNAI DATED 28-03-2013 FOR THE ASSESSMENT YEA RS (AYS) 2003-04, 2004-05, 2005-06, 2007-08 & 2008-09. I.T.A. NOS. 1659, 1660, 1661 1662 & 1663/MDS/2013 2 2. IN ALL THE FIVE APPEALS, THE REVENUE HAS ASSAILE D THE FINDINGS OF THE CIT(APPEALS) WITH RESPECT TO DELETING OF ADD ITION MADE TOWARDS PURCHASE OF COPYRIGHTS OF MOVIES. THE ASSE SSEE HAS CLAIMED THE EXPENDITURE ON PURCHASE OF RIGHTS AS RE VENUE EXPENDITURE. WHEREAS, THE ASSESSING OFFICER HAS HE LD THE SAME TO BE INTANGIBLE ASSET ELIGIBLE FOR DEPRECIATION U/S.3 2(1)(II) OF THE INCOME TAX ACT, 1961 (HEREIN AFTER REFERRED TO AS THE ACT). IN THE THREE AYS, I.E., 2003-04, 2004-05 & 2005-06, RE-ASS ESSMENT PROCEEDINGS WERE INITIATED. FOR THE AY.2003-04, NO TICE U/S.148 OF THE ACT WAS ISSUED AFTER THE PERIOD OF FOUR YEARS. THE CIT(APPEALS) HAS ANNULLED THE RE-ASSESSMENT PROCEED INGS IN ALL THE THREE AYS. THE REVENUE HAS ALSO ASSAILED THE O RDER OF CIT(APPEALS) ON RE-OPENING. THE GROUNDS RAISED BY THE REVENUE IN APPEAL ARE AS UNDER: 1. THE ORDER OF THE LEARNED CIT(A) IS CONTRARY TO T HE LAW AND FACTS OF THE CASE. 2. THE LD.CIT(A) ERRED IN HOLDING THAT REOPENING U/ S.147 IS NOT VALID IN LAW AS THE ASSESSMENT IS REOPENED BEYOND FOUR YE ARS AND ON MERE CHANGE OF OPINION; 2.1 THE CIT(A)OUGHT TO HAVE APPRECIATED THE FACT TH AT THE ASSESSMENT HAS BEEN REOPENED AFTER FOUR YEARS BUT B EFORE SIX YEARS ACCORDING TO SEC.151(1) OF THE ACT. HENC E, THE REOPENING OF ASSESSMENT U/S.147 AFTER FOUR YEARS AN D BEFORE SIX YEARS IS VALID IN LAW. I.T.A. NOS. 1659, 1660, 1661 1662 & 1663/MDS/2013 3 2.2 THE LD.CIT(A) FAILED TO APPRECIATE THE FACT THA T THERE WAS TANGIBLE MATERIAL TO REOPEN THE ASSESSMENT U/S.147 SINCE THE ASSESSEE HAD CLAIMED THE EXPENDITURE U/S.37 WHI CH ARE CAPITAL IN NATURE AND THIS HAS BEEN CONSIDERED TO B E A TANGIBLE MATERIAL FOR REOPENING THE ASSESSMENT U/S. 147 OF THE ACT. 2.3 THE LD.CIT(A) OUGHT TO HAVE APPRECIATED THE FAC T THAT REASSESSMENT IS WELL WITHIN THE PROVISIONS OF SEC.1 47 AND EXPLANATION 1 OF SEC.147 OF THE I T ACT CLARIFIES T HAT PRODUCTION OF ACCOUNT OR OTHER EVIDENCES BEFORE THE AO FROM WHICH MATERIAL EVIDENCE COULD WITH DUE DILIGEN CE HAVE BEEN DISCOVERED, WILL NOT NECESSARILY AMOUNT TO DIS CLOSURE WITHIN THE MEANING OF THE PROVISO TO SEC.147. 2.4 THE LD.CIT(A) OUGHT TO HAVE APPRECIATED THE FAC T THAT, AS PER CLAUSE (C) OF EXPLANATION 2, CASES WHERE ASSESS MENT HAVE EARLIER BEEN MADE AND THERE IS ESCAPEMENT OF INCOME, REOPENING OF ASSESSMENT CAN BE MADE TO REAS SESS THE ESCAPED INCOME. HENCE, PROCEEDINGS ARE VALID A S PER LAW, SINCE THE ASSESSEE HAD CLAIMED EXCESS AMOUNT O F EXPENDITURE AS REVENUE IN NATURE WHILE CAPITALIZING IN THE BOOKS; 2.5 RELIANCE IS PLACED ON THE DECISION OF M/S.EXPOR T CREDIT GUARANTEE CORPORATION OF INDIA, 30 TAXMAN.COM.211, WHEREIN THE HONBLE BOMBAY HIGH COURT HELD THAT WHETHER, EVEN IN ABSENCE OF ASSESSEES, FAILURE TO DISCLOSE MATERIAL FACTS, WHERE THERE IS COMPLETE FA ILURE ON PART OF ASSESSING OFFICER TO APPLY HIS MIND, DURING ORIGINAL ASSESSMENT PROCEEDINGS, TO POINTS ON WHICH ASSESSME NT IS SOUGHT TO BE REOPENED, IT CAN BE SAID THAT THERE IS TANGIBLE I.T.A. NOS. 1659, 1660, 1661 1662 & 1663/MDS/2013 4 MATERIAL AND REASON TO BELIEVE THAT INCOME HAS ESCA PED ASSESSMENT. 2.6 THE LD.CIT(A) OUGHT TO HAVE APPRECIATED THE FAC T THAT THE DECISION OF BOMBAY HIGH COURT IN THE CASE OF YUVRAJ VS. CIT (315 ITR 84 IS APPLICABLE TO THE FACTS OF THE C ASE WHEREIN IT WAS HELD THAT WHERE DURING ORIGINAL ASSESSMENT COMPLETED UNDER SECTION 143(3), ISSUE AS TO WHETHER GAIN FROM SALE OF RIGHT TO PURCHASE OF A PLOT WAS CAPITAL GAIN OR CASUAL IN COME WAS NOT ADDRESSED, REOPENING OF ASSESSMENT TO TREAT LON G-TERM GAIN AS CASUAL INCOME COULD NOT BE SAID TO BE BASED ON CHANGE OF OPINION (ASSESSMENT YEAR 1996-97). 2.7 IT IS SUBMITTED THAT THE DECISION OF THE HONBL E HIGH COURT IN THE CASE OF CONSOLIDATED PHOTO AND FINVEST LTD., VS . ACIT (2006) 151 TAXMAN 41 HELD THAT PRODUCTION OF THE AC COUNT BOOKS AND OTHER DOCUMENTARY EVIDENCE RELEVANT FOR ASSESSMENT MUST IMPLY A FULL AND TRUE DISCLOSURE OF ALL MATERIAL FACTS MUST BE REJECTED OUT OF HAND IN THE LIGHT OF THE PROVISION OF EXPLANATION 1 OF SEC 147 OF THE AC T. 2.8 IT IS SUBMITTED THAT THE DECISION OF DELHI HIGH COURT IN THE CASE OF DALIMIA BROTHERS (P) LTD., VS. CIT IS APPLI CABLE TO THE FACTGS OF THE CASE WHEREIN IT IS HELD THAT REA SSESSMENT PROCEEDINGS HAVE BEEN INITIATED AFTER EXAMINING AND CONSIDERING THE AUDIT NOTE. THE NOTE RECORDS THAT THE AUDITORS SCRUTINY REVEALED THAT THE ASSESSING OFFI CER HAD ASKED THE ASSESSEE TO FURNISH COMPLETE DETAILS/CONFIRMATIONS IN RESPECT OF THE SUNDRY CRED ITORS AMOUNTING TO ` 1,66,37,402/-. OUT OF THE SAID AMOUNT, THE ASSESSEE COULD SUBMIT CONFIRMATIONS IN RESPECT OF T HE CREDITORS AMOUNTING TO ` 1,13,53,344/- AND THE BALANCE I.T.A. NOS. 1659, 1660, 1661 1662 & 1663/MDS/2013 5 AMOUNT OF ` 52,84,058/- REMAINED UNCONFIRMED. THIS HAD RESULTED IN UNDER ASSESSMENT OF ` 32,97,057/-. THIS WAS HELD TO BE A FACTUAL LAPSE. 3. THE LD.CIT(A) ERRED IN DELETING THE ADDITION MAD E TOWARDS PURCHASE OF COPYRIGHTS OF MOVIES, AS REVENUE EXPEND ITURE AT ` 2.21 CRORES AS AGAINST THE CAPITALIZATION OF THE SA ID AMOUNT BY THE ASSESSING OFFICER TREATING THE SAME AS INTANGIB LE ASSET. 3.1 THE LD.CIT(A) OUGHT TO HAVE APPRECIATED THE FAC T THAT ACTION OF THE ASSESSEE IS COMPLETELY WRITING OFF THE ENTIR E COST OF THE FILMS ON THE FIRST EVEN OF BROADCAST ITSELF IS NOT CORRECT. 3.2 THE LD.CIT(A) OUGHT TO HAVE APPRECIATED THE FAC T THAT FILMS ONCE BROADCASTED WERE NOT GOING OUT OF SHELF, BUT T HEY KEEP ON GENERATING REVENUES THROUGH ADVERTISEMENT. HENCE, THE RIGHT IN FILMS/SERIALS BY VIRTUE OF THEI R BEARING HAS AN ENDURING BENEFIT TO THE ASSESSEES BUSINESS AND ARE CAPITAL EXPENDITURE. 3.3 THE LD.CIT(A) OUGHT TO HAVE APPRECIATED THAT AC COUNTING STANDARD ISSUED BY THE INSTITUTE OF CHARTERED ACCOU NTANTS OF INDIA ARE APPLICABLE UNLESS THE IT ACT PROVIDES SOMETHING CONTRARY TO IT. AS PER AS 26, COPYRIGHTS IN FILMS/SERIALS ARE CLEARLY INTANGIBLE ASSETS. 3.4 THE LD.CIT(A) OUGHT TO HAVE APPRECIATED THE FAC T THAT WHEN AS 26 SPECIFICALLY TREATS A PARTICULAR AS AN INTANG IBLE ASSET, THEN WRITING OFF THE ENTIRE COST OF ACQUIRING SUCH RIGHTS AT THE FIRST BROADCAST ITSELF ON THE GROUND THAT FUTURE RE VENUES ARE NOT ASCERTAINABLE WITH REASONABLE ACCURACY, CANNOT BE ACCEPTED AS IT NEITHER ADHERES TO THE PRINCIPLES OF ACCOUNTING STANDARDS NOR INCOME-TAX LAW. I.T.A. NOS. 1659, 1660, 1661 1662 & 1663/MDS/2013 6 3.5 THE LD.CIT(A) OUGHT TO HAVE APPRECIATED THE FAC T THAT IF THE ACQUISITION OF RIGHT IN A FILM (MOVIE) STIPULATES T HAT IT NOT BE AIRED FOR A STIPULATED PERIOD, THEN IT IS NONETHELE SS AN ASSET, I.E., AN INTANGIBLE ASSET WHICH HAS NOT BEEN PUR TO USE. HENCE, THEN IMPUGNED EXPENDITURE CANNOT BE TREATED AS REVENUE EXPENDITURE BUT HAS TO BE TREATED AS CAPITA L EXPENDITURE ONLY AND PROPER DEPRECIATION CAN BE ALL OWED. 3.6 THE LD.CIT(A) OUGHT TO HAVE APPRECIATED THE FAC T THAT EXPLANATION 3 TO SECTION 32 DEFINES INTANGIBLE ASSE TS AS KNOW-HOW, PATENTS, COPYRIGHTS OF SIMILAR NATURE. HENCE, THESE RIGHTS ARE INTANGIBLE ASSETS. 3.7 THE LD.CIT(A) OUGHT TO HAVE APPRECIATED THAT RU LE 9A AND 9B ARE NOT APPLICABLE IN THE ASSESSEE-COMPANYS CAS E AS THE REVENUE MODELS ARE ENTIRELY INCOMPARABLE AND FU RTHER THESE RULES WERE FRAMED FOR COMPUTATIONS OF INCOME FROM SPECIFIC SOURCES. MOREOVER, RELIANCE ON THIS RULE IS MERELY AN AFTERTHOUGHT AND THE ASSESSEE-COMPANY DOES NOT SATISFY ANY OF THE CONDITIONS LAID OUT IN THESE RUL ES. 3.8 THE LD.CIT(A) OUGHT TO HAVE APPRECIATED THE FAC T THAT THE ASSESSEE WHILE OFFERING THE REVENUE DERIVED ON SUBS EQUENT TELECAST ON A LATER ASST. YEAR, CONVENIENTLY HAS CH OSEN TO CLAIM THE ENTIRE EXPENDITURE RELATING TO SUCH REVEN UE IN THE FIRST YEAR OF TELECAST, THEREBY CREATING A DISPARIT Y BETWEEN THE INCOME AND EXPENDITURE WHICH IS AGAINST THE MER CANTILE SYSTEM OF ACCOUNTING FOLLOWED BY THE ASSESSEE. 3.9 SINCE NEITHER THE ASSESSEE NOR THE DEPARTMENT C OULD WITH CERTAINTY QUANTIFY THE AMOUNT OF REVENUE WHICH A PA RTICULAR MOVIE/PROGRAMME WILL GENERATE DURING THE LIFE TIME OF THE MOVIE (SAY 100 YEARS), ONE SHOULD NATURALLY GO TO T HE I.T.A. NOS. 1659, 1660, 1661 1662 & 1663/MDS/2013 7 INCOME-TAX RULES WHICH PRESCRIBES DEPRECIATION PERCENTAGE OF 25% FOR INTANGIBLE ASSETS. 4. FOR THESE AND OTHER GROUNDS THAT MAY BE ADDUCED AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE LEARNED CIT(A) MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE REST ORED. 3. BEFORE WE PROCEED WITH THE ISSUES, IT IS ESSENTI AL TO UNDERSTAND THE BUSINESS MODEL OF THE ASSESSEE. THE ASSESSEE IS A SATELLITE CHANNEL COMPANY. THE ASSESSEE IS PURCHA SING COPYRIGHTS OF THE FILMS TO BE BROAD-CASTED TO ITS S UBSCRIBERS THROUGH CABLE OPERATORS OR DIRECT TO HOME DISH ANTE NNAS. THE FILM RIGHTS PURCHASED BY THE ASSESSEE AT TIMES COME WITH AN EMBARGO FOR NOT BROADCASTING THE FILM ON TELEVISION CHANNEL S BEFORE A CERTAIN PERIOD. TILL THE TIME EMBARGO PERIOD IS LA PSED, THE ASSESSEE TREATS THE FILM AS STOCK IN TRADE. THE RE VENUE RECEIVED AGAINST THE BROADCASTING OF THE FILM IS CREDITED TO THE P&L A/C AND THE COST OF THE FILM IS DEBITED TO THE P&L A/C AS E XPENDITURE. THE ASSESSEE TREATS THE EXPENDITURE ON ACQUISITION OF C OPYRIGHTS OF THE FILM AS REVENUE EXPENDITURE, AS THE ASSESSEE EXPLOI TS THE COMMERCIAL WORTH OF THE FILM IN ITS FIRST TELECAST. ALTHOUGH THE ASSESSEE HAS RIGHT TO RE-TELECAST THE FILM FOR SUBS EQUENT YEARS AS WELL, BUT AS PER THE CONTENTION OF THE ASSESSEE, RE PEAT TELECAST DOES NOT GENERATE REVENUE. THE FILMS ARE SHOWN AGA IN ONLY AS I.T.A. NOS. 1659, 1660, 1661 1662 & 1663/MDS/2013 8 FILLER TO FILL THE TIME SLOT. ANY MINISCULE REVENU E GENERATED FROM SUBSEQUENT BROADCASTING OF THE FILM OR ANY OF ITS S ONG OR PART IS OFFERED TO TAX AS AND WHEN SUCH REVENUE IS RAISED. THE ASSESSEE GENERATES REVENUE THROUGH ADVERTISEMENT ON BROADCAS TING OF FILMS AND FROM CABLE OPERATORS. 4. BEFORE ADVERTING TO THE MERITS OF THE CASE, WE F IRST TAKE UP THE ISSUE OF RE-OPENING OF ASSESSMENT IN AY.2003-04 , 2004-05 & 2005-06. IN AY.2003-04, THE ASSESSMENT HAS BEEN RE -OPENED AFTER THE ELAPSE OF FOUR YEARS. THE ASSESSEE FILED OBJECTIONS, THE SAME WERE REJECTED BY THE ASSESSING OFFICER. THE CI T(APPEALS) IN THE IMPUGNED ORDER HELD THAT THE ASSESSEE HAS BEEN CONSISTENTLY FOLLOWING THE METHOD OF WRITING OFF OF THE ENTIRE C OST OF THE FILM ON ITS FIRST BROADCAST. THE ASSESSING OFFICER WITHOUT HAVING ADEQUATE MATERIAL TO PIERCE THE VEIL OF RESJUDICATA HAS SET ASIDE THE ACCOUNTING METHOD ADOPTED BY THE ASSESSEE. THE CIT (APPEALS) ANNULLED THE RE-OPENING PROCEEDINGS IN RESPECT OF T HE THREE AYS ON THE GROUND OF LACK OF ADEQUATE REASON TO RE-OPEN AND FOR THE AY.2003-04 ON THE GROUND OF TIME LIMIT AS WELL. 5. SHRI ANIRUDH RAI, APPEARING ON BEHALF OF THE REV ENUE REITERATING THE GROUNDS RAISED IN APPEAL SUBMITTED THAT IN AY.2003- I.T.A. NOS. 1659, 1660, 1661 1662 & 1663/MDS/2013 9 04, NOTICE U/S.148 WAS ISSUED TO THE ASSESSEE ON 19 -12-2008 WHICH IS ADMITTEDLY BEYOND THE PERIOD OF FOUR YEARS . HOWEVER, IN OTHER TWO AYS I.E., 2004-05 & 2005-06, RE-ASSESSMEN T PROCEEDINGS WERE INITIATED WELL WITHIN THE PERIOD O F FOUR YEARS. THE LD.DR CONTENDED THAT THE CIT(APPEALS) HAS ERRED IN ANNULLING THE RE-OPENING PROCEEDINGS WITHOUT APPRECIATING THE REA SONS FOR RE- OPENING. THE ASSESSEE HAS BEEN DEBITING THE COST O F THE FILMS IN THE FIRST YEAR ITSELF, WHEREAS THE ASSESSEE IS GETT ING BENEFIT FROM TELECASTING THE FILMS TIME AND AGAIN IN THE SUBSEQU ENT YEARS. IN THE ORIGINAL ASSESSMENT, THE ISSUE WHETHER THE EXPE NDITURE ON ACQUIRING FILM COPYRIGHTS IS REVENUE OR CAPITAL IN NATURE WAS NOT DISCUSSED AT ALL. THEREFORE, NO OPINION ON THIS IS SUE WAS FORMED. THE ASSESSING OFFICER HAD NOT APPLIED HIS MIND ON T HE VITAL ISSUE AS TO HOW TO TREAT THE EXPENDITURE ON ACQUISITION O F COPYRIGHTS OF THE FILM, THEREFORE, THE RE-OPENING IS VALID AND JU STIFIED. 6. ON THE OTHER HAND, SHRI S.SWAMINATHAN, APPEARING ON BEHALF OF THE ASSESSEE VEHEMENTLY SUPPORTED THE ORDER OF C IT(APPEALS) AND SUBMITTED THAT THE ASSESSING OFFICER HAS WRONGL Y INVOKED THE JURISDICTION U/S.147, BEYOND THE PERIOD OF FOUR YEA RS IN THE AY.2003-04. THE ASSESSING OFFICER HAD NO MATERIAL WHAT-SO-EVER TO INITIATE RE-ASSESSMENT PROCEEDINGS IN THE AY.200 4-05 & I.T.A. NOS. 1659, 1660, 1661 1662 & 1663/MDS/2013 10 2005-06 AS WELL. THE RE-ASSESSMENT PROCEEDINGS HAV E BEEN INITIATED ONLY AFTER AUDIT OBJECTION. THE LD.AR SU BMITTED THAT THE HONBLE SUPREME COURT OF INDIA IN THE CASE OF INDIAN AND EASTERN NEWSPAPER SOCIETY. VS. CIT REPORTED AS 119 ITR 996 HAS HELD THAT RE-OPENING ON THE BASIS OF AUDIT OBJECTION IS NOT P ERMISSIBLE. THE LD.AR PRAYED FOR THE DISMISSAL OF THE APPEAL OF THE REVENUE. 7. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESENTATIVES OF BOTH THE SIDES. WE HAVE ALSO PE RUSED THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE DECI SIONS ON WHICH BOTH SIDES HAVE PLACED RELIANCE IN SUPPORT OF THEIR CONTENTIONS. IT IS AN ADMITTED FACT THAT FOR THE AY.2003-04, NOTICE U/S.147 HAS BEEN ISSUED AFTER THE EXPIRY OF FOUR YEARS FROM THE END OF RELEVANT AY. FOR THE AY.2003-04, THE ASSESSMENT WAS ORIGINA LLY COMPLETED U/S.143(3)OF THE ACT. IT IS NOT DISPUTED THAT THE ASSESSEE HAS BEEN CONSISTENTLY FOLLOWING THE METHOD OF WRITING OFF OF THE ENTIRE COST OF THE FILMS ON ITS FIRST BROADCAST SINCE BEGINNING. IT IS NOT THE CASE OF THE REVENUE THAT THE ASSESSEE HAS FAILED OR OMITTED TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR HI S ASSESSMENT, FOR THAT ASSESSMENT YEAR. IT IS A WELL SETTLED LAW THA T RE-ASSESSMENT PROCEEDINGS CAN BE INITIATED BEYOND FOUR YEARS ONLY IF THE FOLLOWING CONDITIONS ARE SATISFIED: I.T.A. NOS. 1659, 1660, 1661 1662 & 1663/MDS/2013 11 I. THE ASSESSING OFFICER MUST HAVE REASONS TO BELIE VE THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT; AND II. HE MUST ALSO HAVE REASON TO BELIEVE THAT SUCH ESCAPEMENT OCCURRED BY REASON OF EITHER: A) OMISSION OR FAILURE ON THE PART OF THE ASSESSEE TO MAKE A RETURN OF HIS INCOME UNDER SECTION 139; OR B) OMISSION OR FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR HI S ASSESSMENT FOR THAT YEAR. UNLESS BOTH THE ABOVE CONDITIONS ARE SATISFIED, THE RE-ASSESSMENT PROCEEDINGS ARE BAD IN LAW. WE HAVE EXAMINED THE C ASE LAWS CITED BY THE LD.DR VIZ. EXPORT CREDIT GUARANTEE CORPORATION OF INDIA LTD., VS. ACIT (SUPRA), YUVRAJ VS. UNION OF INDIA (SUPRA), CONSOLIDATED PHOTO AND FINVEST LTD., VS. ACIT (SUPRA) AND DALMIA P.LTD., VS. CIT (SUPRA). WE FIND THAT THE RATIO LAID DOWN BY THE HONBLE HIGH COURTS IN THE ABOVE SAID CASES IS NOT APPLICABLE IN THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE. I N ALL THE ABOVE MENTIONED CASES, THE RE-ASSESSMENT PROCEEDINGS HAVE BEEN INITIATED WITHIN THE PERIOD OF FOUR YEARS, THUS ALL THE DECISIONS CITED BY LD.DR ARE DISTINGUISHABLE. I.T.A. NOS. 1659, 1660, 1661 1662 & 1663/MDS/2013 12 AS FAR AS AY.2004-05 AND 2005-06 ARE CONCERNED, THE ORIGINAL ASSESSMENT IN THE SAID TWO YEARS WERE COMP LETED U/S.143(1). HOWEVER, THE REASONS FOR RE-OPENING AS SESSMENT IN BOTH THE AYS WERE SAME AS IN AY.2003-04. THE ASSES SEE HAS BEEN CONSISTENTLY FOLLOWING A PARTICULARS METHOD OF WRITING-OFF OF ENTIRE COST OF THE FILM ON ITS FIRST BROADCAST. NO OBJECTION WHAT-SO- EVER WAS RAISED DURING THE ASSESSMENT PROCEEDINGS. IT WAS ONLY ON THE BASIS OF AUDIT OBJECTION THAT RE-ASSESSMENT PROCEEDINGS WERE INITIATED AGAINST THE ASSESSEE. THE RULE OF C ONSISTENCY DEMANDS THAT IT IS NOT APPROPRIATE TO UNSETTLE THE MATTERS, WHICH HAVE BEEN ACCEPTED AND SETTLED. WE ARE OF THE CONS IDERED OPINION THAT THE ASSESSING OFFICER ACTED BEYOND HIS JURISDICTION IN INVOKING THE PROVISIONS OF SECTION 147 IN THE PRESE NT CASE. THE CIT(APPEALS) HAS RIGHTLY HELD THAT THERE WAS NO FRE SH MATERIAL BEFORE ASSESSING OFFICER TO CHANGE THE METHOD OF AM ORTIZATION OF EXPENDITURE AND IT IS ONLY A CHANGE OF OPINION. WE CONCUR WITH THE FINDINGS OF THE CIT(APPEALS) ON THE ISSUE AND DISMI SS THIS GROUND OF APPEAL OF THE REVENUE. 8. ON MERITS, THE LD.DR SUBMITTED THAT THE ASSESSEE GENERATES REVENUE FROM ADVERTISEMENTS ON SCREENING OF FILMS A ND FROM CABLE OPERATORS. THE ASSESSEE GETS THE PERPETUAL RIGHT TO SCREEN I.T.A. NOS. 1659, 1660, 1661 1662 & 1663/MDS/2013 13 THE FILM OR ANY PART THEREOF AFTER THE COPYRIGHTS A RE PURCHASED. THE ASSESSEE GET ENDURING BENEFIT BY SCREENING OF T HE FILMS AGAIN AND AGAIN. THE PARTS OF THE FILMS AND FILM SONGS C AN BE REPEATEDLY SHOWN/TELECAST TO GENERATE REVENUE. THE LD.DR FURT HER SUBMITTED THAT ACCOUNTING STANDARD 26 SPECIFICALLY PRESCRIBES ABOUT ITS APPLICABILITY ON MOTION PICTURES, VIDEO RECORDINGS, MANUSCRIPTS, PHOTOS AND COPYRIGHTS. THUS, THE SAME IS APPLICABL E TO THE ASSESSEE. THE ASSESSING OFFICER HAD RIGHTLY TREATE D THE FILM COPYRIGHTS PURCHASED BY THE ASSESSEE AS INTANGIBLE ASSETS IN ACCORDANCE WITH ACCOUNT STANDARD 26. THE DR FURTHE R SUBMITTED THAT RULE 9B HAS NO APPLICABILITY ON THE ASSESSEE. RULE 9B IS APPLICABLE TO FILM DISTRIBUTORS AND NOT TO SATELLIT E CHANNELS. THE CIT(APPEALS) HAS ERRED IN COMING TO THE CONCLUSION THAT THE PROVISIONS OF RULE 9B ARE APPLICABLE TO THE ASSESSE E. 9. AU CONTRAIRE , THE AR OF THE ASSESSEE SUBMITTED THAT ALTHOUGH THE ASSESSEE PURCHASES THE COPYRIGHTS OF T HE FILMS BUT IT DOES NOT HAVE ENDURING BENEFIT. THE COMMERCIAL LIF E OF THE FILM IS VERY SHORT LIVED AND COMES TO AN END AFTER ITS FIRS T TELECAST. IN VERY EXCEPTIONAL CASES, THE REPEATED TELECAST GENERATES SOME REVENUE. ONCE A FILM IS BROADCASTED ON THE TELEVIS ION, THE INTEREST OF THE VIEWER WOULD GO AWAY AND THEY WOULD NOT LIKE TO I.T.A. NOS. 1659, 1660, 1661 1662 & 1663/MDS/2013 14 WATCH THE SAME MOVIE AGAIN AND AGAIN. ON THE APPLI CABILITY OF RULE 9B, THE LD.AR REITERATED THE FINDINGS OF THE C IT(APPEALS). THE LD.AR SUBMITTED THAT SATELLITE CHANNEL COMPANIES AR E AKIN TO FILM DISTRIBUTORS. THE ONLY DIFFERENCE IS THAT IN CASE OF FILM DISTRIBUTORS, THE FILMS ARE SHOWCASED IN THEATRES WHEREAS IN CASE OF SATELLITE CHANNELS THE FILMS ARE SHOWN TO AUDIENCES ON THEIR TELEVISION SETS. THE LD.AR CONTENDED THAT SIMILAR ISSUE HAD COME UP BEFORE THE TRIBUNAL IN THE CASE OF SUN TV NETWORK LTD., VS. DEPARTMENT OF INCOME TAX IN ITA NO.1515 TO 1520/MDS/2013 FOR THE AY.2004-05 TO 2009-10 DECIDED ON 31 ST OCTOBER, 2013. THE TRIBUNAL HAD UPHELD THE FINDINGS OF THE CIT(APPEALS) AND DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. 10. ON MERITS, THE LD.DR HAS ASSAILED THE ORDER OF CIT(APPEALS) ON TWO COUNTS. I) AMORTIZATION OF COST OF ACQUISIT ION OF FILMS ON FIRST TELECAST AND APPLICATION OF ACCOUNTING STANDARD 26; AND II) ON THE ISSUE OF APPLICABILITY OF RULE 9B. 11. THE REVENUE HAS ASSAILED THE FINDINGS OF CIT(AP PEALS) ON THE ISSUE OF CAPITALIZATION OF COST OF COPYRIGHTS I N THE FILMS. AS PER THE REVENUE, THE COPYRIGHTS OF THE FILMS ARE INTANG IBLE ASSET AND THE ASSESSEE IS ENTITLED TO CLAIM BENEFIT OF DEPREC IATION ON SAME. I.T.A. NOS. 1659, 1660, 1661 1662 & 1663/MDS/2013 15 WE FIND THAT THE CIT(APPEALS) HAS GIVEN A WELL REAS ONED AND DETAILED FINDING WITH RESPECT TO TREATING THE COST OF ACQUISITION OF THE FILM RIGHTS AS REVENUE IN NATURE, AS WELL AS TH E APPLICABILITY OF RULE 9B IN THE CASE OF ASSESSEE. THE RELEVANT EXTR ACT OF THE FINDINGS OF THE CIT(APPEALS) ON BOTH THE ISSUES ARE RE-PRODUCED HEREUNDER: 18. ONE MAY GO THROUGH THE PROVISIONS OF EXPLANATI ON 2 UNDER S.9(1)(VI) WHERE THE SALE CONSIDERATION FOR THE SALE, DISTRIBUTION OR EXHIBITION OF CINEMATOGRAPHY FILM W ERE EXCLUDED FROM THE CLUTCHES OF ROYALTY TO AVOID THE PROVISION S OF S.194J. IT WAS CONSCIOUS EXEMPTION PROVIDED FOR EXEMPTING T HE SALE CONSIDERATIONS OF CINEMATOGRAPHY FILMS WHENEVER THE Y ARE PURCHASED OR SOLD. THE WORDS USED IN S.9(1)(VI) EX PLANATION (2) CLAUSE (V) ARE SALE, DISTRIBUTION OR EXHIBITIO N OF CINEMATOGRAPHY FILMS. THE WORD DISTRIBUTION HAS BEEN EXPLAINED IN OXFORD LEARNERS DICTIONARY AS TO GIV E GOODS TO A LARGER NUMBER OF PEOPLE, TO SEND GOODS TO SHOPS OR STORES AND BUSINESS SOP THAT THEY CAN BE SOLD, THE ACT OF GIVI NG OR DELIVERING SOMETHING TO A NUMBER OF PEOPLE, THE SYS TEM OF TRANSPORTING AND DELIVERING GOODS. FROM THIS DEFIN ITION IT CAN BE INFERRED THAT DISTRIBUTION MEANS TRANSPORTING AN D DELIVERING GOODS TO A LARGER NUMBER OF PEOPLE FOR THE GIVEN CO NTEXT. SIMILARLY, THE WORD EXHIBITION IS ALSO EXPLAINED AS TO SHOW SOMETHING IN A PUBLIC PLACE FOR PEOPLE TO ENJOY OR TO GIVE THEM INFORMATION AND AN EXHIBITOR IS EXPLAINED AS A PERSON OR A COMPANY THAT SHOWS THEIR WORK OR PRODUCTS TO THE PU BLIC. IN THIS CASE IT IS CLAIMED THAT THE ASSESSEE COMPANY I S THE I.T.A. NOS. 1659, 1660, 1661 1662 & 1663/MDS/2013 16 DISTRIBUTOR AND EXHIBITOR OF CINEMATOGRAPHY FI9LMS IN A SINGLE ROLE. GENERALLY WHEN THE RIGHTS OF THE FILMS ARE P URCHASED FOR THE ENTIRE TERRITORY SUCH A PERSON HOLDING THE RIGH T WOULD IN TURN ENGAGE OR SELL THESE RIGHTS TO THEATRES AND SU CH PERSON IS CALLED A DISTRIBUTOR IN THE FILM INDUSTRY. SIMILAR LY, A PERSON WHO EXHIBITS THE FILM IS CALLED AN EXHIBITOR MEANING OW NERS OF THE THEATRE. IN THIS CASE BEFORE ME, THE ASSESSEE COMP ANY IS DISTRIBUTING THE FILM, BY UTILIZING MEDIUM OF SATEL LITE, CABLE DISH AND CABLE CONNECTIONS. IT IS A DIFFERENT FACT THAT THE MEDIUM OF CABLE DISH, CABLE OPERATOR AND CABLE WIRE HAVE BEEN REPLACED IN RECENT TIMES WITH AN INDIVIDUAL DISH AND CABLE A T EACH HOUSE. THE UNDERLYING MECHANISM IS SAME. THUS IN THE THEATRE AS WELL AS IN TELEVISION BROADCASTING THE P RODUCT UTILIZED FOR BROADCASTING IS THE CINEMA REEL. THE GOODS THAT WERE GIVEN OUT ARE AN IMAGE OF THE FILMS AND IN BOT H THE CASES THE GOODS GIVEN OUT ARE INTANGIBLE. IN THE CASE OF THEATRE, THEATRE OWNER CHARGES FOR ALLOWING THE VIEWER TO SI T IN HIS CHAIR AND IN CABLE TV THE SATELLITE COMPANY CHARGES FOR E ACH CONNECTION CONNECTED THROUGH THE CABLE OPERATOR OR DISH. HENCE I AM UNABLE TO AGREE WITH THE AO THAT RULE 9B CANNOT BE APPLIED FOR THE PURPOSE OF ARRIVING AT THE DEDUC TION. 19. XXXXXXXXXXXX 20. I HAD GONE THROUGH AND WEIGHED THE CONTRARY OBSERVATIONS. IT IS ACCEPTED THAT THE SATELLITE RI GHTS PURCHASED IN THE FILMS GIVE RISE TO INTANGIBLE ASSETS AND THE MOOT POINT HERE IS WHETHER THESE ASSETS ARE CAPITAL IN NATURE OR REVENUE. IT IS NO GAINSAYING THAT ANY FILM BROADCASTED ON TE LEVISION WOULD NOT GIVE A REPEATED PERFORMANCE ON THE REVENU E FROM WITH A VERY FEW EXCEPTIONS. WHAT IS CONCERNED HERE IS GENERAL TREND AND NOT EXCEPTIONAL TREND. FROM A STUDY OF T HE PORTFOLIO I.T.A. NOS. 1659, 1660, 1661 1662 & 1663/MDS/2013 17 OF FILM ACQUIRED AS SATELLITE RIGHTS IT ALSO CAN BE SEEN THAT MANY OF THE FILMS MAY NOT GENERATE REVENUE BUT THEY ARE BROADCASTED DURING NON-PEAK HOURS BASICALLY TO FILL THE CONTENT IN TIME. ONCE A FILM HAS BEEN BROADCASTED ON THE T V THE INTEREST OF THE VIEWER WOULD GO AWAY AND THIS ASPEC T HAS BEEN VERY CLEARLY ENUNCIATED FROM THE FACT THAT THE FILM S ARE NOT GIVEN TO MULTIPLE BROADCASTING. COMING BACK TO RUL E 9B, IT IS A SPECIAL CATEGORIZATION GIVEN FOR DEDUCTION THE CO ST OF PRODUCTION FOR ACQUIRING THE FILM RIGHTS IN ORDER T O SET OFF THE EXPENDITURE IN THE YEAR OF EXHIBITION AND BROADCAST ING. IT IS ALREADY HELD ABOVE THAT THE PROVISIONS OF RULE 9B A RE APPLICABLE TO THIS CASE AND HENCE THE ASSETS ARE AL SO HELD TO BE TRADING ASSETS. THE ASSESSEE IS HAVING A PECULIAR BUSINESS MODEL WH EREIN THE EXPENDITURE ON ACQUISITION OF COPYRIGHTS OF THE FIL MS IS HELD TO BE REVENUE IN NATURE. THE ACTIVITIES OF SPECIALIZED N ATURE WHICH GIVES RISE TO ACCOUNTING ISSUES ARE EXPRESSLY EXCLUDED FR OM THE SCOPE OF ACCOUNTING STANDARDS. THUS, WE HOLD THAT ACCOUNTIN G STANDARD 26 WILL NOT BE APPLICABLE IN THE CASE OF ASSESSEE. 12. WE CONCUR WITH THE FINDINGS OF THE CIT(APPEALS) ON THE ISSUE OF APPLICABILITY OF RULE 9B IN THE CASE OF ASSESSEE AND AMORTIZATION OF THE COST OF ACQUISITION OF FILM COPYRIGHTS IN TH E YEAR OF ITS FIRST TELECAST. THERE IS NO REASON TO INTERFERE WITH THE FINDINGS OF THE CIT(APPEALS) AND THUS, THE SAME ARE CONFIRMED. I.T.A. NOS. 1659, 1660, 1661 1662 & 1663/MDS/2013 18 THE LD.AR HAS PLACED ON RECORD A COPY OF THE ORDER OF THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF SUN TV NETWORK LTD., VS. DEPARTMENT OF INCOME TAX (SUPRA), WHEREIN SIMILAR ISSUE HAD COME UP BEFORE THE TRIBUNAL AND THE TRIBUNAL HA S DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. WE FIND THAT THE ISSUE IN HAND IS SQUARELY COVERED BY THE DECISION OF THE CO-ORDINATE BENCH CITED BY THE LD.AR. 13. IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE C ASE DISCUSSED ABOVE, THE APPEALS OF THE REVENUE ARE DISMISSED BEI NG DEVOID OF MERIT. ORDER PRONOUNCED ON TUESDAY, THE 18 TH MARCH, 2014 AT CHENNAI. SD/- SD/- (DR. O.K. NARAYANAN) (VI KAS AWASTHY) VICE PRESIDENT JUDICIAL MEMBER DATED: 18 TH MARCH, 2014 TNMM COPY TO: APPELLANT/RESPONDENT/CIT(A)/CIT/DR