ACIT, Circle-16(2), Hyderabad V. Deccan Chronicle Holdings Ltd, Secunderabad

ITA 1847/HYD/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 2825 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 6 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2013
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 27-10-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: S RAMA RAO
• Keywords: Depreciation; Proportionate interest; Cost of acquisition; Notional interest; Revenue expenditure
• Section: 14A; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 1505/HYD/2011 A.Y. 2006-07 M/S. DECCAN CHRONICLE HOLDINGS LTD., HYDERABAD PAN: AABCD6737D VS. THE ADDL. CIT RANGE-1 HYDERABAD APPELLANT RESPONDENT ITA NO. 1844/HYD/2011 A.Y. 2008-09 M/S. DECCAN CHRONICLE HOLDINGS LTD., HYDERABAD PAN: AABCD6737D VS. THE JOINT. CIT RANGE-16 HYDERABAD APPELLANT RESPONDENT ITA NO. 1847/HYD/2011 A.Y. 2007-08 ITA NO. 1845/HYD/2011 A.Y. 2008-09 THE ASST. CIT RANGE-16(2) HYDERABAD VS. M/S. DECCAN CHRONICLE HOLDINGS LTD., HYDERABAD PAN: AABCD6737D APPELLANT RESPONDENT ASSESSEE BY: SRI S. RAMA RAO REVENUE BY: SMT. T.H. VIJAYA LAKSHMI DATE OF HEARING: 19.02.2013 DATE OF PRONOUNCEMENT: 29.04.2013 O R D E R PER CHANDRA POOJARI, AM: ITA NO. 1505/HYD/2011 AND ITA NO. 1844/HYD/2011 ARE BY THE ASSESSEE FOR ASSESSMENT YEARS 2006-07 AND 20 08-09, RESPECTIVELY, AND ITA NO. 1847/HYD/2011 AND ITA NO. 1 845/ HYD/2011 ARE BY THE REVENUE FOR ASSESSMENT YEARS 200 7-08 AND 2008-09 DIRECTED AGAINST DIFFERENT ORDERS OF THE CI T(A)-V, IT A NO. 1505/HYD/2011 & ORS. M/S. DECCAN CHRONICLE HOLDINGS LTD. =========================== 2 HYDERABAD. SINCE ALL THE APPEALS BELONG TO SAME AS SESSEE AND THE ISSUES INVOLVED ARE COMMON IN NATURE, THESE APP EALS ARE CLUBBED TOGETHER, HEARD TOGETHER AND ARE BEING DISP OSED OF BY THIS COMMON ORDER FOR THE SAME OF CONVENIENCE. ITA NO. 1505/HYD/2011 (A.Y. 2006-07) (BY ASSESSEE): 2. FIRST, WE WILL TAKE UP ASSESSEE'S APPEAL IN ITA NO. 1505/HYD/2011 FOR ASSESSMENT YEAR 2006-07. THE ASSES SEE RAISED THE FOLLOWING GROUNDS OF APPEAL: (A) THE ORDER OF THE LEARNED CIT(A) IN ERRONEOUS TO THE EXTENT IT IS PREJUDICIAL TO THE INTEREST OF THE APPELLANT HEREIN. (B) THE LEARNED CIT(A) ERRED IN HOLDING THAT THERE IS ANY NEXUS BETWEEN THE BORROWED FUNDS ON WHICH THE INTEREST WAS PAID AND THE MUTUAL FUNDS PURCHASED BY THE APPELLANT. (C) THE LEARNED CIT(A) ERRED IN HOLDING THAT ANY PART OF INTEREST PAID ON THE BORROWINGS IS DISALLOWABLE BY APPLYING THE PROVISIONS OF SEC. 14A OF THE IT AC T. THE LEARNED CIT(A) OUGHT TO HAVE SEEN THAT THERE IS NO NEXUS BETWEEN THE BORROWED FUNDS AND THE INVESTMENT MADE AND THAT THEREFORE, THE PROVISIONS OF SEC. 14A HAVE NO APPLICATION IN RESPECT OF INTEREST DEBITED TO THE PROFIT AND LOSS A/C. 3. BRIEF FACTS OF THE ISSUE ARE THAT THE ASSESSING OFF ICER NOTICED THAT THE ASSESSEE RECEIVED RS. 2.19 CRORES AS INTEREST IN THE FINANCIAL YEAR ON THE INVESTMENT MADE OF RS. 20 0 CRORES IN MUTUAL FUNDS OF ICICI PRUDENTIAL MUTUAL FUND. THE ASSESSEE STATED BEFORE THE ASSESSING OFFICER THAT IT HAS MAD E INVESTMENT OF RS. 200 CRORES AND REDEEMED TOTAL INVESTMENT DUR ING THE YEAR ITSELF. THE ASSESSEE INCURRED INTEREST PAYMENT ABO UT RS. 19.3 IT A NO. 1505/HYD/2011 & ORS. M/S. DECCAN CHRONICLE HOLDINGS LTD. =========================== 3 CRORES IN THIS ASSESSMENT YEAR. ACCORDING TO THE A SSESSING OFFICER, THE ASSESSEE HAS INCURRED INTEREST TO EARN EXEMPTED INCOME ALSO. HE COMPUTED THE NOTIONAL INTEREST AT 6% PER ANNUM BY INVOKING THE PROVISIONS OF SECTION 14A OF THE AC T ON RS. 200 CRORES WORKED OUT THE DISALLOWANCE AT RS. 12 CRORES . ON APPEAL, THE CIT(A) THOUGH PRINCIPALLY AGREED WITH THE PROPO SITION OF THE ASSESSING OFFICER, HOWEVER, HE DIRECTED THE ASSESSI NG OFFICER TO DISALLOW INTEREST FOR THE PERIOD FOR WHICH THE BORR OWED FUNDS ARE USED FOR EARNING EXEMPTED INCOME AND NOT FOR THE EN TIRETY I.E., FROM THE DATE OF INVESTMENT UP TO 31.3.2006. AGAI NST THIS, THE ASSESSEE IS IN APPEAL BEFORE US. 4. WE HAVE HEARD BOTH THE PARTIES AND PERUSED MATERIAL ON RECORD. WE HAVE CAREFULLY GONE THROUGH THE BALANCE SHEET OF THE ASSESSEE-COMPANY. ACCORDING TO AR, THE ASSESSEE MA DE INVESTMENT IN MUTUAL FUND OUT OF FOREIGN CURRENCY C ONVERTIBLE BONDS (FCCB) (ZERO COUPON) WHICH IS RECEIVED AS FOL LOWS: DATE VR. NO. PARTICULARS CREDIT (RS.) 13.10.2005 BR H/05-06/000869 BEING AMOUNT RECEIVED ON ISSUE OF FOREIGN CURRENCY CONVERTIBLE BONDS 34,42,65,753.00 13.10.2005 BR H/05-06/000869 -DO- 50,00,00,000.00 13.10.2005 BR H/05-06/000869 -DO- 50,00,00,000.00 13.10.2005 BR H/05-06/000869 -DO- 50,00,00,000.00 13.10.2005 BR H/05-06/000869 -DO- 50,00,00,000.00 31.12.2005 JE H/05-06/004059 BEING FCCB ISSUE EXPE NSES DEDUCTED FROM THE GROSS PROCEEDS NOW ACCOUNTED 7,91,61,167.00 242,34,26,920.00 BALANCE 242,34,26,929.00 5. THE INVESTMENT IN THE PRUDENTIAL ICICI MUTUAL FUND IS AS FOLLOWS: IT A NO. 1505/HYD/2011 & ORS. M/S. DECCAN CHRONICLE HOLDINGS LTD. =========================== 4 PRUDENTIAL ICICI MUTUAL FUND DATE VR. NO. PARTICULARS DEBIT CREDIT NO. OF DAYS NOTIONAL INT. @ 6% 26.09.2005 BP H/05 - 06/004091 PAID TO PRUDENTIAL ICICI LIQUID PLAN TOWARDS INVESTMENT FROM ICICI BANK 500,000,000 16.11.2005 BR H/05 - 06/001010 BEING THE AMOUNT RECEIVED FROM ICICI PRUDENTIAL TOWARDS CANCELLATION OF DEPOSIT AMOUNT AND CR. TO ICICI 500,000,000 51 4,191,781 4,191.781 26.09.2005 BP H/05 - 06/004092 PAID TO PRUDENTIAL ICICI LIQUID PLAN TOWARDS INVESTMENT FROM ICICI BANK 500,000,000 17.11.2005 BR H/05 - 06/001016 BEING DEPOSIT AMOUNT RECEIVED FROM ICICI PRUDENTIAL LIQUID PLAN NOW CR. TO ICICI 200,000,000 52 1,709,589 11.01.2006 HR H/05 - 06/001254 BEING AMOUNT RECEIVED FROM PRU ICICI FROM 1159395/41 NOW CR BY BANK ON DT. 9.1.2006 AS PER STATEMENT 150,000,000 107 2,638,356 23.01.2006 BR H/05 - 06/001307 BE ING AMOUNT RECEIVED FROM PRUDENTIAL ICICI FROM: 1159395/41 NOW CR BY BANK ON DT. 23.1.2006 150,000,000 119 2,934,247 7,282,192 13.10.2005 BP H/05 - 06/004541 PAID TOWARDS INVESTMENT IN MUTUAL FUND 500,000,000 07.02.2006 BR H/05 - 06/ 001376 BEING AMOUNT RECEIVED FROM PRU - ICICI LIQUID PLAN VIDE CHQ NO. 1159395/41 CR BY BANK ON 6.2.2006 350,000,000 117 6,731,507 09.03.2006 BR H/05 - 06/001525 BEING AMOUNT RECEIVED FROM PRUDENTIAL ICICI LIQUID PLAN VIDE CHQ NO. 1132250/93 CR BY BANK ON 9.3.2006 150,000,000 147 3,624,658 10,356,164 13.10.2005 BP H/05 - 06/004552 PAID TOWARDS INVESTMENT IN MUTUAL FUND 500,000,000 14.03.2006 BR H/05 - 06/001544 BEING AMOUNT RECEIVED FROM PRUDENTIAL ICICI LIQUID PLAN FOR NO. 1159395/41 CR BY BANK ON 14.3.2006 150,635,811 152 3,763,832 14.03.2006 BR H/05 - 06/001544 BEING AMOUNT RECEIVED FROM PRUDENTIAL ICICI LIQUID PLAN FOR NO. 1132250/93 CR BY BANK ON 14.3.2006 105,242,302 152 2,629,616 14.03.2006 BR H/05 - 06/001544 BEING AMOUNT RECEIVED FROM PRUDENTIAL ICICI LIQUID PLAN FOR NO. 1132250/93 CR BY BANK ON 14.3.2006 250,233,682 152 6,252,414 14.03.2006 BR H/05 - 06/001544 BEING AMOUNT RECEIVED FROM PRUDENTIAL ICICI LIQUID PLAN FOR NO. 1132250/93 CR BY BANK ON 14.3.2006 4,186,499 152 104,605 18.03.2006 JE H/05 - 06/005316 BEING THE DIVIDEND FROM PRUDENTIAL ICICI LIQUID PLAN NOW CREDITED TO DIVIDEND ON MUTUAL FUND A/C. (10,298.295) 152 (257,316) 12,493,151 2,000,000,000 2,000,000,000 34,323,288 6. FURTHER, WE HAVE ALSO GONE THROUGH THE BALANCE SHEE T AS ON 31.3.2006 WHICH SHOWS SHARE CAPITAL AND RESERVES AS FOLLOWS: (RS. IN LAKHS) SHARE CAPITAL - 4,122.56 RESERVE AND SURPLUS - 2,645.89 IT A NO. 1505/HYD/2011 & ORS. M/S. DECCAN CHRONICLE HOLDINGS LTD. =========================== 5 7. IT WAS ALSO BROUGHT TO OUR NOTICE THAT FOREIGN CURR ENCY CONVERTIBLE BONDS BEAR NO INTEREST AND IT WAS USED FOR TEMPORARY INVESTMENT. 8. ACCORDING TO THE LEARNED DR, SHARE CAPITAL AND RESE RVES ARE NOT USED FOR INVESTMENT IN MUTUAL FUNDS. IN OUR OP INION, AS PER THE FACTS BROUGHT ON RECORD, IF THERE IS AVAILABILI TY OF INTEREST FREE FUNDS TO MAKE INVESTMENT IN MUTUAL FUND AND THERE I S NO QUESTION OF DISALLOWANCE OF INTEREST. ON THE OTHER HAND, IF THE ASSESSEE USED THE INTEREST BEARING FUNDS TO MAKE IN VESTMENT IN MUTUAL FUNDS THEN PROPORTIONATE INTEREST HAS TO BE DISALLOWED. THE ASSESSEE IS DUTY BOUND TO ESTABLISH THE NEXUS B ETWEEN AVAILABILITY OF INTEREST FREE FUNDS TO MAKE INVESTM ENT IN MUTUAL FUNDS AT THE TIME OF MAKING SUCH INVESTMENT. IN OT HER WORDS AT THE POINT OF TIME OF MAKING INVESTMENT THERE SHOULD BE SUFFICIENT INTEREST FREE FUNDS AVAILABLE WITH THE A SSESSEE. BEING SO, WE REMIT THE ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR SUCH CONSIDERATION IN THE LIGHT OF ABOVE OBSERVATIONS. IN THE RESULT, ITA NO. 1505/HYD/2011 IS PARTLY ALLOWED FOR STATISTIC AL PURPOSES. ITA NO. 1844/HYD/2011 (A.Y. 2008-09) (BY ASSESSEE): 9. THE GROUND RAISED BY THE ASSESSEE IS AS FOLLOWS: 'THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADDITIO N MADE BY THE ASSESSING OFFICER OF 2,07,00,112/- BEIN G THE EXPENSES FOR ISSUE OF SHARES TO QUALIFIED INSTITUTIONAL BUYERS CLAIMED IN ACCORDANCE WITH THE PROVISIONS OF SEC. 35D OF THE IT ACT. THE LEARNED CIT(A) OUGHT TO HAVE ACCEPTED THE PLEA OF THE IT A NO. 1505/HYD/2011 & ORS. M/S. DECCAN CHRONICLE HOLDINGS LTD. =========================== 6 APPELLANT THAT THE SAID EXPENSES REPRESENT THE AMOUNTS ALLOWABLE IN ACCORDANCE WITH THE PROVISIONS OF SEC. 35D AND ARE ELIGIBLE FOR DEDUCTION UNDER TH E SAID SECTION.' 10. BRIEF FACTS OF THE ISSUE ARE THAT THE ASSESSEE COMP ANY DEBITED RS. 90,80,000/- DURING THE YEAR UNDER AS EX PENDITURE TOWARDS ACQUISITION OF ASIAN AGE BRAND RIGHT EXPENS ES AND EDITORIAL CONTENT UNDER THE HEAD MISCELLANEOUS EXPE NDITURE. THE ASSESSEE COMPANY EXPLAINED THE CLAIM AS UNDER 'ASIAN AGE HOLDINGS LTD. ARE THE PRINTERS AND PUBLI SHERS OF THE ENGLISH. DAILY NEWSPAPER 'ASIAN AGE' WHICH IS PUBLISHED FROM DELHI, MUMBAI, KOLKATA, BANGALORE AN D LONDON FROM THE YEAR 1994 ONWARDS. THE COMPANY ACQUIRED THE BRAND 'ASIAN AGE' AND PROPERTY RIGHTS ON THE PAST EDITORIAL CONTENT FOR RS. 908 LAKHS IN THE LAS T YEAR. THE ACQUISITION COST WAS TREATED AS ' DEFERRED REVE NUE EXPENDITURE' KEEPING IN VIEW THE UTILITY OF SUCH BR AND RIGHT AND EDITORIAL CONTENT, THE COMPANY ADOPTED AN ACCOU NTING POLICY TO WRITE OFF THE EXPENDITURE OVER A PERIOD O F 10 YEARS I.E., 120 MONTHS @ RS. 90,80,000 PER YEAR' 11. THE CLAIM WAS MADE FOR THE SECOND TIME DURING THE A .Y. 2007-08 AMOUNTING TO RS. 90,80,000 AS A PERIOD CONS ISTS OF ONE YEAR. THE ASSESSING OFFICER REJECTED THE CLAIM OF THE ASSESSEE FOR THE A.YS. 2006-07 AND 2007-08 GIVING DETAILED REASO NS THE SAME IS PENDING BEFORE THE CIT(A). SINCE THE NATURE OF EXPENDITURE IS IDENTICAL, THE SAME REASONING ADVANCED FOR A.Y. 200 7-08 APPLIES FOR THIS YEAR ALSO. ACCORDINGLY, THE CLAIM OF THE ASSESSEE FOR EXPENDITURE OF RS. 90,80,000 DISALLOWED. 12. THE LEARNED AR SUBMITTED THAT FOR A.Y. 2006-07, SIM ILAR CLAIM OF THE ASSESSEE WAS ALLOWED BY THE CIT(A) AND THE IT A NO. 1505/HYD/2011 & ORS. M/S. DECCAN CHRONICLE HOLDINGS LTD. =========================== 7 DEPARTMENT NOT FILED APPEAL AGAINST THIS. AS SUCH THE DEPARTMENT CANNOT FILE APPEAL FOR THE ASSESSMENT YE AR UNDER CONSIDERATION. 13. THE LEARNED DR SUBMITTED THAT IN THE CURRENT CASE, THE BUSINESS HAD COMMENCED EARLIER AND THE EXPENSES IN QUESTION WERE INCURRED NEITHER FOR THE EXTENSION OF THE UNDE RTAKING NOR FOR THE SETTING UP OF NEW UNIT. AS PER THE REPLY O F THE ASSESSEE SUBMITTED DURING THE COURSE OF ASSESSMENT PROCEEDIN GS, THE SHORT TERM DEBENTURES WERE ISSUED FOR WORKING CAPIT AL REQUIREMENTS, PROCURING RAW MATERIALS AND PAYMENT O F CERTAIN EXPENSES IN OPERATIONS. NONE OF THESE CAN BE SAID TO BE EXTENSION OF THE UNDERTAKING OR SETTING UP A NEW UN IT. THEREFORE, THESE EXPENSES ARE CLEARLY NOT COVERED BY SECTION 3 5D. THIS CASE IS SQUARELY COVERED BY CIT VS. SAKTHI FINANCE LTD. (256 ITR 488) (MAD) WHERE IT WAS HELD THAT PROVISIONS OF SECTION 35D WOULD INAPPLICABLE TO INCREASE IN SHARE CAPITAL SUBSEQUEN T TO ESTABLISHMENT OF BUSINESS. NO NEW INDUSTRIAL UNIT W AS ESTABLISHED AND NO EXPANSION OF EXISTING INDUSTRIAL UNIT TOOK PLACE. THE ASSESSEE WAS NOT ENTITLED TO BENEFIT UND ER SECTION 35D OF THE ACT. FURTHER IN THE CASE OF SHREE SYNTHETICS LIMITED VS CIT (2008) 303 ITR 451 (MP), THE HON'BLE HIGH COURT HEL D THAT WHEN THE INCOME TAX ACT', 1961 MAKES A SPECIAL PROVISION FOR CLAIMING DEDUCTION IN RESPECT OF SPECIFIED CATEGORY OF EXPEN DITURE INCURRED BY THE ASSESSEE IN ITS BUSINESS ACTIVITY, IT EXCLUDES THE IT A NO. 1505/HYD/2011 & ORS. M/S. DECCAN CHRONICLE HOLDINGS LTD. =========================== 8 APPLICABILITY OF GENERAL PROVISIONS DEALING WITH TH E SUBJECT. IN OTHER WORDS, IN SUCH EVENTUALITY WHAT PREVAILS IS T HE SPECIAL PROVISION OVER THE GENERAL PROVISION. SECTION 35D O F THE INCOME TAX ACT, 1961, BEING SPECIAL AND APPLICABLE ONLY TO CERTAIN TYPES OF EXPENDITURE INCURRED BY THE ASSESSEE IN ITS BUSI NESS ACTIVITY, IT WILL PREVAIL OVER THE SECTION WHICH APPLIES TO T HE GENERAL CATEGORY OF EXPENDITURE THEREBY EXCLUDING ITS APPLI CABILITY. 14. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. ADMITTEDLY, THE ASSESSEE'S CLAIM U/S. 35 D WAS IN THE A.Y. 2006-07. IN THE A.Y. 2006-07 THE CIT(A) ALLOW ED THE CLAIM OF THE ASSESSEE BY OBSERVING AS FOLLOWS: '5.2 I HAVE CAREFULLY CONSIDERED THE FACTS AND EVID ENCE. THE APPELLANT HAS NOT SHOWN THIS ASSET IN THE BALANCE S HEET. THEREFORE, IT CANNOT CLAIM DEPRECIATION ON THE SAME . THE APPELLANT HAS INSISTED THAT THE EXPENDITURE IS CLAS SIFIED AS DEFERRED REVENUE EXPENDITURE, IN VIEW OF THE FACT T HAT IT CANNOT BE CLASSIFIED AS AN INTANGIBLE ASSET UNDER S ECTION 35A AND THE BENEFITS OF THIS EXPENSE ARE AVAILABLE OVER A PERIOD OF MANY YEARS. 5.2.1 IN ORDER TO UNDERSTAND WHETHER THE ACCOUNTING TREATMENT GIVEN BY THE APPELLANT IS CORRECT OR NOT, ONE HAS TO UNDERSTAND WHAT EXACTLY IS THE MEANING OF DEFERR ED REVENUE EXPENDITURE. 5.2.2 DEFERRED REVENUE EXPENDITURE IS ESSENTIALLY A N ACCOUNTING CONCEPT DENOTING EXPENDITURE, FOR WHICH 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 BENEFITS OVER A SUBSEQUENT PERIOD OR PERIODS IS SPREAD OUT AND WRIT TEN-OFF OVER A PERIOD OF TIME. 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 IT A NO. 1505/HYD/2011 & ORS. M/S. DECCAN CHRONICLE HOLDINGS LTD. =========================== 9 YEARS, THE RISING DEMAND CONSEQUENT UPON THE INCREA SED PURCHASING POWER IN THE HANDS OF THE CONSUMERS HAS LED, THE BUSINESS AND INDUSTRIAL WORLD TO INCUR MAJOR EXPENDITURES INTER-ALIA ON ADVERTISEMENT, SALES PROMOTION ETC WITH A VIEW TO ENHANCE THE VISIBILITY OF THEIR PRODUCTS AND THEREBY INCREASE THEIR TOP-LINE. SUCH EXPENDITU RE INVARIABLY REPRESENTS EITHER OUTLAYS ON A MAJOR ADV ERTISING CAMPAIGN UNDERTAKEN IN DIFFERENT MEDIA WITH A VIEW TO ENHANCE THE VISIBILITY OR MODIFY THE IMAGE OF A PRO DUCT; HOLDING OF CONTESTS TO EXPAND THE REACH AND PROMOTE SALES, CELEBRITY ENDORSEMENTS, ONE-TIME SPONSORSHIP OF MEG A EVENTS, DEALERSHIP INCENTIVES AND OTHER SUCH SIGNIF ICANT SALES PROMOTION INITIATIVES WHICH GO TO INCREASE AN D EXPAND THE BRAND RECALL OF THE PRODUCTS OF A PARTICULAR CO MPANY [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, STRETCHING SOMETIMES OVER SEVERAL ACCOUNTING PERIOD S, THE BUSINESS WORLD HAS BEEN PRONE TO TREAT SUCH EXPENDI TURE AS A 'DEFERRED REVENUE EXPENDITURE' AND CONSEQUENTLY, HAS BEEN AMORTIZING THE SAME OVER THE EXPECTED TIME PER IOD OVER 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 ADJU STMENT IS MADE IN THE COMPUTATION OF INCOME WHEREBY THE EN TIRE 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 IS NOT DEBITED TO THE P&L A/C AND IS INEXPLICABLY LINKED T O AN ASSET, FOR WHICH DEPRECIATION IS ALLOWED EVERY YEAR . ON THE OTHER HAND, REVENUE EXPENDITURE IS ALLOWED IN ONE F INANCIAL YEAR. 5.2.4 THE SUPREME COURT IN THE CASE OF ALEMBIC CHEM ICAL WORKS CO. LTD. VS. CIT (1989) 177 ITR 377 HAS ITSEL F OBSERVED THAT THE IDEA OF 'ONCE FOR ALL' PAYMENT AN D 'ENDURING BENEFIT' ARE NOT TO BE TREATED AS SOMETHI NG AKIN TO STATUTORY CONDITIONS; NOR ARE THE NOTIONS OF 'CA PITAL' OR 'REVENUE' A JUDICIAL FETISH. WHAT IS CAPITAL EXPEND ITURE 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 EMPHASISE THE ELEME NT OF A SUFFICIENT DEGREE OF DURABILITY APPROPRIATE TO TH E CONTEXT. THUS WHILE, FOR THE PURPOSE OF THE ISSUE UNDER CONSIDERATION, THE TEST OF THE ENDURING BENEFIT FAI LS AT THE INITIAL STAGE ITSELF, AND EVEN IF THE SAID TEST WER E TO BE IT A NO. 1505/HYD/2011 & ORS. M/S. DECCAN CHRONICLE HOLDINGS LTD. =========================== 10 EXPLICITLY APPLIED IT CANNOT BE SAID THAT THE SAID EXPENDITURE IS OF A CAPITAL NATURE. FURTHER, NO CAP ITAL ASSETS COME INTO BEING AS A RESULT OF THE SAME AND CONSEQUENTLY THE SAME CANNOT BE CLASSIFIED AS A CAP ITAL EXPENDITURE. THE EXPENDITURE IS ESSENTIALLY REVENUE IN NATURE AND THE DECISION TO TREAT THE SAME AS DEFERR ED REVENUE ONLY REPRESENTS A MANAGEMENT DECISION TAKEN IN VIEW OF THE MAGNITUDE OF THE EXPENDITURE INVOLVED. FOR THE PURPOSE OF ALLOWABILITY OF ANY EXPENDITURE UNDER TH E INCOME-TAX ACT 1961, WHAT IS MATERIAL IS THE CLASSI FICATION BETWEEN THE CAPITAL AND REVENUE AND THE SAME DOES N OT RECOGNISE OF ANY CONCEPT OF DEFERRED REVENUE EXPEND ITURE. 5.2.5 IN THE CASE OF BAJAJ SEVASHRAM LIMITED VS DY. CIT (2006) 280 ITR 480 (RAJ), THE HON'BLE RAJASTHAN HIG H COURT HELD THAT EXPENDITURE INCURRED FOR ADVERTISEMENT DU RING A YEAR CAN BE DEBITED IN PARTS OVER SEVERAL YEARS. TH E ASSESSEE'S POLICY OF SPREADING. OVER THE EXPENSES F OR 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 HA S RECOGNIZED THE EXPENSE TO BE PROPER AND FOR BUSINES S PURPOSE. IN OTHER WORDS, IT IS ALLOWABLE UNDER SECT ION 37 OF THE ACT AS BEING FOR BUSINESS PURPOSE, ALTHOUGH WHE THER IT IS REVENUE OR CAPITAL HAS TO BE DECIDED. THEREFORE, THE FIRST CONCLUSION IS THAT THE EXPENSE HAS TO BE ALLOWED BE ING FOR BUSINESS PURPOSE. THE ONLY QUESTION WHICH, THEREFOR E, 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 A LLOWANCE OF DEPRECIATION OR IT IS TO BE TREATED AS DEFERRED REVENUE EXPENDITURE. HAVING AGREED THAT THE EXPENSE IS GENU INE AND FOR BUSINESS PURPOSE, COMPLETELY DISALLOWING TH E SAME IS INCORRECT. 5.2.7 THE APPELLANT HAS NOT SHOWN THIS EXPENSE AS A N ASSET IN THE BALANCE SHEET. THEREFORE, DEPRECIATION CANNO T BE ALLOWABLE ON IT. WITH REGARD TO THE NATURE OF EXPEN SE, IT IS TO BE SEEN THAT THE APPELLANT ACQUIRED THE BRAND 'T HE ASIAN AGE' AND RIGHTS OVER PAST EDITORIAL CONTEST FOR A CONSIDERATION OF RS. 9.80 CRORE. THERE IS NO DOUBT ABOUT THE FACT THAT THE BRAND AS WELL AS THE PAST EDITORI AL CONTEST WILL HAVE BENEFITS PERTAINING TO THE APPELLANT FOR MORE THAN ONE FINANCIAL YEAR. 5.3 IN VIEW OF THE AFOREMENTIONED JUDGEMENTS 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 ACCUR ATELY AS TO HOW MUCH WOULD BE THE BENEFIT IN A PARTICULAR FI NANCIAL IT A NO. 1505/HYD/2011 & ORS. M/S. DECCAN CHRONICLE HOLDINGS LTD. =========================== 11 YEAR. UNLIKE IN BONDS, WHERE QUANTIFICATIONS ARE S IMPLE AND ACCURATE, IN THIS CASE, IT IS ULTIMATELY THE JU DGEMENT OF THE BUSINESS HEAD BASED ON REALITIES OF THE INDUSTR Y AND 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 BENEFITS OF THE EXPENSE WILL ACCRUE TO THE COMPANY OVER A PERIOD OF 12 YEARS. THE ASSESSING OFFICER DOES NOT HAVE ANY CONTRARY INFORMATION TO INDICATE A SHORTER OR LONGE R PERIOD. 5.3.1 IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES, I HOLD THAT THE EXPENSE IN QUESTION IS TO BE TREATED AS DE FERRED REVENUE EXPENDITURE AND ALLOWED AS CLAIMED BY THE APPELLANT. THIS ISSUE IS DECIDED IN FAVOUR OF THE A PPELLANT.' 15. BEING SO, FOR THE ASSESSMENT YEAR 2006-07 THE ISSUE WAS DECIDED BY THE CIT(A) IN FAVOUR OF THE ASSESSEE. N OTHING IS BROUGHT TO OUR NOTICE THAT THE DEPARTMENT HAS FILED ANY APPEAL AGAINST THE ABOVE FINDING OF THE CIT(A). BEING SO, FOR THE A.Y. 2008-09, THE DEPARTMENT CANNOT AGITATE THE SAME ISS UE IF IT WAS ACCEPTED IN THE EARLIER A.Y. 2006-07. IN THESE CIR CUMSTANCES, IT IS APPROPRIATE TO REMIT THE ISSUE TO THE FILE OF THE C IT(A) TO DECIDE THE SAME BY CIT(A) AFTER TAKING NOTE OF THE DECISIO N OF THE CIT(A) FOR A.Y. 2006-07. ACCORDINGLY, THE ISSUE IS REMITT ED BACK TO THE FILE OF THE CIT(A) FOR FRESH CONSIDERATION. IN THE RESULT, ITA NO. 1844/HYD/2011 IS ALLOWED FOR STATISTICAL PURPOSES. ITA NO. 1847/HYD/2011 (A.Y. 2007-08) (BY REVENUE) ITA NO. 1845/HYD/2011 (A.Y. 2008-09) (BY REVENUE) 16. THE COMMON GROUND IN THESE TWO APPEAL IS AS UNDER: WHETHER CIT(A) IS CORRECT ON THE FACTS AND CIRCUMST ANCES IN CONCLUDING THAT THE ASSESSING OFFICER HAS NOT STATE D ANYWHERE THAT THE DEDUCTION OF RS. 2,09,95,804/- UN DER SECTION 35D IS NOT ALLOWABLE AND THE ONLY REASON FO R ADDITION IS THAT THE APPELLANT HAS CLAIMED DOUBLE D EDUCTION. IT A NO. 1505/HYD/2011 & ORS. M/S. DECCAN CHRONICLE HOLDINGS LTD. =========================== 12 17. AS WE HAVE ALREADY HELD IN ASSESSEE'S APPEAL FOR A. Y. 2008- 09 IN ITA NO. 1844/HYD/2011, THE GROUND RAISED BY THE REVENUE WITH REGARD TO ALLOWABILITY OF DEDUCTION U/S. 35D O F THE ACT, WE REMIT BACK THIS ISSUE TO THE CIT(A) ON SIMILAR DIRE CTION FOR BOTH THE ASSESSMENT YEARS. IN THE RESULT, ITA NO. 1847/H YD/2011 AND 1845/HYD/2011 ARE ALLOWED FOR STATISTICAL PURPOSES. 18. IN THE RESULT, ALL THE FOUR APPEALS BOTH BY REVENUE AND ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH APRIL, 2013. SD/- (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD, DATED THE 29 TH APRIL, 2013 COPY FORWARDED TO: 1. M/S. DECCAN CHRONICLE HOLDINGS LTD., C/O. SRI S. RAMA RAO, ADVOCATE, 3-6-643, SHRIYA'S ELEGANCE, FLAT NO. 102, ST. NO.9, HIMAYATHNAGAR, HYDERABAD-500 029. 2. THE ADDL. CIT, RANGE-1, HYDERABAD. 3. THE JOINT CIT, RANGE-16, HYDERABAD. 4. THE ASST. CIT, CIRCLE-16(2), HYDERABAD 5. THE CIT(A)-V, HYDERABAD. 6. THE CIT-IV, HYDERABAD 7. THE DR B BENCH, ITAT, HYDERABAD. TPRAO