DCIT 8(3)(1), MUMBAI V. UNITED HOME ENTERTAINMENT P.LTD, MUMBAI

ITA 1977/MUM/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 1462 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-12-2016
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 20-12-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 07-04-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S K PODAR
• Keywords: Business expenditure; Revenue expenditure; Capital expenditure
• Section: 143(3); 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'F' BENCH, MUMBAI BEFORE SHRI JASON P. BOAZ, ACCOUNTANT MEMBER AND SHRI SANDEEP GOSAIN , JUDICIAL MEMBER ITA NO. 1977/MUM/2015 (ASSESSMENT YEAR: 1010-11) D C I T 8(3)(1) VS. M/S. UNITED HOME ROOM NO. 615, 6 TH FLOOR AAYAKAR BHAVAN, M.K. ROAD MUMBAI 400020 ENTERTAINMENT PVT. LTD. 4 TH FLOOR, PENINSULA TOWER-I GANPATRAO KADAM MARG LOWER PAREL, MUMBAI 400022 PAN AAACV6668D APPELLANT RESPONDENT APPELLANT BY: SHRI S.K. PODAR RESPONDENT BY: NONE DATE OF HEARING: 20.12.2016 DATE OF PRONOUNCEMENT: 23.12.2016 O R D E R PER JASON P. BOAZ, A.M. THIS APPEAL BY REVENUE IS DIRECTED AGAINST THE ORDE R OF THE CIT(A)-14, MUMBAI DATED 19.12.2014 FOR A.Y. 2010-11. 2. THE FACTS OF THE CASE, BRIEFLY, ARE AS UNDER: - 2.1 THE ASSESSEE, A COMPANY ENGAGED IN RUNNING A TE LEVISION CHANNEL NAMED HUNGAMA, FILED ITS RETURN OF INCOME FOR A.Y . 2010-11 ON 30.09.2013 DECLARING INCOME OF ` 4,35,59,437/- UNDER THE NORMAL PROVISIONS OF THE ACT AND BOOK PROFITS UNDER SECT ION 115JB OF THE INCOME TAX ACT, 1961 (IN SHORT 'THE ACT') AT ` 2,54,16,069/-. THE CASE WAS TAKEN UP FOR SCRUTINY AND THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF THE ACT VIDE ORDER DATED 31.01.2013 WHEREIN THE ASSESSE ES INCOME UNDER THE NORMAL PROVISIONS OF THE ACT WAS DETERMINED AT ` 10,74,94,593/- IN VIEW OF THE FOLLOWING ADDITIONS/DISALLOWANCES: - (I) DISALLOWANCE UNDER SECTION 40A(2)(B) ` 3,56,00,000/- (II) NON RECONCILIATION OF ITS DETAILS ` 25,81,822/- (III) PROPORTIONATE DUBBING COST (4/5) ` 2,57,53,334/- ITA NO. 1977/MUM/2015 M/S. UNITED HOME ENTERTAINMENT PVT. LTD. 2 BOOK PROFITS UNDER SECTION 115JB OF THE ACT WERE A CCEPTED AS COMPUTED AT RS.2,54,16,069/-. 2.2 AGGRIEVED BY THE ORDER OF ASSESSMENT DATED 31.0 1.2013 FOR A.Y. 2010- 11, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT (A)-14, MUMBAI. THE LEARNED CIT(A) DISPOSED OF THE APPEAL VIDE THE IMPU GNED ORDER DATED 19.12.2014 ALLOWING THE ASSESSEE PARTIAL RELIEF; BY , INTER ALIA, ALLOWING THE ASSESSEES APPEAL ON THE ITEMS LISTED AT (II) AND ( III) IN PARA 2.1 (SUPRA) AND UPHELD THE AOS ORDER IN RESPECT OF THE DISALLOWANC E AT S. NO. (I) (SUPRA). 3. AGGRIEVED BY THE IMPUGNED ORDER OF THE LEARNED CIT( A)-14, MUMBAI DATED 19.12.2014, REVENUE HAS PREFERRED THIS APPEAL RAISING THE FOLLOWING GROUNDS: - (I) THE LEARNED CIT(A) HAS ERRED ON FACTS AND IN L AW IN DELETING DISALLOWANCE OF DUBBING COST OF RS.2,57,33,334/- RE LYING ON THE DECISION GIVEN IN THE CASE OF AJAY SINGH DEOL IN IT A O. 7404/M UNH/2003 FOR A.Y. 2000-01, WITHOUT PROPERLY APPRECI ATING THE FACTUAL AND LEGAL MATRIX AS CLEARLY BROUGHT OUT BY THE ASSESSING OFFICER. (II) THE LEARNED CIT(A) HAS ERRED ON FACTS AND IN L AW IN DELETING THE DISALLOWANCE OF DUBBING COST OF RS.2,57,33,334/ -, AS IN THE IMMEDIATE PRECEDING YEAR I.E. A.Y. 2009-10 IN ASSES SEES OWN CASE, THE LD. CIT(A) HAS DISMISSED THE APPEAL OF TH E ASSESSEE ON IDENTICAL GROUNDS. 2. THE LD. CIT(A)S ORDER IS CONTRARY TO LAW AND ON FACTS AND DESERVES TO BE SET ASIDE AND A.OS ORDER MAY BE RES TORED. 3. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND THAT MAY BE NECESSARY. 4. NSPITE OF FIXING THE HEARING OF THIS CASE ON ATLEA ST TWO OCCASIONS, NONE WAS PRESENT FOR THE ASSESSEE NOR WAS ANY ADJOU RNMENT SOUGHT ON ITS BEHALF. ON 20.12.2016 ALSO WHEN THE CASE WAS CALLED FOR HEARING, NONE WAS PRESENT FOR THE ASSESSEE BUT THE LEARNED D.R. WAS P RESENT AND READY TO PRESENT THE CASE ON BEHALF OF REVENUE. IN THESE CIR CUMSTANCES, WE PROCEED TO DISPOSE OFF THIS APPEAL WITH THE ASSISTANCE OF T HE LEARNED D.R. FOR REVENUE AND THE MATERIAL ON RECORD. 5. GROUND NOS. (I) TO 3 TREATMENT OF DUBBING COSTS 5.1 IN THE GROUNDS RAISED BY REVENUE, THE SOLE ISSU E THAT HAS BEEN RAISED FOR THE CONSIDERATION OF THE BENCH IS WHETHER OR NO T THE DUBBING COST ITA NO. 1977/MUM/2015 M/S. UNITED HOME ENTERTAINMENT PVT. LTD. 3 INCURRED ON TRANSLATING THE FOREIGN LANGUAGE ENTERT AINMENT PROGRAMMES INTO INDIAN LANGUAGES FOR MAKING THEM READY FOR USE /BROADCAST ON THE ASSESSEES T.V. CHANNEL HUNGAMA SHOULD HAVE FORME D PART AND PARCEL OF THE LICENCE FEE FOR USE OF THE FOREIGN LANGUAGE ENT ERTAINMENT PROGRAMME AND AMORTISED ALONG WITH THE COST OF SUCH LICENCES. THE LEARNED D.R. WAS HEARD IN SUPPORT OF THE GROUNDS RAISED AND HE VEHEM ENTLY ASSAILED THE FINDING OF THE LEARNED CIT(A) IN THE IMPUGNED ORDER IN HOLDING THAT DUBBING COSTS WERE TO BE TREATED AS REVENUE IN NATU RE AND FOLLOWING THE DECISION OF THE COORDINATE BENCH IN THE CASE OF AJA Y SINGH DEOL (2004) 91 ITD 196 (MUM) WITHOUT APPRECIATING THAT THE FACTS O F THE CITED CASE WERE DISTINCT AND DIFFERENT AND CLEARLY NOT APPLICABLE T O THE CASE ON HAND. 5.2.1 WE HAVE HEARD THE LEARNED D.R. FOR REVENUE AN D PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD; INCLUD ING THE JUDICIAL PRONOUNCEMENT CITED. THE FACTS OF THE MATTER AS EME RGE FROM THE RECORD ARE THAT IN THE COURSE OF ASSESSMENT PROCEEDINGS THE AO OBSERVED THAT THE ASSESSEE COMPANY IS ENGAGED IN RUNNING A TELEVISION CHANNEL, HUNGAMA- AN ENTERTAINMENT CHANNEL FOR CHILDREN. IN THIS REGA RD, THEY ACQUIRE THE RIGHT TO BROADCAST PROGRAMMES BY PAYING LICENCE FEE TO VA RIOUS CHANNELS/ PRODUCTION HOUSES FOR BROADCAST OF LIVE ACTION PROG RAMMES, ANIMATED SERIES AND FILMS. THE LICENCE FEE FOR ACQUIRING THE AFORES AID RIGHTS IS AMORTISED OVER THE PERIOD OF LICENCE WHICH VARIES FROM ONE TO 12 Y EARS. SUBSEQUENTLY, THE PROGRAMMES, FILMS, ANIMATED SERIES, ETC. ARE DUBBED TO THE LOCAL LANGUAGE AND BROADCAST ON HUNGAMA CHANNEL. ON BEING QUERIE D IN THIS REGARD, THE ASSESSEE SUBMITTED BEFORE THE AO THAT DUBBING COSTS REPRESENT REVENUE EXPENDITURE AND SHOULD BE ALLOWED ENTIRELY IN THE Y EAR IN WHICH IT IS INCURRED. THE ASSESSEES CLAIM DID NOT FIND FAVOUR WITH THE AO, WHO WAS OF THE VIEW THAT DUBBING COST IS INCURRED IN RELATION TO THE CONTEXT I.E. PROGRAMMES, FILMS, ETC. RIGHTS ACQUIRED UNDER LICEN CE AND THEREFORE THE TREATMENT OF DUBBING COST SHOULD BE TREATED THE SAM E AS INVENTORY AND THEREFORE SHOULD FORM PART OF THE COST OF ACQUISITI ON FOR SUCH RIGHTS, AS PART OF LICENCE FEES, ETC. AND AMORTIZED OVER THE YEARS DEPENDING OF THE TENURE OF THE LICENCE. IN THIS VIEW OF THE MATTER, THE AO DIS ALLOWED THE ASSESSEES CLAIM IN RESPECT OF DUBBING COST BEING REVENUE EXPE NDITURE. ON APPEAL, THE ITA NO. 1977/MUM/2015 M/S. UNITED HOME ENTERTAINMENT PVT. LTD. 4 LEARNED CIT(A) FOLLOWING THE DECISION OF THE COORDI NATE BENCH OF THE TRIBUNAL IN AJAY SINGH DEOL (SUPRA) HELD THEM TO BE REVENUE IN NATURE. 5.2.2 WE HAVE PERUSED THE IMPUGNED ORDER OF THE LEA RNED CIT(A) WHEREIN HE HAS ALLOWED THE ASSESSEES CLAIM AT PARA 5.2 THE REOF HOLDING AS UNDER: - 5.2 I HAVE GONE THROUGH BOTH THE ORDERS. AFTER GOI NG THROUGH THE DECISION GIVEN BY HON'BLE ITAT MUMBAI IN ADDRESSING DUBBING EXPENSE CASE, I AM IN AGREEMENT WITH THE APPELLANT THAT DUB BING EXPENSES HAVING PAID TO DUBBING STUDIO AND THE ARTIST ARE RE VENUE IN NATURE. THE APPELLANT HAVE ALREADY SUBMITTED THAT THEY ARE RELA TED TO PROGRAMS WHICH ARE THEIR INVENTORY, MEANING THEREBY THEY WER E THEIR SOURCE OF REVENUE AND HENCE EXPENSES INCURRED TO EARN THE REV ENUE WITH ARE DIRECTLY LINKED SO HAVE TO BE TREATED AS REVENUE EX PENSES. FOR THE REASONS DISCUSSED AND RELYING UPON THE DECISION GIV EN BY HON'BLE ITAT MUMBAI IN THE CASE OF AJAY SINGH DEOL, THE CLAIM FO R DUBBING COST HAS TO BE ALLOWED AND HENCE ADDITION MADE FOR RS.25,81, 822/- I.E. RS.25,75,334/- INCURRED AS DUBBING COST IS ALLOWED. THE FACTS OF THE CASE ON HAND AS PER DETAILS ON RE CORD ARE THAT THE ASSESSEE WAS IN THE BUSINESS OF RUNNING A TELEVISIO N CHANNEL HUNGAMA AN ENTERTAINMENT CHANNEL FOR CHILDREN FOR BROADCASTING ENTERTAINMENT PROGRAMMES; WHICH IT PROCURED BY PAYMENT OF LICENCE FEES TO VARIOUS CHANNELS AND PRODUCTION HOUSES. THE COST OF SUCH LI CENCE FEES WAS AMORTISED BY THE ASSESSEE OVER THE PERIOD OF THE LICENCE. IT IS SEEN THAT THE DUBBING COST WAS INCURRED FOR TRANSLATING THE FOREIGN LANGUAGE E NTERTAINMENT PROGRAMMES INTO INDIAN LANGUAGES; WITHOUT INCURRING OF WHICH, SUCH FOREIGN LANGUAGE PROGRAMMES COULD NOT HAVE BEEN BROADCAST ON THE ASS ESSEES CHANNELS SINCE THE VIEWERS, MOSTLY CHILDREN, COULD NOT HAVE UNDERS TOOD OR APPRECIATED THEM. IN THIS FACTUAL MATRIX OF THE CASE, WE ARE OF THE C ONSIDERED VIEW THAT WITHOUT THE INCURRING OF DUBBING COSTS, THE ASSET, I.E. THE LICENCE COULD NOT BE UTILISED FOR EARNING REVENUE. IN OUR VIEW, ALL EXPENDITURE I NCURRED FOR SETTING UP THE ASSET, FOR MAKING IT READY FOR USE, WOULD AMOUNT TO AND BE IN THE NATURE OF CAPITAL EXPENDITURE AND THEREFORE THE DUBBING COST INCURRED BY THE ASSESSEE SHOULD FORM PART AND PARCEL OF THE COST OF ACQUISIT ION OF SUCH RIGHTS AS PART OF LICENCE, I.E. THE FOREIGN LANGUAGE ENTERTAINMENT PR OGRAMME AND SHOULD BE AMORTISED ALONGWITH THE COST OF THE LICENCE. WE HO LD AND DIRECT ACCORDINGLY AND CONSEQUENTLY REVERSE THE ORDER OF THE LEARNED C IT(A) AND RESTORE THE ORDER/FINDING OF THE AO ON THIS ISSUE. REVENUES GR OUNDS OF APPEAL ARE ACCORDINGLY ALLOWED. ITA NO. 1977/MUM/2015 M/S. UNITED HOME ENTERTAINMENT PVT. LTD. 5 5.2.3 WE HAVE CAREFULLY PERUSED THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF AJAY SINGH DEOL (SUPRA) RELIED UPON BY THE LEARNED CIT(A) AND FIND THAT THE FACTS OF THAT CASE ARE DIFFERENT, DISTINCT AND DISTINGUISHABLE FROM THOSE OF THE CASE ON HAND AND WOULD NOT COME TO THE RESCUE OF THE ASSESSEE IN THE CASE ON HAND. IN THAT CASE, THE ASSESSEE INCURRED CERTAIN EXPENDITURE TOWARDS MEDICAL TREATM ENT OF THE WIFE OF ONE OF HIS EMPLOYEES WHO WAS UNABLE TO MEET SUCH EXPEND ITURE WITH HIS LIMITED RESOURCES, AND CLAIMED DEDUCTION THEREOF AS BUSINESS EXPENDITURE. THOUGH THE AUTHORITIES BELOW DISALLOWED THE ASSESSE ES CLAIM, THE COORDINATE BENCH ALLOWED THE ASSESSEES APPEAL HOLD ING THAT AS LONG AS EXPENSES ARE INCURRED WHOLLY AND EXCLUSIVELY FOR EA RNING INCOME FROM BUSINESS OR PROFESSION, MERELY BECAUSE SOME OF THE EXPENSES ARE INCURRED VOLUNTARILY, THESE EXPENSES DO NOT CEASE TO BE DEDU CTIBLE. IT IS BEYOND OUR COMPREHENSION AS TO HOW THIS CASE WAS HELD TO BE AP PLICABLE TO THE CASE ON HAND AND FOLLOWED BY THE LEARNED CIT(A) TO ALLOW THE ASSESSEES CLAIM THAT DUBBING COSTS INCURRED TO RENDER THE ASSET, I. E. THE FILMS AND PROGRAMMES, READY FOR USE/BROADCAST AS REVENUE EXPE NDITURE. 6. IN THE RESULT, REVENUES APPEAL FOR A.Y. 2010-11 IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD DECEMBER, 2016. SD/ - SD/ - (SANDEEP GOSAIN) (JASON P. BOAZ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 23 RD DECEMBER, 2016 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) -14, MUMBAI 4. THE CIT - 8, MUMBAI 5. THE DR, F BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.