ACIT Non Corporate Circle 20(1), CHENNAI V. Mavis Satcom Ltd., CHENNAI

ITA 2212/CHNY/2018

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 6951 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-01-2019
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2009-2010
• Appeal Filed On: 23-07-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MRS S VIJAYA PRABHA
• Keywords: Depreciation; Opportunity of being heard; Cost of acquisition; Revenue expenditure; Capital expenditure

Judgement Text

, , IN THE INCOME-TAX APPELLATE TRIBUNAL D BENCH, CHENNAI . , . , BEFORE SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER & SHRI DUVVURU RL REDDY, JUDICIAL MEMBER ./ I.T.A.NOS.2212, 2213, 2214, 2215, 2216 & 2217/CHNY/2018 / ASSESSMENT YEARS: 2009-10, 10-11, 11-12, 12-13, 13-14 & 14-15 THE ASSISTANT COMMISSIONER OF INCOME TAX, NON CORPORATE CIRCLE 20(1), CHENNAI. VS. M/S. MAVIS SATCOM LTD., NO. 48, NP JAWAHARLAL NEHRU SALAI, EKKATUTHANGAL, CHENNAI 600 032. [PAN: AACCM2127K] ( /APPELLANT) ( /RESPONDENT) DEPARTMENT BY : MRS. S. VIJAYAPRABHA, JCIT ASSESSEE BY : NONE / DATE OF HEARING : 03.01.2019 /DATE OF PRONOUNCEMENT : 08.01.2019 / O R D E R PER DUVVURU RL REDDY, JUDICIAL MEMBER: THESE SIX APPEALS FILED BY THE REVENUE ARE DIRECTED AGAINST THE COMMON ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-14, CHENNAI DATED 27.04.2018 RELEVANT TO THE ASSESSMENT YEARS 2009-10, 2010- 11, 2011-12, 2012-13, 2013-14 AND 2014-15. THE ONLY EFFECTIVE GROUND RAISED BY THE REVENUE IN ALL THE APPEALS IS THAT THE LD. CIT(A) ERRED IN DELETING THE ADDITION MADE TOWARDS DISALLOWANCE OF FILM AND BROADCAST RIGHTS. I.T.A. NOS. 2212 TO 2217/CHNY/18 2 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A SATELLITE BROADCASTING COMPANY AND FILED ITS RETURN OF INCOME FOR THE ABOVE RELEVANT ASSESSMENT YEARS. THE RETURN FILED BY THE ASSESSEE WAS SELECTED FOR SCRUTINY THROUGH CASS AND NOTICE UNDER SECTION 143(2) OF THE ACT WAS DULY SERVED ON THE ASSESSEE. THE ASSESSEE HAS ACQUIRED COPY RIGHTS IN FILM FOR BROADCAST/ TELECAST BY IT THROUGH ITS SATELLITE. THE ASSESSEE COMPANY HAS CLAIMED THE PURCHASE OF COPY RIGHTS AS REVENUE EXPENDITURE BY DEBITING THE SAME TO PROFIT AND LOSS ACCOUNT. THE ASSESSEE WAS REQUESTED TO SHOW-CAUSE AS TO WHY THESE EXPENSES SHOULD NOT BE TREATED AS CAPITAL EXPENDITURE AND DEPRECIATION AS PER THE RULES BE ALLOWED. THE ASSESSEE FILED DETAILED SUBMISSIONS BEFORE THE ASSESSING OFFICER. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE ASSESSING OFFICER COMPLETED THE ASSESSMENT BY DISALLOWING THE COPY RIGHT PURCHASE AFTER ALLOWING ELIGIBLE DEPRECIATION AS PER INCOME TAX RULES FOR ALL THE ASSESSMENT YEARS. 3. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A). AFTER CONSIDERING THE SUBMISSIONS AND FOLLOWING THE DECISION OF THE COORDINATE BENCHES OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR EARLIER ASSESSMENT YEARS, THE LD. CIT(A) DELETED THE ADDITION MADE TOWARDS PURCHASE OF SATELLITE RIGHTS OVER FEATURE FILMS BY HOLDING THAT THE SAME IS REVENUE EXPENDITURE FOR ALL THE ASSESSMENT YEARS UNDER CONSIDERATION. I.T.A. NOS. 2212 TO 2217/CHNY/18 3 4. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. NONE APPEARED ON BEHALF OF THE ASSESSEE DESPITE SERVICE OF NOTICE, RPAD ON RECORD. HENCE, WE PROCEED TO DECIDE THE APPEAL AFTER HEARING THE LD. DR. 5. WE HAVE HEARD THE LD. DR, PERUSED THE MATERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. DURING THE COURSE OF HEARING, THE LD. DR HAS VEHEMENTLY ARGUED WITH REGARD TO APPLICABILITY OF RULE 9B OF THE INCOME TAX RULES AND OPPOSED THE COMMON ORDER PASSED BY THE LD. CIT(A). WE HAVE ALSO GONE THROUGH THE CONSOLIDATED ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 2003-04, 2004- 05, 2005-06, 2007-08 AND 2008-09 IN I.T.A. NOS. 1659, 1660, 1661, 1662 & 1663/MDS/2013 DATED 18.03.2014, WHICH WAS FOLLOWED BY THE LD. CIT(A) WHILE DELETING THE ADDITION, WHEREIN, THE TRIBUNAL HAS OBSERVED AND HELD AS UNDER: 10. ON MERITS, THE LD. DR HAS ASSAILED THE ORDER OF CIT(APPEALS) ON TWO COUNTS. I) AMORTIZATION OF COST OF ACQUISITION 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(APPEALS) ON THE ISSUE OF CAPITALIZATION OF COST OF COPYRIGHTS IN THE FILMS. AS PER THE REVENUE, THE COPYRIGHTS OF THE FILMS ARE INTANGIBLE ASSET AND THE ASSESSEE IS ENTITLED TO CLAIM BENEFIT OF DEPRECIATION ON SAME. WE FIND THAT THE CIT(APPEALS) HAS GIVEN A WELL REASONED AND DETAILED FINDING WITH RESPECT TO TREATING THE COST OF ACQUISITION OF THE FILM RIGHTS AS REVENUE IN NATURE, AS WELL AS THE APPLICABILITY OF RULE 9B IN THE CASE OF ASSESSEE. THE RELEVANT EXTRACT OF THE FINDINGS OF THE CIT(APPEALS) ON BOTH THE ISSUES ARE RE- PRODUCED HEREUNDER: I.T.A. NOS. 2212 TO 2217/CHNY/18 4 18. ONE MAY GO THROUGH THE PROVISIONS OF EXPLANATION 2 UNDER S.9(1)(VI) WHERE THE SALE CONSIDERATION FOR THE SALE, DISTRIBUTION OR EXHIBITION OF CINEMATOGRAPHY FILM WERE EXCLUDED FROM THE CLUTCHES OF ROYALTY TO AVOID THE PROVISIONS OF S.194J. IT WAS CONSCIOUS EXEMPTION PROVIDED FOR EXEMPTING THE SALE CONSIDERATIONS OF CINEMATOGRAPHY FILMS WHENEVER THEY ARE PURCHASED OR SOLD. THE WORDS USED IN S.9(1)(VI) EXPLANATION (2) CLAUSE (V) ARE SALE, DISTRIBUTION OR EXHIBITION OF CINEMATOGRAPHY FILMS. THE WORD DISTRIBUTION HAS BEEN EXPLAINED IN OXFORD LEARNERS DICTIONARY AS TO GIVE GOODS TO A LARGER NUMBER OF PEOPLE, TO SEND GOODS TO SHOPS OR STORES AND BUSINESS SO THAT THEY CAN BE SOLD, THE ACT OF GIVING OR DELIVERING SOMETHING TO A NUMBER OF PEOPLE, THE SYSTEM OF TRANSPORTING AND DELIVERING GOODS. FROM THIS DEFINITION IT CAN BE INFERRED THAT DISTRIBUTION MEANS TRANSPORTING AND DELIVERING GOODS TO A LARGER NUMBER OF PEOPLE FOR THE GIVEN CONTEXT. 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 PUBLIC. IN THIS CASE IT IS CLAIMED THAT THE ASSESSEE COMPANY IS THE DISTRIBUTOR AND EXHIBITOR OF CINEMATOGRAPHY FI9LMS IN A SINGLE ROLE. GENERALLY WHEN THE RIGHTS OF THE FILMS ARE PURCHASED FOR THE ENTIRE TERRITORY SUCH A PERSON HOLDING THE RIGHT WOULD IN TURN ENGAGE OR SELL THESE RIGHTS TO THEATRES AND SUCH PERSON IS CALLED A DISTRIBUTOR IN THE FILM INDUSTRY. SIMILARLY, A PERSON WHO EXHIBITS THE FILM IS CALLED AN EXHIBITOR MEANING OWNERS OF THE THEATRE. IN THIS CASE BEFORE ME, THE ASSESSEE COMPANY IS DISTRIBUTING THE FILM, BY UTILIZING MEDIUM OF SATELLITE, 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 AT EACH HOUSE. THE UNDERLYING MECHANISM IS SAME. THUS IN THE THEATRE AS WELL AS IN TELEVISION BROADCASTING THE PRODUCT UTILIZED FOR BROADCASTING IS THE CINEMA REEL. THE GOODS THAT WERE GIVEN OUT ARE AN IMAGE OF THE FILMS AND IN BOTH THE CASES THE GOODS GIVEN OUT ARE INTANGIBLE. IN THE CASE OF THEATRE, THEATRE OWNER CHARGES FOR ALLOWING THE VIEWER TO SIT IN HIS CHAIR AND IN CABLE TV THE SATELLITE COMPANY CHARGES FOR EACH 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 DEDUCTION. 19. XXXXXXXXXXXX 20. I HAD GONE THROUGH AND WEIGHED THE CONTRARY OBSERVATIONS. IT IS ACCEPTED THAT THE SATELLITE RIGHTS 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 TELEVISION WOULD NOT GIVE A REPEATED PERFORMANCE ON I.T.A. NOS. 2212 TO 2217/CHNY/18 5 THE REVENUE FROM WITH A VERY FEW EXCEPTIONS. WHAT IS CONCERNED HERE IS GENERAL TREND AND NOT EXCEPTIONAL TREND. FROM A STUDY OF THE PORTFOLIO 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 TV THE INTEREST OF THE VIEWER WOULD GO AWAY AND THIS ASPECT HAS BEEN VERY CLEARLY ENUNCIATED FROM THE FACT THAT THE FILMS ARE NOT GIVEN TO MULTIPLE BROADCASTING. COMING BACK TO RULE 9B, IT IS A SPECIAL CATEGORIZATION GIVEN FOR DEDUCTION THE COST OF PRODUCTION FOR ACQUIRING THE FILM RIGHTS IN ORDER TO SET OFF THE EXPENDITURE IN THE YEAR OF EXHIBITION AND BROADCASTING. IT IS ALREADY HELD ABOVE THAT THE PROVISIONS OF RULE 9B ARE APPLICABLE TO THIS CASE AND HENCE THE ASSETS ARE ALSO HELD TO BE TRADING ASSETS. THE ASSESSEE IS HAVING A PECULIAR BUSINESS MODEL WHEREIN THE EXPENDITURE ON ACQUISITION OF COPYRIGHTS OF THE FILMS IS HELD TO BE REVENUE IN NATURE. THE ACTIVITIES OF SPECIALIZED NATURE WHICH GIVES RISE TO ACCOUNTING ISSUES ARE EXPRESSLY EXCLUDED FROM THE SCOPE OF ACCOUNTING STANDARDS. THUS, WE HOLD THAT ACCOUNTING 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 THE YEAR OF ITS FIRST TELECAST. THERE IS NO REASON TO INTERFERE WITH THE FINDINGS OF THE CIT(APPEALS) AND THUS, THE SAME ARE CONFIRMED. 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 HAS 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 CASE DISCUSSED ABOVE, THE APPEALS OF THE REVENUE ARE DISMISSED BEING DEVOID OF MERIT. 6. ADMITTEDLY, WHILE DISMISSING THE APPEALS OF THE REVENUE AND DECIDING THE ISSUE IN FAVOUR OF THE ASSESSEE, IN THE ABOVE COMMON ORDER OF THE TRIBUNAL DATED 18.03.2014, THE TRIBUNAL HAS FOLLOWED THE DECISION OF THE TRIBUNAL IN THE CASE OF ACIT V. SUN TV NETWORK LTD. IN I.T.A. NOS. 1515 TO 1520/MDS/2013 DATED 31.10.2013. IT MAY BE A FACT THAT BOTH THE ABOVE I.T.A. NOS. 2212 TO 2217/CHNY/18 6 ORDERS OF THE TRIBUNAL MAY NOT BE AVAILABLE WITH THE DEPARTMENT WHILE COMPLETING THE ASSESSMENT FOR THE ASSESSMENT YEARS 2009-10 AND 2010-11. HOWEVER, IN THE ASSESSMENT ORDER FOR ASSESSMENT YEAR 2011-12, BEFORE THE ASSESSING OFFICER, THE AR OF THE ASSESSEE HAS FILED A COPY OF THE ORDER OF THE TRIBUNAL IN THE CASE OF ACIT V. SUN TV NETWORK LTD. (SUPRA) AND PLEADED THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE AND PRAYED FOR FOLLOWING THE SAME, AGAINST WHICH THE ASSESSING OFFICER HAS GIVEN A FINDINGS AT PARA 5.2 THAT 5.2 THE ASSESSEES SUBMISSIONS WERE CAREFULLY CONSIDERED. COMING THE ORDER OF THE HONBLE ITAT, CHENNAI ON THE ISSUE, THE ISSUE IS STILL NOT DECIDED AND THE CHANCES OF DEPARTMENT GOING ON APPEAL CANNOT BE RULED OUT. AT THIS STAGE, IT IS TOO PREMATURE TO REPLY ON THIS DECISION. HENCE, THE ASSESSEE CONTENTION IN THIS CONTEXT IS REJECTED. BE AS IT MAY, THERE WAS NO MENTION IN THE GROUNDS OF APPEAL FOR THE ASSESSMENT YEAR 2011-12 ONWARDS THAT THE DEPARTMENT PREFERRED ANY FURTHER APPEAL AGAINST THE ORDER OF THE TRIBUNAL IN THE CASE OF ACIT V. SUN TV NETWORK LTD. (SUPRA) OR SO. IF AT ALL THE DEPARTMENT PREFERRED FURTHER APPEAL BEFORE THE HONBLE JURISDICTIONAL HIGH COURT AGAINST THE ORDER OF THE TRIBUNAL, UNTIL AND UNLESS THE HONBLE HIGH COURT REVERSES THE FINDINGS OF THE TRIBUNAL, THE ORDER OF THE TRIBUNAL IS VERY MUCH BINDING ON THE DEPARTMENT. UNDER THE ABOVE FACTS AND CIRCUMSTANCES, WITH REGARD TO THE APPLICABILITY OF RULE 9B OF THE INCOME TAX RULES, AS HAS BEEN CONTENDED BY THE LD. DR, THE ASSESSING OFFICER IS DIRECTED TO RE-EXAMINE AS TO WHETHER THE FACTS AND ISSUE I.T.A. NOS. 2212 TO 2217/CHNY/18 7 IN THE PRESENT CASE ARE IDENTICAL TO THAT OF THE ISSUE RAISED AND DECIDED BY THE TRIBUNAL IN ITS ORDER DATED 31.10.2013 IN THE CASE OF ACIT V. SUN TV NETWORK LTD. (SUPRA) AS WELL AS ASSESSEES OWN CASE FOR EARLIER ASSESSMENT YEARS VIDE ORDER DATED 18.03.2014 AND DECIDE THE ISSUE IN ACCORDANCE WITH LAW BY ALLOWING AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 7. IN THE RESULT, ALL THE APPEALS FILED BY THE REVENUE ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THE 08 TH JANUARY, 2019 IN CHENNAI. SD/- SD/- (A.MOHAN ALANKAMONY) ACCOUNTANT MEMBER (DUVVURU RL REDDY) JUDICIAL MEMBER CHENNAI, DATED, 08.01.2019 VM/- /COPY TO: 1. / APPELLANT, 2. / RESPONDENT, 3. ( ) /CIT(A), 4. /CIT, 5. /DR & 6. /GF.