Pentamedia Graphics Limited, CHENNAI V. ACIT Company Circle V(2), Chennai

ITA 2319/CHNY/2018

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 8463 (ITAT-CHENNAI)
• Duration Of Justice: 3 year(s) 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-02-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 06-08-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Revenue expenditure
• Section: 14A

Judgement Text

आयकर अपीलीय अिधकरण, ‘बी’ ᭠यायपीठ, चे᳖ई IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH, CHENNAI Įी महावीर ͧसंह, उपाÚय¢ एवं Įी मनोज क ु मार अĒवाल, लेखा सदèय के सम¢ BEFORE SHRI MAHAVIR SINGH, VICE PRESIDENTAND SHRI MANOJ KUMAR AGGARWAL, ACCOUNTANT MEMBER आयकर अपील सं./ITA Nos.: 2319 & 2322/CHNY/2018 िनधाᭅरण वषᭅ /Assessment Years: 2008-09 & 2013-14 M/s. Pentamedia Graphics Limited, “Taurus”, 25, 1 st Main Road, United India Colony, Kodambakkam, Chennai – 600 024. PAN: AAACP1647B v. The ACIT, Company Circle – V(2), Chennai – 34. (अपीलाथᱮ/Appellant) (ᮧ᭜यथᱮ/Respondent) अपीलाथᱮ कᳱ ओर से/Appellant by : Ms. Sree Lakshmi Valli, Advocate ᮧ᭜यथᱮ कᳱ ओर से/Respondent by : Shri P. Sajit Kumar, JCIT स ु नवाई कȧ तारȣख/Date of Hearing : 15.02.2022 घोषणा कȧ तारȣख/Date of Pronouncement : 22.02.2022 आदेश /O R D E R PER MAHAVIR SINGH, VP: These two appeals by the assessee are arising out of different orders of Commissioner of Income Tax (Appeals)-14, Chennai in ITA Nos.155/CIT(A)-14/2010-11 & 33/CIT(A)/2016-17, vide both dated 28.05.2018. The assessments were framed by the Company Circle V(2), Chennai for the assessment year 2008-09 and by ACIT, Non- 2 I.T.A. Nos.2319 & 2322/Chny/2018 Corporate Circle – 20(1), Chennai for the assessment year 2013-14, both u/s.143(3) of the Income Tax Act, 1961 (hereinafter the ‘Act’) vide their orders of different date i.e., 20.12.2010 & 26.03.2016 respectively. 2. The first issue in ITA No.2319/Chny/2018 for assessment year 2008-09 is the CIT(A) erred in confirming the disallowance of deduction claimed by assessee of listing fee expenses of share capital amounting to Rs.2,47,800/-. For this assessee has raised following three grounds: 1.1 The Commissioner of Income Tax (Appeals) erred in confirming the disallowance of Rs. 2,47,800/- being the listing fees for share capital 1.2 The Commissioner of Income Tax (Appeals) erred in holding that the liability ought to have been provided for in the corresponding assessment years without appreciating that the issue was pending before the Madras High Court and was decided only this year. 1.3 The Commissioner of Income Tax (Appeals) ought to have noted that the liability to pay arose only in this assessment year when a communication was received from the Madras Stock Exchange Limited, pursuant to the approval of the Composite Scheme of Arrangement by the Madras High Court. 3. We have heard rival contentions and gone through facts and circumstances of the case. We noted from assessment order that the AO during the course of assessment proceedings, on perusal of ledger account for listing fee found that the assessee has incurred 3 I.T.A. Nos.2319 & 2322/Chny/2018 expenditure of Rs.2,46,900/- on 21.01.2008 towards ‘listing fee’ relating to the year 2005-06 & 2006-07. According to AO, these are prior period expenses and hence these cannot be allowed in this year. Aggrieved, assessee preferred appeal before CIT(A). The CIT(A) also on same reasoning confirmed the disallowance. Aggrieved, now assessee is in appeal before the Tribunal. 4. We noted that the listing fee amounting to Rs.2,47,800/- (being listing fee of Rs.1,23,900/- for each of the years i.e., 2005- 06 & 2006-07) was claimed as expenditure debited in the books of accounts as on 21.01.2008 and claimed in this assessment year 2008-09. The assessee’s contention from the beginning and admitted facts are that amount relates to arreas of listing fee for the share capital of Rs.25 crores as per the composite scheme of arrangement which was approved by Hon’ble High Court of Madras on 12.10.2004 and 08.11.2004. Consequent to this scheme approved by Hon’ble Madras High Court, a communication was received from Madras Stock Exchange Ltd., for making payment of share capital of Rs.250 crores. This payment was directed to be paid in this very year i.e., financial year 2007-08 relevant to this assessment year 2008-09. Consequent to this communication, assessee paid listing fee of Rs.2,47,800/- which pertains to the 4 I.T.A. Nos.2319 & 2322/Chny/2018 financial year 2005-06 & 2006-07. We noted that although the assessee is following mercantile system of accounting, but this was unascertained liability in the relevant year 2005-06 & 2006-07 but it got crystallized when the Madras Stock Exchange directed the assessee to make payment and on that point of time, this listing fee was paid. Hence, we found that this is an allowable expense and we allow the same. The orders of the lower authorities on this issue are reversed and this issue of assessee’s appeal is allowed. 5. Coming to ITA No.2322/Chny/2018 for assessment year 2013- 14, the second issue is as regard to the applicability of provisions of section 14A of the Act in respect to expenses relatable to exempt income. For this assessee has raised following grounds:- 2.1 The Commissioner of Income Tax (Appeals) ought to have held that that the provisions of section 14A is not at all applicable to the investment in shares of the 2 foreign subsidiaries. 2.2 The Commissioner of Income Tax (Appeals) ought to have noted that the dividend from the 2 foreign subsidiaries are not exempt and as such it is totally out of the purview of Sec. 4A. 6. At the outset, ld.counsel for the assessee stated that it has raised this issue unintentionally and the CIT(A) has already deleted the disallowance. Hence, she wants to withdraw this ground. Hence, this ground is dismissed as withdrawn. 5 I.T.A. Nos.2319 & 2322/Chny/2018 7. The next is common issue in both the appeals and the facts and circumstances of the issue are exactly identical in both the years. The grounds raised in ITA No.2319/Chny/2018 for assessment year 2008-09 reads as under:- 2.1 The Commissioner of Income Tax (Appeals) erred in restricting the depreciation claimed on digital content to 25% instead of 60%, treating the same as intangible assets. 2.2 The Commissioner of Income Tax (Appeals) ought to have noted that the digital content is software eligible for depreciation at a higher rate of 60% 2.3 Alternatively, the Commissioner of Income Tax (Appeals) ought to have allowed the entire cost of digital content as revenue expenditure. 8. At the outset, ld.counsel for the assessee fairly conceded that this issue is covered against the assessee and in favour of Revenue by Tribunal decision in assessee’s own case in ITA No.1406 & 1407/Chny/2015, order dated 08.05.2020, wherein Tribunal has considered this issue in Para 6, which reads as under:- 6. We have considered rival contentions and perused the material on record included cited case laws. We have observed that limited issue for our adjudication is as to eligibility of the assessee for depreciation on ‘Digital Content’ developed by assessee and which is held by assessee as an ‘asset’ which is used in various films by assessee, is to be allowed at the rate of 60% being computer software or it is to be allowed @25% as an intangible asset. The Revenue is contending that this digital content developed by assessee is merely intangible asset which entitles assessee for depreciation @ 25% while assessee is contending that the same is computer software and the assessee is eligible for depreciation @ 60%. In any case the effect will be tax neutral as overall depreciation spread over several years will ultimately cannot exceed in all cumulatively cost of the asset. The assesse 6 I.T.A. Nos.2319 & 2322/Chny/2018 has contended that it has developed software relating to animation graphics and special effects, based on which several animation films have been produced by it , even some nominated for the Oscar Awards. The computer animation and special effects in the form of computer software are referred to as ‘digital content’, stored in the hard disc of the computer. Thus, the assessee is claiming that ‘digital content’ developed by it is essentially computer software in so far as it related to the computer program that has been recorded on a storage device such as a disc. The assessee has claimed that the content developed is utilized in the multimedia and entertainment industry and , by is very nature, is a series of software programme recorded on storage device. As per Rule 5 to Income-tax Rules, 1962, the depreciation in respect of block of assets shall be calculated at percentages specified in Appendix 1 to Income-tax Rules, 1962 on written down value of such block of assets as are used for purposes of the business or profession of the assessee at any time during the previous year . In Appendix 1 to Income-tax Rules, 1962 at Part A under clause III- Machinery and Plant at sub-clause 5 , it is specified that Computers including computer software shall be eligible for depreciation @ 60%. The said also refer to Note Number 7 which clarify that ‘Computer Software’ means any computer program recorded on any disc, tape , perforated media or other information storage device. While Part B specifies ‘Intangible Assets’ which include know-how, patents , copy rights , trade marks , licenses , franchise or any other business or commercial rights of similar nature which shall entitle assessee for depreciation @25%. The assessee has relied upon the decision of Hon’ble Supreme Court in its own case rendered in context of customs laws in Commissioner of Customs, Chennai v. Pentamedia Graphics Limited in Appeal(Civil) 2576 of 2001 dated 09.05.2006, wherein in context of customs notifications as were applicable any kind of data which is capable of being manipulated by means of automatic data processing machine would be covered by the term ‘information technology software’. Presently, we are concerned with the 1961 Act and the relevant entry in Appendix I reads as under : “ PART A TANGIBLE ASSTS ** ** III Machinery and Plant *** *** (5) Computers including Computer Software (see note 7 below this table) (60) “Note 7 stipulates ‘Computer Software” means 7 I.T.A. Nos.2319 & 2322/Chny/2018 any computer program recorded in any disc, tape, perforated media or other information storage device.” Thus, as per note 7, computer software has been given restricted coverage to ‘computer program...’ vis-à-vis customs notifications referred to by Hon’ble Supreme Court in the aforestated case in assessee’s own case , wherein the said custom notifications referred to ‘Information Technology software’ means any representation of instructions, data, sound or image including source code and object code , recorded in a machine readable form , and capable of being manipulated or providing interactivity to a user , by means of an automatic data processing machine to be covered by the term ‘Information Technology Software’ . Thus, the coverage under customs laws was very wide while we are dealing with 1961 Act read with 1962 Rules and coverage of the term computer software is restrictive to computer program which is recorded in any disc , tape , perforated media or other information storage device. Thus, as could be seen that the assesee has developed Digital Content which is held by assessee as an asset and is used in various films etc after being manipulated. This in our considered view cannot be equated with a computer program but what is held by assessee is a digital content which is used by assessee in various films etc. . The computer animation and special effects are digital content which are stored in the hard disc of the computer. This digital content developed by assessee is utilized in the multimedia and entertainment industry and at best it is a copyrighted intangible asset owned by assessee which is manipulated by assessee to be used in various films etc. but to contend that it is a computer software within the meaning of Appendix 1 will be far fetched as it is not a computer program. If the language in the statute is clear and unambiguous then strict interpretation has to be done and it is well settled that there is no equity in taxing statute. Once the definition is given in the statute itself , then there is no need to refer to other statute and restrictive definition as is given in the 1961 Act read with 1962 Rules shall apply. In Wikipedia , Computer program is defined as collection of instructions that can be executed by a computer to perform a specific task. Most computer devices require programs to function properly. A computer program is usually written by a computer programmer in a programming language. From the program in its human-readable form of source code, a compiler or assembler can derive machine code—a form consisting of instructions that the computer can directly execute. Alternatively, a computer program may be executed with the aid of an interpreter. 8 I.T.A. Nos.2319 & 2322/Chny/2018 In Wikipedia, Computer Programming is defined as a collection of computer programs, libraries, and related data are referred to as software. Computer programs may be categorized along functional lines, such as application software and system software. The underlying method used for some calculation or manipulation is known as an algorithm. Computer programming is the process of designing and building an executable computer program to accomplish a specific computing result. Programming involves tasks such as: analysis, generating algorithms, profiling algorithms' accuracy and resource consumption, and the implementation of algorithms in a chosen programming language (commonly referred to as coding). The source code of a program is written in one or more languages that are intelligible to programmers, rather than machine code, which is directly executed by the central processing unit. The purpose of programming is to find a sequence of instructions that will automate the performance of a task (which can be as complex as an operating system) on a computer, often for solving a given problem. The process of programming thus often requires expertise in several different subjects, including knowledge of the application domain, specialized algorithms, and formal logic.Tasks accompanying and related to programming include: testing, debugging, source code maintenance, implementation of build systems, and management of derived artifacts, such as the machine code of computer programs. These might be considered part of the programming process, but often the term software development is used for this larger process with the term programming, implementation, or coding reserved for the actual writing of code. The scope of ‘Information Technology Software’ as is referred to in Hon’ble Supreme Court judgment in assessee’s own case was in context of Customs Laws which was very vide definition and hence we cannot draw analogy in the 1961 Act read with 1962 Rules. Thus, to say that digital contend developed by assessee can be equated with computer program is far fetched but rather it is a copyrighted material developed by assessee which is stored in computer. This digital content was manipulated by assessee to be used in different films but still it cannot be categorized t a higher pedestal of being termed as ‘computer program’ rather it still retains the character of copyrighted material being intangible asset and in our considered view, the assessee is eligible for depreciation @ 25% as these copyrighted material developed by assessee being ‘Digital Content’ which is used by the assessee in various films etc. . Thus, we concur with the view 9 I.T.A. Nos.2319 & 2322/Chny/2018 of learned CIT(A) who has passed well reasoned order which we affirm and dismiss the appeal of the assessee on this issue. Thus, ground number 2 to 8 stand dismissed. The ground number 1 and 10 are general in nature and does not require separate adjudication while ground number 9 is consequential in nature. We order accordingly. As the issue is squarely covered in assessee’s own case in ITA Nos.1406 & 1407/Chny/2013, we dismiss this issue of the assessee’s appeal. Consequently, similar issue in ITA No.2332/Chny/2018 for assessment year 2013-14 is also dismissed. 9. In the result, the appeals filed by the assessee in ITA No.2319/Chny/2018 is partly allowed and in ITA No.2322/Chny/2018 is dismissed. Order pronounced in the court on 22 nd February, 2022 at Chennai. Sd/- Sd/- (मनोज कुमार अᮕवाल) (MANOJ KUMAR AGGARWAL) लेखा सद᭭य /ACCOUNTANT MEMBER (महावीर ᳲसह ) (MAHAVIR SINGH) उपा᭟यᭃ /VICE PRESIDENT चे᳖ई/Chennai, ᳰदनांक/Dated, the 22 nd February, 2022 RSR आदेश कᳱ ᮧितिलिप अᮕेिषत/Copy to: 1. अपीलाथᱮ/Appellant 2. ᮧ᭜यथᱮ/Respondent 3. आयकर आयुᲦ (अपील)/CIT(A) 4. आयकर आयुᲦ /CIT 5. िवभागीय ᮧितिनिध/DR 6. गाडᭅ फाईल/GF.