DCIT, Hyderabad V. M/s Akash Cable TV Network(P) Ltd., Hyderabad

ITA 678/HYD/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 3139 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 1 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 29-04-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 21-05-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K V N CHARYA
• Assessee Lawyers: K VASANT KUMAR
• Keywords: Depreciation; Revenue expenditure; Capital expenditure

Judgement Text

ITA NO.678/HYD/2009 M/S AAKASH CABLE TV NETWORKS, HYDERABAD IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A , HYDERABAD BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI CHANDRA POOJARI ACCOUNTANT MEMBER ITA NO.:678/HYD/2009 ASSTT. YEAR : 2006-07 DY. CIT, CIRCLE 1 (1), HYDERABAD VS M/S AKASH CABLE TV NETWORK (P) LTD., HYDERABAD (PAN AABCA 86761) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI K.V.N. CHARYA, DR RESPONDENT BY : SHRI K. VASANT KUMAR O R D E R PER: N.R.S. GANESAN, JUDICIAL MEMBER THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED A GAINST THE ORDER PASSED BY THE CIT(A)-II, HYDERABAD DATED 13.3.20 09 AND PERTAINS TO THE ASSESSMENT YEAR 2006-07. THE ONLY ISSUE ARISES FOR CONSIDERATION IS, DISALLOWANCE OF EXPENDITURE INCURRED BY THE ASSESSEE O N REPLACEMENT OF TRADITIONAL CABLE LINE WITH OPTICAL FIBER CABLE. 2. SHRI K.V.N. CHARYA, THE DEPARTMENTAL REPRESENTA TIVE SUBMITTED THAT THE ASSESSEE IS ENGAGED IN DISTRIBUTION OF TELEVISION CHANNELS THROUGH CABLE NET WORK. DURING THE ASSESSMENT YEAR UNDER CONSIDERATION, THE ASSESSEE HAS CLAIMED AN EXPENDITURE OF RS.66,81,000/- TOWARDS LAYING OF CABLES AND CLAIMED TH E SAME AS REVENUE EXPENDITURE. HOWEVER, THE ASSESSING OFFICER DISAL LOWED THE CLAIM OF THE ASSESSEE BY HOLDING THAT THE EXPENDITURE WA S IN THE CAPITAL FIELD AND ALLOWED DEPRECIATION @ 15%. ACCORDING TO TH E LEARNED DEPARTMENTAL REPRESENTATIVE, THE ASSESSEE CLAIMED BEFORE THE LOWER AUTHORITIES THAT THERE WAS SOME DISPUTE BETWEEN THE ASSESSE E AND THE ITA NO.678/HYD/2009 M/S AAKASH CABLE TV NETWORKS, HYDERABAD 2 2 OTHER CABLE NET WORK OPERATORS, MORE PARTICULARLY M/S R .R. CABLES. THE RIVAL CABLE OPERATORS CUT AND DAMAGED THE CABLE OF THE ASSESSEE. THEREFORE THE ASSESSEE CLAIMED THAT JUST TO REPLACE THE DA MAGE CAUSED TO THE CABLE BY THE RIVAL OPERATORS, THE ASSESSEE REPLACED THE CABLE. ACCORDING TO THE LEARNED DEPARTMENTAL REPRESENTATIVE, THE ASSESSEE REPLACED THE OLDER CABLE INTO OPTICAL FIBER CABLE. ACCO RDING TO THE LEARNED DEPARTMENTAL REPRESENTATIVE, THE OPTICAL FIBE R CABLE IS IN THE NATURE OF ENDURING BENEFIT TO THE ASSESSEE. MOREOVER, IN CASE THE CABLE WAS CUT AND DAMAGED BY THE RIVAL GROUP, THE ASSESSEE WAS E XPECTED TO REPAIR AND REPLACE THE DAMAGED PORTION OF THE CABLE. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT ADMITTEDLY , THE ASSESSEE LAID ORDINARY CABLE ORIGINALLY. THE DAMAGED PORTION OF THE ORDINARY CABLE CAN BE REPLACED ONLY BY ANOTHER ORDINARY CABLE. IT CAN NOT BE REPLACED BY OPTICAL FIBER CABLE. IN CASE, THE OPTICAL FIBER CABLE IS TO BE LAID, THE ASSESSEE HAS TO NECESSARILY REPLACE THE ENTIRE CABLE INCLUDING THE PART WHICH ARE NOT DAMAGED. IN OTHER WORDS, ACCORDING TO TH E LEARNED DEPARTMENTAL REPRESENTATIVE, PART OF THE TRADITIONAL CABLE CANNOT BE REPLACED BY OPTICAL FIBER CABLE. THE LEARNED DEPARTME NTAL REPRESENTATIVE FURTHER SUBMITTED THAT, OPTICAL FIBER CABLE WILL BE USE FUL TO THE ASSESSEE IN CASE THE ASSESSEE SWITCHES OVER TO DTH METHOD OF TRANSMISSIO N OF SIGNAL. THEREFORE, ACCORDING TO THE LEARNED DEPARTMEN TAL REPRESENTATIVE, THE REPLACEMENT OF THE ORDINARY CABLE BY OPTICAL FIBER CABLE WOULD DEFINITELY GIVE AN ENDURING BENEFIT TO T HE ASSESSEE. THEREFORE, IT HAS TO BE TREATED AS CAPITAL EXPENDITU RE. THE LEARNED DEPARTMENTAL REPRESENTATIVE FURTHER POINTED OUT THAT WHEN THE ASSESSEE REPLACED TRADITIONAL CABLE BY OPTICAL FIBER CABLE, THER E WAS UP GRADATION. THEREFORE, THE EXPENDITURE INCURRED BY THE ASSESSEE HAS TO BE TREATED AS CAPITAL EXPENDITURE. REFERRING TO THE ORDER OF TH E CIT (A), THE LEARNED DEPARTMENTAL REPRESENTATIVE POINTED OUT THAT THE CIT (A) IS NOT CORRECT IN SAYING THAT NO NEW ASSET CAME INTO EXISTENCE. ITA NO.678/HYD/2009 M/S AAKASH CABLE TV NETWORKS, HYDERABAD 3 3 3. ON THE CONTRARY, SHRI K. VASANT KUMAR, LEARNED COU NSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS ADMITTEDLY IN T HE BUSINESS OF DISTRIBUTION OF TELEVISION CHANNELS THROUGH NET WORK . THE ASSESSEE RECEIVING SIGNALS THROUGH SATELLITE AND TRANSMITTING THE SAME TO THE RESPECTIVE CUSTOMERS THROUGH CABLE NET WORK. THERE ARE RIVAL OPERATORS IN THE FIELD. ON SEVERAL OCCASIONS, DUE TO RIVALRY BETW EEN THE TV CABLE OPERATORS, THE CABLE OF THE ASSESSEE WAS DAMAGED AND IT WAS ALSO REPORTED IN THE NEWSPAPERS. ACCORDING TO THE LEARNED CO UNSEL FOR THE ASSESSEE, THE ASSESSEE WAS REPLACING THE DAMAGED CABLE IN ORDE R TO CONTINUE IN HIS BUSINESS. ACCORDING TO THE LEARNED COUNSE L, UNLESS THE CABLE WAS REPAIRED AND REPLACED, THE ASSESSEE CANNOT CONTIN UE IN THE BUSINESS OF DISTRIBUTION OF TELEVISION CHANNELS THROUGH CA BLE NET WORK. NO DOUBT, ORIGINALLY THE ASSESSEE LAID TRADITIONAL CABLE S. HOWEVER, WHEN THE TRADITIONAL CABLE WAS CUT AND DAMAGED BY THE RIVAL GROUPS, THE ASSESSEE HAS REPAIRED AND REPLACED THE SAME BY LAYING OPTI CAL FIBER CABLE. BY LAYING OPTICAL FIBER CABLE, THE ASSESSEE IS NOT GETTING ANY ENDURING BENEFIT. AT THE BEST, THE ASSESSEE MAY CONTINUE IN THE VERY SAME BUSINESS OF DISTRIBUTION OF TELEVISION CHANNELS THROUG H CABLE NET WORK. THE CUSTOMERS MAY GET A BETTER SIGNAL THROUGH OP TICAL FIBER CABLE. THEREFORE, IT MAY NOT BE CORRECT TO SAY THAT TH E ASSESSEE GETS AN ENDURING BENEFIT BY REPLACING THE TRADITIONAL CABLE I NTO OPTICAL FIBER CABLE. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER SUBMI TTED THAT WHEN THE ASSESSEE LAID OPTICAL FIBER CABLE, THERE IS NO GU ARANTEE THAT THE OPTICAL FIBER CABLE GIVES ANY BENEFIT. THE ASSESSEE HAS TH E VERY SAME RISK OF DAMAGE BEING CAST BY RIVAL OPERATORS. THE LEAR NED COUNSEL FURTHER SUBMITTED THAT THE CABLE LINES ARE LAID IN THE PUBLIC PREMISES AND IT IS OUT OF THE CONTROL OF THE ASSESSEE. THEREFORE, TH E RISK OF BEING DAMAGED BY RIVAL GROUP, THEFT BY ANTI SOCIALS CANNOT BE RULED OUT. IN ITA NO.678/HYD/2009 M/S AAKASH CABLE TV NETWORKS, HYDERABAD 4 4 THOSE CIRCUMSTANCES, ACCORDING TO THE LEARNED COUNSEL, THE E XPENDITURE INCURRED BY THE ASSESSEE HAS BEEN RIGHTLY ALLOWED BY THE CIT (A). 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. ADMITT EDLY, THE ASSESSEE IS IN THE BUSINESS OF DISTRIBUTION OF TELEVISION CHANNELS T HROUGH CABLE NET WORK. ORIGINALLY, THE ASSESSEE TRANSMITTED THE TELEVISI ON SIGNALS BY TRADITIONAL CABLES. SUBSEQUENTLY, DURING THE ASSESSMENT YEAR UNDER CONSIDERATION, THE ASSESSEE REPLACED THE TRADITIONAL CABLE INTO OPTICAL FIBER CABLE. THE CONTENTION OF THE ASSESSEE IS THAT THE T RADITIONAL CABLE WAS CUT AND DAMAGED BY THE RIVAL CABLE NET WORK OPERA TIONS. THIS CONTENTION OF THE ASSESSEE IS NOT DISPUTED BY THE REVENUE. THE ONLY CONTENTION OF THE REVENUE IS THAT, WHEN THE PART OF T HE TRADITIONAL CABLE WAS CUT AND DAMAGED, THE ASSESSEE WAS EXPECTED TO REPAIR AN D REPLACE THE DAMAGED PART ALONE AND NOT THE ENTIRE CABLE BY O PTICAL FIBER CABLE. THE LEARNED DEPARTMENTAL REPRESENTATIVE CLARIFIED THA T PART OF THE TRADITIONAL CABLE WHICH WAS SAID TO BE DAMAGED CANNOT BE REPLACED BY OPTICAL FIBER CABLE. THEREFORE, THE LEARNED DEPARTMEN TAL REPRESENTATIVE CONTENDS THAT THE ASSESSEE GETS AN ENDURING BENEFIT. FOR THE PURPOSE OF TRANSMITTING TV SIGNALS, WHICH WAS RECEIVED BY THE ASSESSEE FROM SATELLITE, CABLE NET WORK IS REQUIRED. WHEN THE EXISTI NG TRADITIONAL CABLE WAS DAMAGED, THE ASSESSEE HAS TO NECESSARILY REPLACE THE DAMA GED PORTION OF THE CABLE FOR CONTINUING IN THE BUSINESS. T RANSMISSION OF SIGNAL IS A TECHNOLOGY WHICH IS CHANGING DAY TO DAY BASIS DUE TO SCIENTIFIC ADVANCEMENT. THEREFORE, WHEN THE ASSESSEE IS IN THE BUSINESS OF TRANSMISSION OF TELEVISION SIGNALS, IT HAS TO MAINTAIN PROPER CABLE NET WORK SYSTEM AS WELL, IN ORDER TO GIVE BETTER QUALITY O F SIGNAL TO THE CUSTOMERS/VIEWERS. WHEN THE TRADITIONAL CABLE WAS DAMAG ED, THE ASSESSEE HAS TO MAINTAIN THE CABLE WHICH WILL GIVE A BETTE R QUALITY OF ITA NO.678/HYD/2009 M/S AAKASH CABLE TV NETWORKS, HYDERABAD 5 5 SIGNAL TO THE CUSTOMERS/VIEWERS. THEREFORE, THE ASSESSEE HAS REPLACED THE TRADITIONAL CABLE INTO OPTICAL FIBER CABLE. BY RE PLACING INTO OPTICAL FIBER CABLE, AS RIGHTLY CONTENDED BY THE LEARNED COUNSE L FOR THE ASSESSEE, THE VIEWERS MAY GET A BETTER SIGNAL. IT IS NOT THE CONTENTION OF THE REVENUE THAT THE SUBSCRIBER OR CUSTOMER BASE HAS INCREASED DUE TO OPTICAL FIBER CABLE. THE CONTENTION OF THE LEARNED DEPARTMENTAL REPRESENTATIVE IS THAT THE ASSESSEE MAY SWITCH OVER TO DT H METHOD OF TRANSMISSION OF SIGNAL. IN OUR OPINION, BY USING OPTI CAL FIBER CABLE, THE ASSESSEE MAY NOT BE ABLE TO SWITCH OVER TO DTH FORM OF TRA NSMISSION. DTH FORM OF TRANSMISSION IS A METHOD OF TRANSMISSION OF SI GNAL BY A WIRELESS MODE. IN OTHER WORDS, THE TELEVISION CABLE OPE RATORS RECEIVE THE SIGNALS FROM SATELLITE AND TRANSMITTING THE SAME TO THE RESPECTIVE CUSTOMERS/VIEWERS THROUGH WIRELESS METHOD AND SUCH SIGNAL WOULD BE RECEIVED BY THE CUSTOMERS/VIEWERS IN THEIR RESPECTIVE HOU SES. THEREFORE, FOR TRANSMITTING THE SIGNAL THROUGH DTH MOD E, OPTICAL FIBER CABLE MAY NOT BE AN ESSENTIAL REQUIREMENT. THE VERY F ACT THAT THE OPTICAL FIBER CABLE WAS LAID BY THE ASSESSEE FOR CONTINUING IN THE BUSINESS OF TRANSMITTING SIGNAL THROUGH CABLE NET WORK SYSTEM ESTABLISHES THAT THE ASSESSEE DID NOT ACQUIRED ANY NEW ASSE T WHICH IS OF ENDURING IN NATURE. THEREFORE, IN OUR OPINION, MER ELY BECAUSE THE OPTICAL FIBER CABLE GIVES BETTER QUALITY OF SIGNAL TO T HE CUSTOMERS/VIEWERS IT CANNOT BE CONSTRUED AS GIVING ENDURING BENEFIT TO TH E ASSESSEE. IN OUR OPINION, REPLACEMENT OF CABLE IS AN ESSENTIAL REQUIR EMENT FOR CONTINUATION IN THE BUSINESS. THEREFORE, THE EXPENDIT URE INCURRED BY THE ASSESSEE IS IN THE REVENUE FIELD. WE DO NOT FIND ANY IN FIRMITY IN THE ORDER OF THE LOWER AUTHORITY AND THE SAME IS CONFIRMED . ITA NO.678/HYD/2009 M/S AAKASH CABLE TV NETWORKS, HYDERABAD 6 6 5. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT 30.6.2010 SD/- SD/- N.R.S. GANESAN CHANDRA POOJARI JUDICIAL MEMBER ACCOUNTANT MEMBER DATED THE 30 TH JUNE, 2010 COPY FORWARDED TO: 1. DY. CIT, CIRCLE 1 (1), 4 TH FLOOR, AAYAKAR BHAVAN, HYDERABAD 2. M/S AKASH CABLE TV NETWORKS (P) LTD., 603, 6 TH FLOOR, DEGA TOWERS, RAJ BHAVAN ROAD, SOMAJIGUDA, HYDERABAD 3. CIT(A)-II, HYDERABAD. 4. CIT, HYDERABAD 5. THE D.R., ITAT, HYDERABAD. NP