Appeal Details
Counselvise Citation
[2016] 132 COUNSELVISE.COM (IT) 6567 (ITAT-HYDERABAD)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
11 month(s) 9 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
13-05-2016
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
A
Next Hearing Date
26-04-2016
Assessment Year
2011-2012
Appeal Filed On
04-06-2015
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A : HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA.NO.760/HYD/2015 ASSESSMENT YEAR 2011-2012 EENADU TELEVISION PRIVATE LIMITED, HYDERABAD 500 016. PAN AACCM 7226P VS. ACIT, CIRCLE-13(1) HYDERABAD. (APPELLANT) (RESPONDENT) FOR ASSESSEE : MR. V. SIVAKUMAR FOR REVENUE : SMT. NIVEDITA BISWAS DATE OF HEARING : 26 .04.2016 DATE OF PRONOUNCEMENT : 13 .0 5 .2016 ORDER PER SMT. P. MADHAVI DEVI, J.M. THIS IS ASSESSEES APPEAL FOR THE A.Y. 2011- 2012. IN THIS APPEAL, THE ASSESSEE HAS RAISED THE F OLLOWING GROUNDS OF APPEAL. 1. THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-VI, HYDERABAD DATED 30-03-2015 IS ERRONEOUS, CONTRARY TO LAW AND FACTS OF THE CASE. 2. THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN SUSTAINING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER OF DEPRECIATION OF RS.53,08,43,906/- ON NON-COMPETE FEE. THE COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE SEEN THAT DEPRECIATION CLAIMED BY THE APPELLANT ON NON-COMPETE FEE IS IN ACCORDANCE 2 ITA.NO.760/HYD/2015 EENADU TELEVISION P. LTD., HYDERABAD. WITH LAW AND IS THEREFORE ALLOWABLE AS DEDUCTION WHILE COMPUTING THE INCOME OF THE APPELLANT. HENCE THE COMMISSIONER OF INCOME TAX (APPEALS) IS NOT JUSTIFIED IN CONFIRMING THE ACTION OF ASSESSING OFFICER IN DISALLOWING DEPRECIATION OF RS.53,08,43,906/- ON NON-COMPETE FEE. 3. THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN SUSTAINING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER OF COST OF PRODUCTION OF RS.46,94,76,000/- ON TV. SERIALS AND PROGRAMMES INCURRED BY THE APPELLANT AND ALLOWING ONLY DEPRECIATION @ 25% THEREON AT RS.11,73,69,000/-. THE COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE SEEN THAT TV SERIALS AND PROGRAMMES DO NOT HAVE LONG LIFE AND ONCE THEY ARE TELECAST, THER E MAY NOT BE MUCH VALUE FOR SUCH PROGRAMMES. IT IS FURTHER RELEVANT TO NOTE THAT COST OF PRODUCTION OF TV SERIALS & PROGRAMMES IS ALLOWED AS DEDUCTION BY THE DEPARTMENT ITSELF TO VARIOUS OTHER PRODUCERS OF TV SERIALS & PROGRAMMES AND SINGLING OUT THE APPELLANT ALONE IN DISALLOWING DEDUCTION IS NOT JUSTIFIED. HENCE, THE COMMISSIONER OF INCOME TAX (APPEALS) IS NOT JUSTIFIED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER BY TREATING THE COST OF PRODUCTION OF TV SERIALS/PROGRAMS AS CAPITAL EXPENDITURE AND ALLOWING ONLY DEPRECIATION THEREON @25%. 4. THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE ACTION OF ASSESSING OFFICER ALLOWING THE DEPRECIATION ON FILM SOFTWARE LIBRARY @ 15% ONLY AGAINST @ 25% CLAIMED BY THE APPELLANT. THE COMMISSIONER OF INCOME TAX (APPEALS) IS NOT JUSTIFIED IN UPHOLDING THE ASSESSING OFFICER'S VIEW HOLDING THAT FILM SOFTWARE LIBRARY IS ONLY A BUSINESS TOOL USED BY THE APPELLANT IN ITS BUSINESS AND IS THEREFORE GENERAL PLANT AND MACHINERY ONLY BUT NOT AN INTANGIBLE ASSET. 5. FOR ALL OF THE ABOVE AND SUCH OTHER GROUNDS AS MAY BE URGED AT THE TIME OF HEARING IT IS MOST 3 ITA.NO.760/HYD/2015 EENADU TELEVISION P. LTD., HYDERABAD. RESPECTFULLY PRAYED THAT THIS HON'BLE TRIBUNAL MAY BE PLEASED TO ALLOW THE APPEAL AND SUITABLE DIRECTIONS BE GIVEN TO THE ASSESSING OFFICER TO DELETE DISALLOWANCES MADE IN THE ASSESSMENT ORDER IN THE INTEREST OF JUSTICE. 1.1. VIDE LETTER DATED 11.04.2016, THE ASSES SEE MODIFIED GROUND NO.4 AS UNDER : 4. THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER I N ALLOWING DEPRECIATION OF RS.8,87,73,860/- ONLY ON WDV OF FILM SOFTWARE LIBRARY OF RS.59,18,25,732/- AT THE RATE OF 15% AGAINST WDV OF RS.185,16,46,289/- AT THE RATE OF 25% CLAIMED BY THE APPELLANT. THE COMMISSIONER OF INCOME TAX (APPEALS) IS NOT JUSTIFIED IN UPHOLDING THE ASSESSING OFFICER'S VIEW THAT THE WDV OF FILM SOFTWARE LIBRARY IS TO BE CONSIDERED AT RS.59,18,25,732/- ON WHICH DEPRECIATION IS TO BE ALLOWED AT 15% CONSIDERING FILM SOFTWARE LIBRARY AS GENERAL PLANT AND MACHINERY BUT NOT AS AN INTANGIBLE ASSET. 1.2. FURTHER, VIDE LETTER DATED 28.03.2016, THE ASSESSEE HAS RAISED THE FOLLOWING ADDITIONAL GROUND S OF APPEAL WHICH IS ALTERNATE TO GROUND OF APPEAL NO.3. WITHOUT PREJUDICE TO GROUND NO.3, THE LD. CIT(A) OUGHT TO HAVE ALLOWED THE NON-COMPETE FEE AS REVENUE EXPENDITURE WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF THE BUSINESS U/S.37(1) OF THE ACT OR AS DEFERRED REVENUE EXPENDITURE OVER THE AVAILABLE PERIOD. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY WAS FORMED AS A RESULT OF DEMERGER OF M/S. USHODAYA ENTERPRISES PVT. LTD., (IN SHORT M/S. UEP L). 4 ITA.NO.760/HYD/2015 EENADU TELEVISION P. LTD., HYDERABAD. M/S. UEPL WAS IN THE BUSINESS OF PRODUCING AND TELECASTING ENTERTAINMENT/NEWS/INFORMATION PROGRAMM ES UNDER THE TRADE NAME OF ETV. M/S. UEPL HAS DEMERG ED ITS TELEVISION BUSINESS INTO THREE COMPANIES VIZ., (1) M/S. EENADU TELEVISION PRIVATE LIMITED, (2) M/S. PRISM T V PRIVATE LIMITED AND (3) M/S. PANORAMA TELEVISION PR IVATE LIMITED. THE SCHEME OF ARRANGEMENT WAS APPROVED BY THE HONBLE HIGH COURT OF A.P. VIDE THEIR ORDER DATED 1 5 TH DECEMBER, 2010 W.E.F. 1 ST APRIL, 2010. THEREFORE, THE ASSESSEE COMPANY BEFORE US IS THE RESULTANT COMPAN Y OF THE DEMERGER. IN THE SCHEME OF DEMERGER, INTANGIBLE ASSET BY NAME NON-COMPETE FEE WHOSE WDV WAS RS.329,76,56,250 WAS DISTRIBUTED AMONG THE THREE DEMERGED COMPANIES. IN THE SCHEME OF DEMERGER, THE ASSESSEE HAD ACQUIRED THE INTANGIBLE ASSET OF NON- COMPETE FEES, WHOSE WDV VALUE IS RS.212,33,75,625 A ND THE ASSESSEE CLAIMED DEPRECIATION THEREON AT RS.53,08,43,906.25. 2.1. IN THE A.Y. 2007.08, THE PARENT COMPANY HAD ENTERED INTO A NON-COMPETE FEE AGREEMENT WITH M/S. USHA KIRAN TELEVISION AND M/S. USHA KIRAN MOVIES ON 30.01.2008 FOR NON-COMPETING IN THE BUSINESS DIRECT LY OR INDIRECTLY FOR A PERIOD OF FIVE YEARS FROM THE DATE OF AGREEMENT AND IN LIEU THEREOF, THE ASSESSEE COMPANY , PAID AN AMOUNT OF RS.670 CRORES TOWARDS NON-COMPETE FEE, DURING THE RELEVANT FINANCIAL YEAR, M/S. UEPL HAD CLAIMED DEPRECIATION OF RS.109,92,18,756. THE A.O. EXAMINED THE NATURE OF THE NON-COMPETE FEE AND THE 5 ITA.NO.760/HYD/2015 EENADU TELEVISION P. LTD., HYDERABAD. NECESSITY FOR PAYMENT OF SUCH NON-COMPETE FEE AND H ELD THAT BOTH THE PAYER AND THE PAYEE OF THE NON-COMPET E FEE ARE THE SAME PERSONS AND THEREFORE, THE METHOD ADOP TED FOR VALUATION OF THE NON-COMPETE FEE NEEDS TO BE EXAMINED. THEREAFTER, HE PROCEEDED TO EXAMINE THE VALUATION OF THE NON-COMPETE FEE AND ULTIMATELY HEL D THAT THE VALUATION ADOPTED BY THE ASSESSEE COMPANY IS NO T SUSTAINABLE. THEREAFTER, HE ALSO EXAMINED AS TO WHE THER THE NON-COMPETE FEE IS ELIGIBLE FOR DEPRECIATION AN D HELD THAT THE ASSESSEES CLAIM FOR SUBSTANTIAL DEPRECIAT ION IS NOTHING SHORT OF A COLOURABLE DEVICE IN THE NAME OF NON- COMPETE FEE WHEN THERE IS NO CASE OF COMPETING. HE, THEREFORE, REJECTED THE ASSESSEES CLAIM OF DEPRECI ATION. ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A) WHO CONFIRMED THE ORDER OF THE A.O. AND THE ASSESSEE IS IN APPEAL BEFORE US AGAINST THE DISALLOWANCE OF THE DEPRECIATION. 3. AT THE TIME OF HEARING, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS ISSUE IS COVERED IN FA VOUR OF THE ASSESSEE BY THE DECISION OF B BENCH OF THIS T RIBUNAL IN THE CASE OF PARENT COMPANY I.E., M/S. UEPL FOR T HE A.Y. 2008-09 IN ITA.NO.26/HYD/2011 WHEREIN THE TRIBUNAL HAS SET ASIDE THE ISSUE TO THE FILE OF THE A.O. TO EXAMINE THE IMPACT OF ACQUISITION OF 39% OF THE EQUITY SHAR ES BY M/S. EQUATOR TRADING ENTERPRISE P. LTD., AS IT HAS A CRUCIAL BEARING ON THE ISSUE AS TO WHETHER THE PAYM ENT OF NON-COMPETE FEE IS GENUINE AND NECESSARY. IT WAS FU RTHER OBSERVED THAT ONLY AFTER THE ISSUE RELATING TO THE 6 ITA.NO.760/HYD/2015 EENADU TELEVISION P. LTD., HYDERABAD. GENUINENESS OF NON-COMPETE FEE PAID AND NECESSITY T O PAY SUCH FEE IS RESOLVED, A.O. WILL DECIDE THE ALLOWABI LITY OF DEPRECIATION CLAIMED ON SUCH NON-COMPETE FEE BY KEE PING IN VIEW THE STATUTORY PROVISION AS WELL AS THE RATI O LAID DOWN IN THE DECISION REFERRED TO THEREIN AND ANY OT HER DECISION BROUGHT TO HIS NOTICE. THE LD. COUNSEL FOR THE ASSESSEE ALSO SUBMITTED THAT THE VERY SAME ISSUE HA D ARISEN IN THE CASE OF SISTER CONCERN M/S. PRISM TV LIMITED ALSO AND THIS TRIBUNAL VIDE ORDERS DATED 24.03.2016 IN ITA.NO.466/HYD/2015 HAD SET ASIDE THE ISSUE TO THE FILE OF THE A.O. WITH SIMILAR DIRECTIONS. THE COPY OF TH E ORDERS OF THE TRIBUNAL IN THE CASE OF BOTH THE ASSESSEES MENTIONED ABOVE ARE PLACED BEFORE US. 4. THE LD. D.R. HOWEVER, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 5. HAVING REGARD TO THE FACT THAT THE ISSUE WHICH HAD ARISEN IN THE CASE OF THE PARENT COMPANY AS WEL L AS THE SISTER CONCERN HAS BEEN REMITTED TO THE FILE OF THE A.O. FOR RECONSIDERATION, WE DEEM IT FIT AND PROPER TO S ET ASIDE THIS ISSUE ALSO TO THE FILE OF THE A.O. TO GIVE CON SEQUENTIAL EFFECT TO THE DECISIONS TAKEN BY HIM FOR THE A.Y. 2 009- 2010 IN THEIR CASES. THE RELEVANT FINDINGS OF THE ORDER OF THE TRIBUNAL FOR THE A.Y. 2009-2010 ARE EXTRACTED HEREUNDER FOR THE SAKE OF READY REFERENCE : 5. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT ON DEMERGER OF THE PARENT COMPANY, THE ASSESSEE HAS SUCCEEDED TO THE ISSUE OF THE DEPRECIATION ON NON-COMPETE FEE AS 7 ITA.NO.760/HYD/2015 EENADU TELEVISION P. LTD., HYDERABAD. WELL AND THEREFORE, THE DECISION OF THE TRIBUNAL FO R THE A.Y. 2008-2009 (CITED SUPRA) ON THE VERY SAME ISSUE WOULD BE CONSEQUENTIAL AND APPLICABLE TO THE FACTS OF THE CASE BEFORE US. WE FIND THAT THE TRIBUNAL AT PA RAS 25 TO 28 OF ITS ORDER HAS HELD AS UNDER : 25. WE HAVE HEARD THE SUBMISSIONS OF THE PARTIES AND PERUSED THE ORDERS OF REVENUE AUTHORITIES AS WELL AS OTHER MATERIALS ON RECORD AN D ALSO GONE THROUGH THE DECISIONS CITED. A PERUSAL OF THE ASSESSMENT ORDER AS WELL AS THE ORDER PASSED BY CIT(A) WOULD LEAVE NO ROOM FOR DOUBT THAT ASSESSEES CLAIM OF DEPRECIATION ON NON-COMPETE FEE HAS BEEN REJECTED BASICALLY FOR THE FOLLOWING T WO REASONS: 1. GENUINENESS OF THE PAYMENT MADE AND NECESSITY OF PAYING NON-COMPETE FEE. 2. NON-COMPETE FEE NOT BEING IN THE NATURE OF AN INTANGIBLE ASSET AS DEFINED IN SECTION 32(1)(II), DEPRECIATION IS NOT ALLOWABLE. 26. BEFORE EXAMINING WHETHER NON-COMPETE FEE CAN BE CONSIDERED TO BE AN INTANGIBLE ASSET SO AS TO ENTITLE THE ASSESSEE TO CLAIM DEPRECIATION ON IT, I T IS NECESSARY, AT THE OUTSET, TO ADDRESS THE ISSUE OF GENUINENESS OF PAYMENT OF NON-COMPETE FEE AND NECESSITY TO MAKE SUCH PAYMENT. AS CAN BE SEEN FROM THE ASSESSMENT ORDER, AO HAS TREATED THE AGREEMENT ENTERED INTO BETWEEN ASSESSEE FOR PAYMENT OF NON-COMPETE FEE AS A SHAM TRANSACTION AS SHRI RAMOJI RAO IS NOT ONLY THE OWNER OF UKT AND UKM BEING THE KARTA OF HUF TO WHICH THESE CONCERNS BELONG BUT HE ALSO IN HIS INDIVIDUAL CAPACITY IS TH E CHAIRMAN OF THE ASSESSEE COMPANY. AS SUCH, ASSESSEE CANNOT BE CONSIDERED TO BE COMPETING WITH HIMSELF. AS IT IS AN ARRANGEMENT BETWEEN RELATED PARTIES, THERE IS NO NECESSITY FOR PAYMENT OF NON- COMPETE FEE. AO FURTHER OBSERVED THAT THE ASSESSEE HAS ENTERED INTO AGREEMENT FOR PAYMENT OF NON- COMPETE FEE TO REDUCE ITS TAX BURDEN BY ALLOWING SH RI RAMOJI RAO HUF TO ADJUST THE NON-COMPETE FEE AGAINST THE HUGE BROUGHT FORWARD LOSSES SUFFERED BY 8 ITA.NO.760/HYD/2015 EENADU TELEVISION P. LTD., HYDERABAD. IT. AO ALSO RAISED DOUBTS WITH REGARD TO THE VALUE OF NON-COMPETE FEE AT RS. 670 CRORES. HOWEVER, THE CIT(A) HAS REJECTED ASSESSEES CLAIM BY HOLDING THA T AS SHRI RAMOJI RAO, WHO IS THE KARTHA OF HUF, WHICH OWNS UKT AND UKM AND ALSO IN HIS INDIVIDUAL CAPACITY IS THE CHAIRMAN OF THE ASSESSEE COMPANY, THEREFORE, THERE IS NO QUESTION OF PAYING NON-COMPE TE FEE AS A PERSON CANNOT COMPETE WITH HIMSELF. OF COURSE THE CIT()A) HAS ALSO HELD THAT AS NON-COMPET E FEE DOES NOT PROVIDE ANY ASSET OF ENDURING NATURE, DEPRECATION CANNOT BE ALLOWED. IN THIS CONTEXT, IT IS TO BE NOTED THAT ASSESSEE ON 25/01/2008 HAS ENTERED INTO SUBSCRIPTION AGREEMENT AND SHARE PURCHASE AGREEMENT WITH A DOMESTIC COMPANY, VIZ.; EQUATOR TRADING ENTERPRISES PVT. LTD. AS PER WHICH THE SAID DOMESTIC COMPANY AGREED TO MAKE SUBSTANTIAL INVESTMENT IN PURCHASE OF EQUITY SHARES OF THE ASSESSEE COMPANY. HOWEVER, AS A PRECONDITION FOR MAKING SUCH INVESTMENT, THE SAID DOMESTIC COMPANY REQUIRED THE ASSESSEE COMPANY TO ENTER INTO A NON- COMPETE AGREEMENT WITH UKT AND UKM. THOUGH, COPIES OF THE SHARE PURCHASE AGREEMENT AND SUBSCRIPTION AGREEMENT ARE NOT AVAILABLE ON RECORD BEFORE US, HOWEVER, ON PERUSAL OF THE CLOSING AGREEMENT DATED 30/01/08 BETWEEN ASSESSEE AND M/S EQUATOR TRADING ENTERPRISES PVT. LTD. A COPY OF WHICH IS AT PAGE 220 OF PAPER BOOK, WE FIND A REFERENCE TO SUCH PRECONDITION IN CLAUSE 2(A). FURT HER, AS IT APPEARS FROM THE FACT ON RECORD AND WHICH REMAINS UNCONTROVERTED IN PURSUANCE TO THE CONDITIO N IMPOSED BY THE DOMESTIC INVESTOR ASSESSEE HAS ENTERED INTO THE NON COMPETE AGREEMENT WITH UKT AND UKM FOR A PERIOD OF 5 YEARS ON PAYMENT OF NON- COMPETE FEE OF RS. 670 CRORES, WHICH IS ALSO APPROV ED BY THE DOMESTIC INVESTOR. IT IS THE CONTENTION OF ASSESSEE THAT AS A RESULT OF FULFILLMENT OF SUCH CONDITION OF NON-COMPETE FEE THEREBY EXCLUDING UKT AND UKM COMPETING WITH ASSESSEE COMPANY IN FUTURE, THE DOMESTIC COMPANY INVESTED SUBSTANTIAL AMOUNT BY ACQUIRING 39% OF SHARE IN THE ASSESSEE COMPANY. 9 ITA.NO.760/HYD/2015 EENADU TELEVISION P. LTD., HYDERABAD. 27. FROM THE AFORESAID FACTS IT CANNOT BE DENIED THAT EQUATOR TRADING ENTERPRISES PVT. LTD IS A MAJO R STAKEHOLDER IN ASSESSEE COMPANY. AS CAN BE SEEN FROM THE ASSESSMENT ORDER AS WELL AS ORDER PASSED BY THE CIT(A) BEFORE COMING TO THEIR RESPECTIVE CONCLUSION THAT THE TRANSACTION ENTERED INTO BY PAR TIES FOR PAYMENT OF NON-COMPETE FEE IS NOT GENUINE OR THERE IS NO NECESSITY FOR PAYING THE NON-COMPETE FE E AS THE SAME PERSON IS CONTROLLING BOTH THE ASSESSEE COMPANY AND THE TWO OTHER COMPANIES ACQUIRED BY THE ASSESSEE, THE ROLE OF M/S EQUATOR TRADING ENTERPRISES PVT. LTD. IN ANY DECISION TAKEN BY ASSESSEE COMPANY HAS NOT AT ALL BEEN CONSIDERED. NEITHER THE AO NOR THE CIT(A) HAS EXAMINED THE EFFE CT OF ACQUISITION OF 39% OF EQUITY SHARES BY ANOTHER ENTITY AND WHETHER AFTER SUCH ACQUISITION OF SHARES , IT CAN STILL BE HELD THAT SHRI RAMOJI RAO IS THE CONTROLLING AUTHORITY OF ASSESSEE COMPANY AND IT IS A TRANSACTION BETWEEN RELATED PARTIES. UNFORTUNATELY, THE ASSESSMENT ORDER AND ORDER OF CIT(A) IS TOTALLY SILENT ON THIS ASPECT. THOUGH IN THE REMAND REPORT, AO HAS EXAMINED THE ISSUE OF INVESTMENT MADE BY THE DOMESTIC INVESTOR AND HAS ALLEGED THAT IT AS A SHAM TRANSACTION AND A COLLUSIVE AGREEMENT ENTERED INTO BETWEEN THE PARTIES TO REDUCE THE TAX BURDEN B Y CLAIMING DEPRECIATION ON PAYMENT OF NON-COMPETE FEE . HOWEVER, SUCH INFERENCE DRAWN BY AO, IN OUR VIEW, I S MORE ON PRESUMPTIONS AND SURMISES RATHER THAN ON THE BASIS OF STRONG EVIDENCE. WHEN TWO INDEPENDENT PARTIES ENTER INTO AN AGREEMENT ON CERTAIN TERMS AN D CONDITIONS, IT CANNOT BE TERMED AS SHAM OR COLLUSIV E WITHOUT BRINGING SUFFICIENT EVIDENCE TO PROVE SUCH FACT. AO CANNOT TREAT THE TRANSACTION AS A COLOURAB LE DEVICE ADOPTED BY THE PARTIES MERELY ON PRESUMPTIONS AND SURMISES WITHOUT PROVING THE FACT THAT EITHER THE PROMOTERS OF BOTH THE COMPANIES ARE SAME OR M/S EQUATOR TRADING ENTERPRISES PVT. LTD. I S A FRONT COMPANY OF EITHER THE ASSESSEE OR THE RAMOJ I RAO GROUP. IN THESE CIRCUMSTANCES, THE INFERENCE DRAWN ON MERE ASSUMPTIONS AND PRESUMPTIONS THAT THE AGREEMENT IS A COLOURABLE DEVICE TO REDUCE THE TAX BURDEN CANNOT BE ACCEPTED. THEREFORE, WITHOUT EXAMINING THE IMPACT OF INVESTMENT MADE IN EQUITY 10 ITA.NO.760/HYD/2015 EENADU TELEVISION P. LTD., HYDERABAD. SHARES TO THE EXTENT OF 39% BY THE DOMESTIC INVESTO R AND CONDITION IMPOSED BY IT, THE CONCLUSION DRAWN B Y THE CIT(A) THAT THERE IS NO NECESSITY OF PAYMENT OF NON-COMPETE FEE AS THE SAME PERSON IS CONTROLLING T HE ASSESSEE COMPANY AS WELL AS UKT AND UKM, IN OUR VIEW, IS WITHOUT PROPER APPRECIATION OF FACTS AND EVIDENCES BROUGHT ON RECORD, HENCE, CANNOT BE SUSTAINED. 28. EVEN THOUGH THE AO IN THE ASSESSMENT ORDER HAS ALSO RAISED THE ISSUE OF PAYMENT OF NON-COMPETE FEE FOR THE PURPOSE OF SETTING OFF THE LOSS SUSTAIN ED BY THE HUF AND ALSO HAS QUESTIONED THE VALUE OF NON- COMPETE FEE BUT THE LEARNED CIT(A) HAS NOT AT ALL D EALT WITH THESE ISSUES. BE THAT AS IT MAY, IT NEEDS TO B E OBSERVED THAT SO FAR AS VALUATION OF NON-COMPETE FE E IS CONCERNED, IN COURSE OF ASSESSMENT PROCEEDING, ASSESSEE HAS SUBMITTED A VALUATION REPORT OF A CA FIRM IN SUPPORT OF THE VALUATION MADE BY IT. THEREF ORE, IF THE AO HAD ANY DOUBT WITH REGARD TO THE VALUATI ON MADE, HE SHOULD HAVE GOT IT VALUED THROUGH AN INDEPENDENT VALUER IN STEAD OF REJECTING THE VALUAT ION BY SIMPLY OBSERVING THAT THE METHOD ADOPTED IS NOT CORRECT OR SCIENTIFIC. IT IS ALSO ALLEGED BY THE AO THAT THE PAYMENT OF NON-COMPETE FEE WAS MADE ON THE ONE HAND TO ENABLE THE ASSESSEE TO REDUCE ITS PROFIT AN D AT THE SAME TIME ALLOWING SHRI RAMOJI RAO HUF TO ADJUST IT AGAINST ITS HUGE BROUGHT FORWARD LOSSES. IN THIS CONTEXT, IT IS TO BE OBSERVED THAT IN COURSE O F HEARING BEFORE US THE LEARNED AR HAS SUBMITTED CERTAIN DOCUMENTS AS ADDITIONAL EVIDENCE. A PERUSAL OF THE SAID DOCUMENTS REVEAL THAT SHRI RAMOJI RAO HUF FOR THE ASSESSMENT YEAR 2008-09 HAS NOT ONLY SHOWN THE NON COMPETE FEE RECEIVED BY IT AS INCOME BUT HAS ALSO ADJUSTED IT AGAINST THE BROUGHT FORWAR D LOSSES OF EARLIER YEARS. AO I.E. JCIT, RANGE -16, W HILE COMPLETING ASSESSMENT IN CASE OF SHRI RAMOJI RAO HUF HAS ACCEPTED NOT ONLY THE INCOME BUT ALSO ITS ADJUSTMENT AGAINST BROUGHT FORWARD LOSSES IN AN ASSESSMENT ORDER PASSED U/S 143(3) ON 24/12/2010. THEREFORE, WHEN THE NON-COMPETE FEE PAID BY ASSESSEE HAS BEEN ACCEPTED AT THE HANDS OF SHRI RAMOJI RAO HUF AND ALLOWED TO BE SET OFF 11 ITA.NO.760/HYD/2015 EENADU TELEVISION P. LTD., HYDERABAD. AGAINST THE BROUGHT FORWARD LOSSES, IT NEEDS TO BE EXAMINED WHETHER STILL THE PAYMENT OF NON-COMPETE FEE MADE BY THE ASSESSEE TO SHRI RAMOJI RAO HUF CAN BE HELD TO BE EITHER NON-GENUINE OR NOT NECESSARY. THEREFORE, CONSIDERING THE TOTALITY OF T HE FACTS AND CIRCUMSTANCES WE ARE OF THE VIEW THAT AS THE IMPACT OF ACQUISITION OF 39% OF EQUITY SHARES B Y M/S EQUATOR TRADING ENTERPRISES PVT. LTD. HAS NOT A T ALL BEEN EXAMINED BY AO AT THE TIME OF ASSESSMENT PROCEEDING OR BY THE LEARNED CIT(A) WHILE DISPOSING OF ASSESSEES APPEAL AND FURTHER AS THE ADDITIONAL EVIDENCES PRODUCED BEFORE US WERE NOT EXAMINED EITHER BY THE AO OR BY CIT(A), WHICH CERTAINLY HAVE A CRUCIAL BEARING ON THE ISSUE AS TO WHETHER THE PAYMENT OF NON-COMPETE FEE IS GENUINE AND NECESSARY, WE ARE INCLINED TO REMIT THE MATTER BACK TO THE FILE OF AO FOR DECIDING AFRESH. ... 5.1. THIS APPEAL BEFORE US BEING FOR THE SUBSEQUENT ASSESSMENT YEAR, ALSO NEEDS TO BE REMANDED TO THE FILE OF THE A.O. TO GIVE CONSEQUENT IAL EFFECT TO THE DECISIONS TAKEN BY HIM FOR THE A.Y. 2 009- 2010. THIS GROUND OF APPEAL IS ACCORDINGLY TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 5.1. IN THE RESULT, THIS GROUND OF APPEAL IS TREAT ED AS ALLOWED FOR STATISTICAL PURPOSES. 6. AS REGARDS GROUND NO.3, THE LD. COUNSEL FOR THE ASSESSEE, SUBMITTED THAT THIS IS AGAINST THE DISALLOWANCE MADE BY THE A.O. FOR COST OF PRODUCTIO N OF TV SERIALS AND PROGRAMMES INCURRED BY THE ASSESSEE AND ALLOWING DEPRECIATION ONLY @ 25% THEREON BY TREATIN G THE SAME AS CAPITAL EXPENDITURE. THE LD. COUNSEL FOR TH E ASSESSEE SUBMITTED THAT SIMILAR ISSUE HAD ARISEN IN THE CASE OF M/S. PRISM TV P. LTD., (CITED SUPRA) AND TH E TRIBUNAL HAS ALLOWED THE SAME AS REVENUE EXPENDITUR E. 12 ITA.NO.760/HYD/2015 EENADU TELEVISION P. LTD., HYDERABAD. 7. THE LD. D.R. ON THE OTHER HAND, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 8. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT SIMILAR ISSUE HAD ARISEN IN THE CASE OF THE SISTER CONCERN PRISM TV PRIVATE LTD., HYDERABAD VS. DCIT, CIRCLE16(3), HYDERABAD AND THIS TRIBUNAL VIDE ORDERS DATED 24.03.2016 IN ITA.NO.466 & 1249/HYD/2015 AT PARAS 6 TO 9 HAS HELD AS UNDER : 6. AS REGARDS GROUND NO.2, AGAINST THE TREATING OF THE COST OF PRODUCTION OF TV SERIALS AN D PROGRAMMES AS CAPITAL EXPENDITURE, BRIEF FACTS ARE THAT THE ASSESSEE COMPANY DEBITED AN AMOUNT OF RS.123,63,94,000 TOWARDS COST OF PRODUCTION OF TV SERIALS AND PROGRAMMES FOR THE YEAR UNDER CONSIDERATION. INSTEAD OF CLAIMING DEPRECIATION, TH E ENTIRE EXPENDITURE WAS CLAIMED AS REVENUE EXPENDITURE AND DEBITED TO THE P & L ACCOUNT. THE A.O. OBSERVED THAT THE COST OF PRODUCTION OF TV SER IALS AND PROGRAMMES IS NOT COVERED UNDER RULE 9A OR 9B OF I.T. RULES. AS THESE RULES ARE APPLICABLE ONLY T O PRODUCTION OF FEATURE FILMS. THE A.O. TREATED THE E NTIRE EXPENDITURE AS CAPITAL EXPENDITURE AND ALLOWED THE DEPRECIATION THEREON. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A) WHO CONFIRMED THE ORDER OF THE A.O. AND THE ASSESSEE IS IN SECOND APPEAL BEFORE US. 7. THE LD. COUNSEL FOR THE ASSESSEE, WHILE REITERATING THE SUBMISSIONS MADE BY THE ASSESSEE BEFORE THE AUTHORITIES BELOW, HAS RELIED UPON THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL A T CHENNAI AND MUMBAI AND ALSO THE DECISION OF HONBLE HIGH COURT AT DELHI IN SUPPORT OF HIS CONTENTION THAT THE EXPENDITURE INCURRED ON PRODUCTION OF TELEVISION PROGRAMMES SHOULD BE ALLOWED AS REVENUE EXPENDITURE UNDER SECTION 37 OF 13 ITA.NO.760/HYD/2015 EENADU TELEVISION P. LTD., HYDERABAD. THE I.T. ACT. COPIES OF THE SAID DECISIONS ARE ALSO FILED BEFORE US. 8. THE LD. D.R. ON THE OTHER HAND, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 9. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT THE A BENCH OF THIS TRIBUNAL AT CHENNAI IN THE CASE OF ACIT, MEDIA CIRCLE-II, CHENNAI VS. M/S. SUN TV NETWORK LTD., CHENNAI IN ITA.NOS.1515 TO 1520/MDS/2013 BY ITS ORDER DATED 31.10.2013 HAS HELD AS UNDER : 8. NOW, WE TAKE UP THE COMMON ISSUE INVOLVED IN ALL THE APPEALS. THE ASSESSEE IS IN THE BUSINESS OF RUNNING SATELLITE TELEVISION CHANNELS. THESE CHANNELS TELECAST FILMS, SERIALS ETC., THROUG H SATELLITE CHANNELS. THE RIGHTS OVER THESE FILMS ARE PURCHASED FROM THE PRODUCERS OF THE RESPECTIVE FILMS FOR BROADCASTING THROUGH SATELLITE TELEVISION . THESE RIGHTS COME WITH AN EMBARGO THAT THE FILMS SHALL NOT BE BROADCASTED OR AIRED FOR A SPECIFIED PERIOD FROM THE DATE OF RELEASE IN THEATRES DEPENDING UPON THE SUCCESS AT THE BOX OFFICE AND OTHER FACTORS. TILL THE TIME, SUCH FILMS ARE BROADCASTED, THEY ARE TO BE TREATED AS STOCK IN TRADE. ONCE THE FILMS ARE BROADCASTED, THE PURCHASE VALUE OF THE FILMS IS WRITTEN-OFF. THE EXPENDITURE ON PURCHASE OF FILMS IS CLAIMED IN THE FIRST YEAR ITSELF. THE ASSESSEE HAS GOT ONLY SATELL ITE TELECASTING RIGHTS AND HAS NO UNIVERSAL RIGHTS FOR AIRING THE FILMS OR SERIALS. ONCE THE FILM OR THE SERIAL IS AIRED, ITS VALUE IS DIMINISHED IN SUBSEQUENT TELECASTS. THE ASSESSEE EARNS SUBSTANTIAL REVENUE IN THE FIRST TELECAST ITSELF. I N REPEAT TELECAST, THE ASSESSEE IS ABLE TO GENERATE MARGINAL REVENUE. WHATEVER INCOME IS EARNED FROM THE SUBSEQUENT TELECASTS IS OFFERED AS INCOME WITHOUT CLAIMING ANY EXPENDITURE. THE ASSESSEE ALSO GENERATES REVENUE FROM BROADCASTING SERIALS THROUGH SATELLITE CHANNELS. THE ASSESSEE GETS REVENUE FROM PRODUCTION AND 14 ITA.NO.760/HYD/2015 EENADU TELEVISION P. LTD., HYDERABAD. BROADCASTING SERIALS ON THE LINES OF FEATURE FILMS, THE RIGHTS OF BROADCASTING SUCH SERIALS ARE ALSO TREATED AS STOCK IN TRADE TILL THE TIME THEY ARE AI RED AND THE EXPENSES ARE DEBITED TO THE PROFIT & LOSS ACCOUNT. THE ASSESSEE TREATS THE FILMS AND THE SERIALS AT PAR AND APPLIED THE PROVISIONS OF RULE 9A AND 9B OF THE INCOME TAX RULES, AS ARE APPLICABLE IN CASE OF FILMS ON SERIALS AS WELL. ON THE OTHER HAND, THE CONTENTION OF THE REVENUE IS THAT THE FILM AND SERIAL BROADCASTING RIGHTS ACQUIRED BY ASSESSEE ARE PERPETUAL IN NATURE. AFTER FIRST TELECAST, THE ASSESSEE DOES NOT DISCARD THE FILMS BUT CAREFULLY STORE THE SAME IN DIGITAL LIBRARY FOR AIRING THE SAME AGAIN. THEREFORE, THE ASSESSEE GETS ENDURING BENEFIT FROM THE RIGHTS ACQUIRED IN FILMS AND SERIALS AND THEY DO NOT EXPIRE ON THE DATE OF FIRST TELECAST AS CONTEMPLATE D BY THE ASSESSEE. THE RIGHTS ARE INTANGIBLE ASSETS WITHIN THE MEANING OF EXPLANATION (III) TO SECTION 32 AND DO NOT FALL WITHIN THE PURVIEW OF SECTION 37(1). THE ASSESSEE IS ENTITLED TO CLAIM DEPRECIATION ON SAME. 9. THE ISSUE OF AMORTIZATION OF COST OF MOVIE AND SERIAL RIGHTS, PROGRAMME PRODUCTION EXPENSES, CONSUMABLE AND MEDIA EXPENSES BY TREATING THEM AS INTANGIBLE ASSETS U/S.32(1)(II) HAS BEEN DEALT I N DETAIL BY THE CIT (APPEALS) IN HIS ORDER DATED 23- 02-2013 RELEVANT TO THE A Y. 2006-07 AND 2007- 08. WE FULLY AGREE WITH THE DETAILED FINDINGS AND THE REASONING GIVEN BY THE CIT(APPEALS) IN HIS ORDER ALLOWING THIS GROUND OF APPEAL OF THE ASSESSEE. FOR THE SAKE OF BREVITY, WE ARE NOT REPRODUCING THE FINDINGS OF CIT (APPEALS) IN ACCORDANCE WITH THE JUDGMENT OF THE HON'BLE SUPREME COURT OF INDIA IN THE CASE OF CIT VS. K. Y. PILLAH & SONS REPORTED AS 63 ITR 411 SUBSEQUENTLY FOLLOWED BY THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. GLOBAL VANTEDGE (P) LTD., REPORTED AS 354 ITR 21 (DEL). THE ID. DR HAS NOT BEEN ABLE TO CONTROVERT THE WELL REASONED ORDER OF THE CIT (APPEALS) ON THE ISSUE. ACCORDINGLY, THE 15 ITA.NO.760/HYD/2015 EENADU TELEVISION P. LTD., HYDERABAD. FINDINGS OF THE CIT (APPEALS) ON THE ISSUE ARE AFFIRMED AND THIS GROUND OF APPEAL OF THE REVENUE IN RESPECT OF ALL THE AYS IS DISMISSED. 8.1. RESPECTFULLY FOLLOWING THE SAME, THE ALTERNAT E GROUND NO.3 OF THE ASSESSEE IS TREATED AS ALLOWED. 9. AS REGARDS GROUND NO.4, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS ISSUE HAD ARISEN I N THE CASE OF M/S. UEPL BOTH AS REGARDS THE VALUATION OF FILM SOFTWARE LIBRARY AND ALSO THE RATE OF DEPRECIATION ALLOWABLE THEREIN. HE HAS SUBMITTED THAT THIS TRIBUNAL IN THE CASE OF M/S. UEPL HAD REMANDED THE ISSUE OF VALUATION OF THE FILM SOFTWARE LIBRARY TO THE FILE OF THE A.O. AND A S REGARDS THE RATE OF DEPRECIATION TO BE ALLOWED, THE TRIBUNA L HAS HELD THAT THE SAME ALLOWABLE AS ON INTANGIBLE ASSET . 10. THE LD. D.R. HOWEVER, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 11. HAVING REGARD TO THE RIVAL CONTENTIONS, WE FIN D THAT THIS ISSUE HAS BEEN DEALT WITH BY THIS TRIBUNA L (TO WHICH BOTH OF US ARE SIGNATORIES) IN ITA.NO.1265/HY D/13 IN THE CASE OF M/S. UEPL FOR THE A.Y. 2007-08 AND A FTER CONSIDERING THE ISSUE AT LENGTH, WE HAVE HELD THAT THE FILM SOFTWARE LIBRARY IS IN THE NATURE OF AN INTANGIBLE ASSET AND THE DEPRECIATION THEREON IS ALLOWABLE AT THE RATE A LLOWABLE ON AN INTANGIBLE ASSET. HOWEVER, AS REGARDS THE VAL UATION OF THE ASSET, THIS TRIBUNAL HAS POINTED OUT THAT CE RTAIN CIRCUMSTANCES LEADING TO THE VALUATION OF THE ASSET HAVE NOT BEEN CONSIDERED BY THE AUTHORITIES BELOW AND HE NCE, 16 ITA.NO.760/HYD/2015 EENADU TELEVISION P. LTD., HYDERABAD. HAS SET ASIDE THE SAME FOR RE-VALUATION. RESPECTFUL LY FOLLOWING THE SAME, WE DEEM IT FIT AND PROPER TO RE MAND THIS ISSUE ALSO TO THE FILE OF THE A.O. WITH SIMILA R DIRECTIONS AND DIRECT THE A.O. TO ALLOW DEPRECIATIO N AS IS ALLOWABLE ON AN INTANGIBLE ASSET. THIS GROUND OF AP PEAL NO.4 IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES . 12. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED FO R STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 13.05.2016. SD/- SD/- (S. RIFAUR RAHMAN) (SMT. P. MADHAVI DEVI) ACOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED 13 TH MAY, 2016 VBP/- COPY TO : 1. EENADU TELEVISION PRIVATE LIMITED, 1-10-76, FAIR FIELD, BEGUMPET, HYDERABAD 500 016. 2. ACIT, CIRCLE 13(1) [PRESENTLY WITH DCIT - 6(1)], HYDERABAD. 3. CIT(A) - VI, HYDERABAD. 4. CIT - V I , HYDERABAD 5. D.R. ITAT A BENCH, HYDERABAD. 6. GUARD FILE
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