MALAYALAM COMMUNICATION LTD V. THE DEPUTY COMMISSIONER OF INCOME TAX

ITA/145/2015

AI Insights

The case involves Malayalam Communication Ltd., which appealed against the order of the Income Tax Appellate Tribunal, Cochin Bench, concerning three additions made by the Assessing Officer for the assessment year 2007-08. The primary legal issues revolved around the classification of certain expenditures and incomes, specifically: (i) whether the disallowance of Rs.10,00,000 claimed as business expenditure could be treated as capital expenditure; (ii) whether the renting of an OB Van and the rental value received should be considered income from other sources; and (iii) whether the interest income from Fixed Deposits could be termed as income from other sources. The High Court found that the initial deposit for up-linking fees was a business expenditure necessary for carrying on the business of the existing channels, thus ruling in favor of the assessee on the first question. The court also followed a precedent in ruling the second question in favor of the assessee regarding the OB Van rental income. However, for the third question regarding interest income from Fixed Deposits, the court remanded the matter back to the Tribunal for a detailed factual analysis.

• Counselvise Citation: [2018] 140 COUNSELVISE.COM (IT) 697724 (HC-KERALA)
• Appeal Type: Others
• Pronouncement Date: 13-09-2018
• Assessment Year: misc
• Other Referred Cases: C.I.T. v. Malabar and Pioneer Hosiery (P.) Ltd., CIT v. Jaipuria China Clay Mines (P) Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: HIGH COURT
• Department Lawyers: CHRISTOPHER ABRAHAM; K M V PANDALAI
• Assessee Lawyers: P BALAKRISHNAN; K S MENON; MOHAN PULIKKAL; P P NARAYANAN
• Keywords: Business expenditure; Capital expenditure; Fixed deposits; Income from other sources; Interest income; Up-linking fees; OB Van rental
• Section: 32(2)

Judgement Text

"IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON THURSDAY, THE 13TH DAY OF SEPTEMBER 2018 / 22ND BHADRA, 1940 I.T.A.No.145 of 2015 [AGAINST THE ORDER DATED 21.11.2014 OF THE INCOME TAX APPELLATE TRIBUNAL, COCHCIN BENCH IN I.T.A.NO.106/COCH/2011 FOR THE ASSESSMENT YEAR 2007-08] APPELLANT/S: MALAYALAM COMMUNICATION LTD., 61, CHANDRAGIRI KURAVANKONAM, KOWDIAR P.O., THIRUVANANTHAPURAM. SRI.P.BALAKRISHNAN (E) SRI.K.S.MENON (K) SRI.MOHAN PULIKKAL SRI.P.P.NARAYANAN RESPONDENT/S: THE DEPUTY COMMISSIONER OF INCOME TAX CIRCLE I, THIRUVANANTHAPURAM. BY ADVS. SRI.CHRISTOPHER ABRAHAM, SC FOR INCOME TAX DEPARTMENT SRI.K.M.V.PANDALAI, SC FOR INCOME TAX DEPARTMENT THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 13.09.2018, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: JUDGMENT The appeal is from the order of the Tribunal, raising questions of law with respect to three additions made by the Assessing Officer [for brevity \"AO\"]; confirmed by the first appellate authority and the Tribunal. The questions of law are re-framed as follows: (i) Whether the disallowance of Rs.10,00,000/-, which the assessee claimed as business expenditure, could have been treated as a capital expenditure? I.T.A.No.145 of 2015 - 2 - (ii) Whether the renting of OB Van and rental value received for the same be taken as income from other sources? (iii) Whether the interest income obtained by the assessee from the Fixed Deposits can be termed as income from other sources? 2. On the first question, it is seen that the Tribunal had found that the registration fees for up-linking, which was claimed as business expenditure, was taken as up-linking charges for a third channel. In fact, Annexures-D and E points to the contrary. The assessee had two channels and the Government of India had brought in “policy guidelines for down-linking television channels” as per Annexure-D. The guidelines required every channel operator to pay Rs.5,00,000/- as initial fee before the signing of the Grant of Permission Agreement and, in addition, to pay an amount of Rs.1,00,000/- per channel per annum as the annual fees. Hence, the fee was a recurring expenditure and was one required to be made for continuing the business of the existing channels. The assessee having two channels, had made an initial deposit of Rs.10,00,000/-, which was claimed as business expenditure. Though the assessee had an enduring benefit, as far as the first year of the introduction of the I.T.A.No.145 of 2015 - 3 - policy guidelines for down-linking of television channels are concerned, it is an expenditure to be made for the purpose of carrying on the business. We are of the opinion that Rs.5,00,000/- deposited in that year would be a business expenditure of that year. In such circumstances, we answer question No.(i) in favour of the assessee and against the Revenue. 3. As far as rent of OB Van, the issue is covered by a decision of this Court in C.I.T. v. Malabar and Pioneer Hosiery (P.) Ltd. [(1996) 221 ITR 117 (Ker.)]. We, hence, respectfully follow the aforesaid decision and answer question No.(ii) in favour of the assessee and against the Revenue. 4. Question No.(iii) is on the interest income, which the assessee contends, is from Fixed Deposits made for the purpose of carrying on the business itself. Annexure-F is the certificate issued by the Bank, certifying that certain Fixed Deposits are part of securities submitted for sanction of credit facilities. It is also the submission of the assessee that there were other Fixed Deposits made for the purpose of Export Purchase Credit Guarantee Scheme for import of equipments and machineries, again for the purpose of business purposes. The Tribunal has merely relied on a I.T.A.No.145 of 2015 - 4 - Supreme Court judgment and approved the disallowance. We are of the opinion that the Tribunal has to re-consider the matter on facts. Hence, we decline to consider question No. (iii) framed by us and require the Tribunal to address the facts for arriving at a decision. We also note that despite a request having been made, there is no permission for set off under Section 32(2) of the Income Tax Act, 1961 as against the unabsorbed depreciation which, in any event, is permissible as has been held in CIT v. Jaipuria China Clay Mines (P) Ltd. [(1966) 59 ITR 555 (SC)]. We, hence, partly allow the appeal and remand the matter to the Tribunal for considering the specific issue noticed above. There shall be no order as to costs. Sd/- K.VINOD CHANDRAN JUDGE Sd/- ASHOK MENON JUDGE I.T.A.No.145 of 2015 - 5 - APPENDIX PETITIONER'S/S EXHIBITS: ANNEXURE A TRUE COPY OF THE ASSESSMENT ORDER DATED 11/12/2009 FOR THE ASSESSMENT YEAR 2007-08. ANNEXURE B TRUE COPY OF THE ORDER DATED 16/11/2010 OF THE COMMISSIONER OF INCOME TAX (APPEALS)-I, TRIVANDRUM. ANNEXURE C TRUE COPY OF THE ORDER DATED 21/11/2014 OF THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH. ANNEXURE D TRUE COPY OF THE NOTIFICATION DATED 11/11/2005 ISSUED BY THE GOVERNMENT OF INDIA. ANNEXURE E TRUE COPY OF THE LETTER DATED 07/12/2009 SUBMITTED BY THE APPELLANT BEFORE THE ASSESSING OFFICER. ANNEXURE F TRUE COPY OF THE CERTIFICATE DATED 28/06/2014 ISSUED BY THE DHANLAXMI BANK LTD. RESPONDENT'S/S ANNEXURES: NIL. Vku/- [True copy ] "