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2015 (12) TMI 633 - DELHI HIGH COURT

2015 (12) TMI 633 - DELHI HIGH COURT - [2016] 382 ITR 42 - Entitlement to additional depreciation - machinery used to broadcast radio programs in the FM channel - ITAT allowed the claim - Held that:- In the facts and circumstances of the present case, the Assessee can be said to have used the plant and machinery acquired and installed by it after 31st March 2005 for manufacture/production of an ‘article or thing.’ Since the Assessee has satisfied the requirements of Section 32 (1) (iia) of the A .....

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ion on intangible assets only because there was no claim also on the tangible asset. For the purpose of Section 32 it is sufficient that assets be kept ready for use in order to claim depreciation thereon. As decided in Capital Bus Service Pvt. Ltd. (1980 (2) TMI 69 - DELHI High Court ) it was held that while interpreting the expression ‘used’ “it would be more appropriate to envisage the expression as comprehending cases where the machinery is kept ready by the owner for its use in the business .....

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0A of the Income Tax Act, 1961 ( Act ) is directed against the impugned order dated 9th September 2014 passed by the Income Tax Appellate Tribunal ( ITAT ) in ITA No. 2186/Del/2012 for the Assessment Year ( AY ) 2008-09. Questions of law 2. On 13th March 2015 while admitting this appeal, the following questions of law were framed for consideration: (a) Whether the ITAT fell into error in holding that the Assessee was entitled to additional depreciation for the machinery used by it to broadcast r .....

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spondent was granted permission on 8th December 2006 for operating FM Radio Broadcasting channels at Delhi, Kolkatta, Mumbai, Jodhpur, Patiala, Amritsar and Shimla against payment of prescribed one Time Entry Fees. Out of 7 stations, the Assessee went on air in AY 2008-09 from three radio stations, i.e., Delhi, Kolkata and Mumbai. The three stations at Jodhpur, Patiala and Amritsar were made ready to go on air by 8th December 2007 but due to unfavourable market conditions, the marketing team of .....

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rt from the above, the Assessee claimed depreciation in the sum of ₹ 47,25,000 on the One Time Entry Fee (licence fee) paid for the FM channels. 5. The return was picked up for scrutiny and statutory notices were issued to the Assessee. In response to a query by the Assessing Officer ( AO ) as to why the additional depreciation should not be disallowed, a written submission was filed by the Assessee on 2nd December 2010 through its authorized representative ( AR ) stating as under: "A .....

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07-08: (a) Medical Meow; (b) Top Cat; (c) Sports Cat; (d) Meow Zindagi; (e) Meow Matinee; (f) Mama Meow; (g) Tutu Meow Meow Further, during the financial year 2007-08 the Assessee company has purchased only the new plant and machinery and used the same in the production of programs on which additional depreciation has been claimed by it" Assessment order 6. However, the AO rejected the Assessee s contention that the above radio programmes were the articles or things produced by it . The AO .....

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by Ministry of Information & Broadcasting (MIB), Govt. of India for operating FM Radio Broadcasting Channels, the term of the permission has been fixed for 10 year commencing from the date of operationalisation of Channel or upon expiry of one year from the date of grant of the permission, whichever occurs first. The company was granted permission for seven stations on 8th December 2006. One against payment of prescribed One Time Entry Fee ( OTEF ). As at the end of the year, three Channels .....

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ible Asset in accordance with the Accounting Standard AS-26. The amount of Licence Fee capitalized as Intangible Asset would be written off over the period of the permission/licence i.e. 10 year, in accordance with the Accounting Standard AS-26. The OTEF for the seventh Channel, however, has been considered as an advance as at the end of the financial year as in previous year in view of basic infrastructure not provided by MIB." 8. The AO held that since the assets under question, that is l .....

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) 9. Aggrieved by the above order, the Assessee went in appeal before the Commissioner of Income Tax (Appeals) [ CIT (A) ]. By an order dated 10th February 2012 the CIT (A) dismissed the appeal by concurring with the AO that airing of radio programmes cannot be said to be manufacturing or producing of article or thing as defined under Section 32 (1) (iia) of the Act. The CIT (A) further held as under: In the commercial sense no article or thing can be said to be produced by airing a radio progra .....

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io program. The expenses is only been incurred by the various companies who are providing revenue by advertising their products. Further, the floppy or CD of the radio programs are not tradable there are large number of programmes which are aired live for example cricket matches. All these clearly shows that the appellant cannot be said to be engaged in the business manufacture or production of an article or thing as required under Section 32(1) (iia) for claim of additional depreciation. Theref .....

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arified that the airing was postponed, its claim for depreciation on the licence fee could not be permitted. Order of the ITAT 11. The Assessee then appealed to the ITAT by filing ITA No. 2186/Del/ 2012. In the impugned order allowing the Assessee's appeal, the ITAT relied on the decision of the Supreme Court in CIT v. Oracle Software India Limited (2010) 320 ITR 546 (SC) and held that the radio programmes consist of editorial and specific stanza of the songs and the same is first recorded t .....

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d that the case of the Assessee stood on better footing than the one in CIT v. Oracle Software India Limited (supra) where the Assessee after importing master media of the software was duplicating it on blank discs, packing and selling it in the market along with the relevant brochures. Thus it was held that the Assessee was very much eligible for claiming the additional depreciation under Section 32 (1) (iia) of the Act. 12. Turning to the issue of depreciation on the in tangible asset, i.e., t .....

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counsel for the Revenue and Mr. Salil Aggarwal, learned counsel for the Respondent-Assessee. 14. Mr. Sahni sought to distinguish the decision of the Supreme Court in CIT v. Oracle Software India Limited (supra) on the ground that what was involved in the said case was processing of CDs which was envisaged by Section 80-IA of the Act, whereas for the purpose of Section 32 (1) (iia) of the Act it had to be examined whether the equipment in respect of which additional depreciation was claimed, was .....

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issioner of Income Tax v. Tara Agencies (2007) 292 ITR 444 (SC) where for the purposes of Section 35B (1A) of the Act (as it then stood) it was held that the process of blending of tea by the Assessee falls short of either manufacturing or production . 16. Mr. Sahni referred to the definition of thing, article and manufacture in the Black's Law Dictionary. He is submitted that 'manufacture' implies a change, but every change is not manufacture "and yet every change in an article .....

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ecision in Gramophone Co. of India v. Collector of Customs (2000) 1 SCC 549 in which it was held that processing would not qualify as 'manufacture'. The word manufacture had to be interpreted in the context of the object and the language used in the section. Reliance was also placed on the decisions in Collector of Central Excise, Jaipur v. Rajasthan State Chemical Works (1991) 4 SCC 473, Collector of Central Excise v. Technoweld Industries (2003) 11 SCC 798, Marble Industries (P) Ltd. v .....

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the Assessee for the purpose of claiming depreciation when the Legislature has chosen to use the word used . 18. Replying to the above submissions, Mr. Salil Aggarwal, learned counsel for the Assessee pointed out that as regards the question of additional depreciation, while there is no dispute that the Assessee did acquire or install new and eligible plant and machinery after 31st March 2005. The only dispute raised by the Revenue was that the Assessee did not 'use' the said plant and .....

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iran Kapoor 372 ITR 321 (Del). Reference was made by Mr. Aggarwal to the decision of the learned Single Judge of this Court dated 7th October 2013 in CS (OS) No. 1085 of 2005 (T.V. Today Network Limited v. Kesari Singh Gujjar) to urge that dissemination of news and news reporting would be covered under the goods classified under Clauses 38 and 41 of the Schedule to the Trade Marks Rules. Mr. Aggarwal also submitted that in the succeeding AYs, i.e., 2009-10 and 2010-11 the claim for additional de .....

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s Service Pvt. Ltd. v. CIT (Del) 123 ITR 404 and Assistant Commissioner of Income Tax v. Ashima Syntex Ltd. 251 ITR 133 (Guj). Question No. 1: Additional Depreciation 21. The first question concerns the claim of the Assessee to additional depreciation under Section 32 (1) (iia) of the Act. The said provision reads as under: 32. Depreciation (1) In respect of depreciation of - (i) buildings, machinery, plant or furniture, being tangible assets; (ii) know-how, patents, copyrights, trademarks, lice .....

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manufacture or production of any article or thing 19[or in the business of generation or generation and distribution of power], a further sum equal to twenty per cent of the actual cost of such machinery or plant shall be allowed as deduction under clause (ii): Provided that where an assessee, sets up an undertaking or enterprise for manufacture or production of any article or thing, on or after the 1st day of April, 2015 in any backward area notified by the Central Government in this behalf, in .....

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quot;thirty-five per cent." had been substituted. Provided further that no deduction shall be allowed in respect of- (A) any machinery or plant which, before its installation by the assessee, was used either within or outside India by any other person; or (B) any machinery or plant installed in any office premises or any residential accommodation, including accommodation in the nature of a guest-house; or (C) any office appliances or road transport vehicles; or (D) any machinery or plant, t .....

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roduction of any article or thing. 23. If the above conditions are satisfied, then the additional depreciation of 20% of the actual cost of such machinery would be allowed as deduction. 24. At the outset it must be noted that it is not the case of the Revenue that the activity of broadcasting undertaken by the Assessee does not tantamount to business of manufacture or production . The Revenue's case is that the Assessee was not using the new machinery acquired and installed by it for produci .....

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spect might be that an Assessee might be only 'broadcasting' the programmes produced by others in which case it would be arguable whether in the first place it could be said that the Assessee is "engaged in the business of manufacture or production of any article or thing". However, as far as the present appeal is concerned these questions do not arise. In any event, no factual details on the above alternative scenarios are available in the present case. As already noted, the c .....

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hrough its FM channels. This was informed to the AO by the Assessee in response to the queries posed to it during the assessment proceedings. 27. The production of radio programmes, as explained by the Assessee, involved the processes of recording, editing and making copies prior to broadcasting. When the radio programmes is made there comes into existence a thing which is intangible, and which can be transmitted and even sold by making copies. Therefore, it can definitely be stated that the rad .....

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vable, such as goods and chattels, and (3) things having both real and personal characteristics, such as title deed and a tenancy for a term. The civil law divided things' into corporeal or incorporeal. 28. Thing could, therefore, have intangible characteristic. The word manufacture envisages subjecting any material or thing to certain processes in order to produce something which has a distinct characteristic. In other words, the process must result in the transformation of a thing or artic .....

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new and distinct object or article or thing with a different chemical composition or integral structure. 30. Although this definition was introduced with effect from 1st April 2009 it must be understood as being clarificatory in nature given the common parlance understanding of the term manufacture . The definition is in consonance with the law explained in the decisions cited by Mr. Sahni. 31. In Gramophone Co. India Ltd v. Collector of Customs (supra) was observed that manufacture implies a c .....

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ed product emerges. Therefore, each step towards such production would be a process in relation to the manufacture. 32. Mr. Sahni sought to draw a distinction between 'manufacture' as contemplated in Section 32 (1) (iia) in the context of claim for additional depreciation. However, 'manufacture' could include a combination of processes. In the context of 'broadcast' it could encompass the processes of producing, recording, editing and making copies of the radio programme .....

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rticle or thing. Since the Assessee has satisfied the requirements of Section 32 (1) (iia) of the Act, it is entitled to the additional depreciation as claimed by it for the AY in question. The Revenue has also no answer to the submission of the Assessee for AYs 2009-10 and 2010-11 its claim for additional depreciation has been allowed by the AO. 34. Question No. 1 is accordingly answered in favour of the Assessee and against the Revenue. Question 2: Depreciation on Licence Fee 35. Turning to Qu .....

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This is not in consonance with the Assessee's statement of his written submission dated 2nd December 2010,wherein he has that stated that depreciation was claimed because of the existing case laws in his knowledge. He has stated that based on the decisions of the above cited case laws, depreciation has been claimed on assets kept ready to use and on which trial run was being done. This being the case, the Assessee has not given any reason why depreciation has been claimed on the Licence Fee .....

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