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TMI Blog2016 (6) TMI 426X X X X Extracts X X X X X X X X Extracts X X X X ..... icer 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, there 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 Libra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, 2010 w.e.f. 1st April, 2010. Therefore, the assessee company before us is the resultant company 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 and 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 directly 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 necessity for payment of such non-compete fee and held that both the payer and the payee of the non-compete fee are the same persons and therefore, the method adopted for valuation of the non-compete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aken by him for the A.Y. 2009- 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 well and therefore, the decision of the Tribunal for 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 paras 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 and 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 assessee's claim of depreciation on non-compete fee has been rejected basically for the following two 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 defin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r book, we find a reference to such precondition in clause 2(a). Further, as it appears from the fact on record and which remains uncontroverted in pursuance to the condition 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 noncompete fee of Rs. 670 crores, which is also approved 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. 27. From the aforesaid facts it cannot be denied that Equator Trading Enterprises Pvt. Ltd is a major 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 parties for payment of non-compete fee is not genuine or there is no necessity for paying the non-compete fee as the same person is controlling both the assessee company and the two other companies acquired by the assessee, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erned, in course of assessment proceeding, assessee has submitted a valuation report of a CA firm in support of the valuation made by it. Therefore, if the AO had any doubt with regard to the valuation made, he should have got it valued through an independent valuer in stead of rejecting the valuation 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 and 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 of 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 forward losses of earlier years. AO i.e. JCIT, Range -16, while 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, 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, the 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 serials and programmes is not covered under Rule 9A or 9B of I.T. Rules. As these Rules are applicable only to production of feature films. The A.O. treated the entire 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 at Chennai and Mumbai and also the decision of Hon'ble 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 the I.T. Act. Copies of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 contemplated 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 in 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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