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Eenadu Television Private Limited. Versus ACIT, Circle-13 (1) , Hyderabad

2016 (6) TMI 426 - ITAT HYDERABAD

Disallowance for cost of production of TV serials and programmes incurred by the assessee - AO allowing depreciation only @ 25% thereon by treating the same as capital expenditure - Held that:- Similar issue had arisen in the case of the sister concern Prism TV Private Ltd., Hyderabad vs. DCIT, Circle16(3), Hyderabad wherein held that the assessee gets revenue from production and broadcasting serials on the lines of feature films, the rights of broadcasting such serials are also treated as stock .....

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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 - Decided in favour of assessee

Valuation of film software l .....

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ibunal has pointed out that certain circumstances leading to the valuation of the asset have not been considered by the authorities below and hence, has set aside the same for re-valuation. Respectfully following the same, we deem it fit and proper to remand this issue also to the file of the A.O. with similar directions and direct the A.O. to allow depreciation as is allowable on an intangible asset. - ITA. No. 760/Hyd/2015 - Dated:- 13-5-2016 - Smt. P. Madhavi Devi, Judicial Member And Shri S. .....

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the Assessing Officer of depreciation of ₹ 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 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 ₹ 53,08,43,906/- on non-compete fee .....

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t 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 .....

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uch other grounds as may be urged at the time of hearing it is most 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 assessee modified ground No.4 as under : 4. The Commissioner of Income Tax (Appeals) erred in confirming the action of the Assessing Officer in allowing depreciation of .....

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n intangible asset. 1.2. Further, vide letter dated 28.03.2016, the assessee has raised the following additional grounds 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 fo .....

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de their order dated 15th December, 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 ₹ 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 ₹ 212,33,75,625 and the assessee claimed depreciation thereon at ₹ 5 .....

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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 fee needs to be examined. Thereafter, he proceeded to examine the valuation of the non-compete fee and ultimately held that the valuation adopted by the assessee company is not sustainable. Thereafter, he also examined as to whether the non-compete .....

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mitted that this issue is covered in favour of the assessee by the decision of B Bench of this Tribunal in the case of parent company i.e., M/s. UEPL for the 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 shares by M/s. Equator Trading Enterprise P. Ltd., as it has a crucial bearing on the issue as to whether the payment of non-compete fee is genuine and necessary. It was further ob .....

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d 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 the 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 well as the sister concern has been remitted to the file of the A.O. .....

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eciation 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 .....

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assessee to claim depreciation on it, it 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 the Chairman of the as .....

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; 670 crores. However, the CIT(A) has rejected assessee s claim by holding that 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-compete fee as a person cannot compete with himself. Of course the CIT()A) has also held that as non-compete fee does not provide any asset of enduring nature, deprecation cannot be allowed. In this context, it is to be noted th .....

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reement 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). 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 .....

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td 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 role of M/s Equator Trading Enterprises Pvt. Ltd. in any decisio .....

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e 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 by claiming depreciation on payment of non-compete fee. However, such inference drawn by AO, in our view, is more on presumptions and surmises rather than on the basis of strong evidence. When two independent parties enter into an agreement on certain terms and conditions, it cannot be termed as sham or collusive without b .....

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den cannot be accepted. Therefore, without examining the impact of investment made in equity shares to the extent of 39% by the domestic investor and condition imposed by it, the conclusion drawn by the CIT(A) that there is no necessity of payment of non-compete fee as the same person is controlling the 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 .....

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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 .....

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es 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 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 the facts and circumstances we are of the view that as the impact .....

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le 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 consequential effect to the decisions taken by him for the A.Y. 2009- 2010. This ground of appeal is accordingly treated as allowed for statistical purposes. 5.1. In the result, this ground of appeal is treated as allowed for statistical purposes. 6. As regards ground No.3, the Ld. Counsel for the assessee, submitted that this i .....

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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 and programmes as capital expenditure, brief facts are that the assessee company debited an amount of ͅ .....

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wed 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 inc .....

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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., through 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 fro .....

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is diminished in subsequent telecasts. The assessee earns substantial revenue in the first telecast itself. In 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 broadcasting serials on the lines of feature films, the rights of broadca .....

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e 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 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 amorti .....

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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 findings of the CIT (Appeals) on the issue are affirmed and this ground of appeal of the Revenue in .....

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