ZEE TELEFILMS LTD ( NOW ZEE ENTERTAINMENT ENTERPRISES LTD), MUMBAI v. ACIT RG 11(1), MUMBAI

1 IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH MUMBAI BEFORE SHRI RAJENDRA SINGH(AM) AND SHRI V.D.RAO (JM) ITA NO.1988/M/2010 ASSESSMENT YEAR 2003-04 ZEE TELEFILMS LTD. THE ACIT RANGE 11(1) (NOW ZEE ENTERTAINMENT ENTERPRISES LTD.) AAYAKAR B HAVAN M.K. ROAD CONTINENTAL BUILDING MUMBAI 400 020. 135 DR. ANNIE BESANT ROAD WORLI MUMBAI 400 018. PAN : AAACZ 0243 R APPELLANT RESPONDENT ITA NO.2235/M/2010 ASSESSMENT YEAR 2003-04 THE ACIT RANGE 11(1) MUMBAI M/S.ZEE ENTERTAINMEN T ENTERPRISES LTD. APPELLANT RESPONDENT ASSESSEE BY : SHRI PARAS SAVLA REVENUE BY : SHRI PAVAN VED O R D E R PER RAJENDRA SINGH (AM) THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER DATED 4.1.10 OF CIT(A) FOR THE ASSESSMENT YEAR 2003-04. THESE APPEA LS ARE BEING DISPOSED OFF BY A SINGLE CONSOLIDATED ORDER FOR THE SAKE OF CONV ENIENCE. THE DISPUTE RAISED IN THESE APPEALS RELATES TO ALLOWABILITY OF DEDUCTI ON UNDER SECTION 80HHF IN RELATION TO INTEREST INCOME AND LEASE RENTAL INCOME FROM LEASE OF IRD BOXES. 2 2. WE FIRST TAKEN UP THE APPEAL OF THE ASSESSEE IN ITA NO.1988/M/2010. THE ONLY DISPUTE RAISED IN THIS APPEAL IS REGARDING DEDUCTION OF 90% OF LEASE RENTAL INCOME WHILE COMPUTING THE PROFIT OF BUSINES S AS PER EXPLANATION TO SECTION 80HHF(6). THE ASSESSEE IS IN THE BUSINESS OF RUNNING T.V. CHANNELS AND IN CONNECTION THERE WITH HAS ALSO LEASED OUT IR D BOXES TO BE USED BY THE TV OWNERS FROM WHICH THE ASSESSEE RECEIVED LEASE RE NTAL INCOME. THE ASSESSEE IN THE RETURN OF INCOME HAD CLAIMED THAT LEASE RENT AL INCOME WAS INTEGRAL PART OF BUSINESS INCOME AND THEREFORE ENTIRE AMOUNT WAS ELIGIBLE FOR DEDUCTION UNDER SECTION 80HHF. THE CLAIM HAD BEEN ALLOWED BY THE AO IN ASSESSMENT. HOWEVER SUBSEQUENTLY THE CIT SET ASIDE THE ASSESSME NT ORDER UNDER SECTION 263 AND RESTORED THE MATTER TO THE FILE OF AO FOR D ECIDING THE ISSUE AFRESH. THE ORDER OF CIT UNDER SECTION 263 WAS CHALLENGED BY TH E ASSESSEE BEFORE THE TRIBUNAL AND TRIBUNAL VIDE ORDER DATED 29.9.09 IN I TA NO.265/M/2008 UPHELD THE VIEW OF THE CIT THAT LEASE RENTAL INCOME WAS AN INDEPENDENT ITEM OF INCOME AND 90% OF WHICH WAS REQUIRED TO BE DEDUCTED WHILE COMPUTING THE PROFIT OF THE BUSINESS FOR THE PURPOSE OF DEDUCTION UNDER SECTION 80HHF. THE TRIBUNAL FOLLOWED THE JUDGMENT OF HONBLE SUPREME C OURT IN CASE OF CIT VS K. RAVINDRANATHAN NAIR (295 ITR 228) IN WHICH IT WAS H ELD THAT PROCESSING CHARGES WERE AN INDEPENDENT ITEM OF INCOME AND 90% OF THE SAME WAS REQUIRED TO BE DEDUCTED AS PER EXPLANATION (BAA) TO SECTION 80HHC. THE PROVISIONS OF SECTION 80HHF WERE IDENTICAL IN RELAT ION TO DEFINITION OF THE PHRASE PROFIT OF BUSINESS WHICH WAS SIMILAR TO THE DEFIN ITION OF PROFIT OF BUSINESS IN CASE OF SECTION 80HHC AS PER EXPLANATION (BAA). THE TRIBUNAL THUS HELD THAT 90% OF LEASE RENTAL INCOME WAS TO BE DEDUCTED FROM THE PROFIT OF BUSINESS. THE AO IN THE FRESH ASSESSMENT FOLLOWING THE ORDER OF C IT UNDER SECTION 263 DEDUCTED 90% OF GROSS LEASE RENTAL INCOME FROM THE PROFIT OF BUSINESS WHILE COMPUTING DEDUCTION UNDER SECTION 80HHF. IN APPEAL CIT(A) FOLLOWING THE 3 DECISION OF TRIBUNAL DATED 29.9.2009 HELD THAT LEAS E RENTAL INCOME WAS AN INDEPENDENT ITEM OF INCOME AND NOT INTEGRAL PART OF THE OPERATIONAL PART OF INCOME OF THE ASSESSEE AND THEREFORE 90% OF THE SAM E WAS REQUIRED TO BE DEDUCTED. CIT(A) ACCORDINGLY CONFIRMED THE ORDER OF AO AGGRIEVED BY WHICH THE ASSESSEE IS IN APPEAL. THE ASSESSEE HAS RAISED THE FOLLOWING GROUND OF APPEAL: 1. (I) THE HON.CIT(A) HAS CONFIRMED DEDUCTION 90% OF LEASE RENTAL ON IRD BOXES FROM PROFIT OF THE BUSINESS FOR COMPUTING DEDUCTION UNDER SECTION 80HHF OF THE ACT FOLLOWING HON. ITATS ORDER THAT LEASING IS INDEPENDENT BUSINESS NOT ELIG IBLE FOR DEDUCTION UNDER SECTION 80HHF. THE HON. CIT(A) OUGHT TO HAVE HELD THAT DEDUCTION O F 90% OF NET LEASE RENTAL INCOME (GROSS RENTAL ON IRD BOXES REDU CED BY DEPRECIATION ON IRD BOXES) FROM PROFIT OF THE BUSIN ESS FOR COMPUTING DEDUCTION UNDER SECTION 80HHF OF THE ACT. (II) THE HON. CIT(A) FAILED TO DECIDE THE ISSUE OF DEPRECIATION ON IRD BOXES TO BE ALLOWED AGAINST LEASE RENTAL INCOME INSTEAD OF BUSINESS INCOME AND/OR FAILED TO DECIDE THE GROSS/N ET INCOME FROM LEASE RENTAL TO BE DEDUCTED FROM PROFIT OF THE BUSI NESS FOR COMPUTING DEDUCTION UNDER SECTION 80HHF OF THE ACT. 2. THE APPELLANT CRAVES TO LEAVE TO ADD AMEND OR ALTE R ALL OR ANY OF THE GROUNDS OF APPEAL. 2.1 BEFORE US THE LEARNED AR FOR THE ASSESSEE SUBMI TTED THAT PROVIDING IRD BOXES WAS AN INTEGRAL PART OF BUSINESS OF THE ASSES SEE WHICH WAS RUNNING TV 4 CHANNELS. THEREFORE THE LEASE RENTAL INCOME HAS TO BE TAKEN AS OPERATIONAL INCOME AND NOT INDEPENDENT ITEM OF INCOME. HE REFER RED TO THE JUDGMENT OF HONBLE HIGH COURT OF MUMBAI IN CASE OF PFIZER (330 ITR 62). ALTERNATIVELY IT WAS ALSO SUBMITTED THAT 90% OF THE DEDUCTION SHOULD BE OF THE NET RENTAL INCOME I.E. NET OF DEPRECIATION. THE LEARNED AR FUR THER SUBMITTED HE HAD NO OBJECTION IF THE MATTER WAS RESTORED TO THE FILE OF AO FOR FRESH DECISION AFTER CONSIDERATION OF THE JUDGMENTS. THE LEARNED DR SUBM ITTED THAT IT WAS NOT CLEAR WHETHER THE IRD BOXES WERE NECESSARY FOR RUNNING OF TV CHANNELS AND WHETHER THE LEASE RENTAL INCOME COULD REALLY BE ASSESSED AS BUSINESS INCOME. 2.2 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. WE FIND THAT THE LEASE RENTAL INCOME HAS BEEN TREATED BY THE AUTHORITIES BELOW AS INCIDENTAL BUSINESS INCOME BUT AS AN INDEPENDENT ITEM AND 90% OF THE SAME HAS BEEN DEDUCTED FROM PROFIT OF BU SINESS. THE ASSESSEE HAS NOT RAISED ANY GROUND THAT THE ENTIRE LEASE RENTAL INCOME SHOULD BE TREATED AS PART OF THE OPERATIONAL INCOME AND 90% OF THE SAME SHOULD NOT BE DEDUCTED AS PER THE EXPLANATION TO SECTION 80HHF. THE ONLY GROU ND RAISED BY THE ASSESSEE IS THAT 90% OF NET RENTAL INCOME AFTER REDUCING THE DEPRECIATION SHOULD BE CONSIDERED. WE FIND THAT THIS GROUND OF NETTING HAD ALSO BEEN RAISED BEFORE THE CIT(A) WHO HAS NOT ADJUDICATED THE SAME. AS REGARDS THE PLEA OF THE LEARNED DR THAT IT NEEDED TO BE EXAMINED WHETHER LEASE RENT AL INCOME COULD AT ALL BE CONSIDERED AS BUSINESS INCOME. WE FIND THAT THE REV ENUE HAS NOT RAISED ANY DISPUTE ON THIS ASPECT AGAINST TREATMENT OF RENTAL INCOME AS BUSINESS INCOME BY CIT(A). THEREFORE SUCH PLEA CANNOT BE ENTERTAINE D. HOWEVER SINCE CIT(A) HAS NOT ADJUDICATED THE GROUND RELATING TO NETTING OF LEASE RENTAL INCOME WE SET ASIDE THE ORDER OF CIT(A) AND RESTORE THE ISSUE BACK TO HIM FOR ADJUDICATING THIS GROUND OF NETTING AFTER ALLOWING OPPORTUNITY O F HEARING TO THE ASSESSEE. 5 3. IN THE APPEAL BY THE REVENUE IN ITA NO.2235/M/2010 THE ONLY DISPUTE RAISED IS REGARDING DEDUCTION OF 90% OF INT EREST INCOME FROM PROFIT OF BUSINESS AS PER EXPLANATION TO SECTION 80HHF. THE A SSESSEE HAD RECEIVED GROSS INCOME OF RS.65.67 CRORES WHICH HAD BEEN TREATED AS BUSINESS INCOME AND FULLY CONSIDERED FOR DEDUCTION UNDER SECTION 80HHF. THE AO HOWEVER REDUCED 90% OF GROSS INTEREST FROM THE PROFIT OF BUSINESS AS PE R EXPLANATION TO SECTION 80HHF WHILE COMPUTING DEDUCTION UNDER THE SAID SECT ION. SUBSEQUENTLY CIT SET ASIDE THE ORDER OF AO UNDER SECTION 263 AND RESTORE D THE MATTER BACK TO HIM FOR DECIDING THE ISSUE AFRESH AS INTEREST INCOME HA D BEEN RECEIVED FROM LOANS AND ADVANCES OUT OF SURPLUS FUNDS AND THEREFORE IT HAD TO BE TREATED AS INCOME FROM OTHER SOURCES. THE ASSESSEE HAD CHALLENGED THE ORDER OF CIT UNDER SECTION 263 AND THE TRIBUNAL IN THE ORDER DATED 29. 9.2009 IN ITA NO.265/M/2008 DID NOT UPHOLD THE VIEW TAKEN BY THE CIT UNDER SECTION 263. THE TRIBUNAL NOTED THAT THE ASSESSEE WAS ENGAGED IN TWO BUSINESSES BEING EXPORT OF FILM SOFTWARE ETC AND FINANCING BUSINESS AND THE SURPLUS FROM THE EXPORT BUSINESS WAS BEING UTILIZED IN THE OTHER BUS INESS OF FINANCING. THE CHARACTER OF INTEREST INCOME WAS THEREFORE OF THE N ATURE OF BUSINESS INCOME AND NOT INCOME FROM OTHER SOURCES. THE TRIBUNAL THE REFORE DID NOT FIND ANY INFIRMITY IN THE ORDER OF AO DEDUCTING 90% OF INTER EST FROM PROFIT OF BUSINESS TREATING THE INTEREST AS BUSINESS INCOME. IN THE FR ESH ASSESSMENT THE AO TREATED THE INTEREST INCOME AS INCOME FROM OTHER SO URCES AND DEDUCTED 100% OF THE SAME FROM PROFIT OF BUSINESS. CIT(A) HOWEVER FOLLOWING THE DECISION OF TRIBUNAL DATED 29.9.2009 HELD THAT INTEREST INCOME HAS TO BE TREATED AS BUSINESS INCOME AND 90% OF THE SAME IS REQUIRED TO BE DEDUCTED FROM THE PROFIT OF BUSINESS. AGGRIEVED BY THE DECISION OF C IT(A) THE REVENUE IS IN APPEAL. 6 3.1 WE HAVE HEARD BOTH THE PARTIES PERUSED THE RECO RDS AND CONSIDERED THE MATTER CAREFULLY. THE LEARNED AR FOR THE ASSESSEE P OINTED OUT THAT THE REVENUE HAD FILED MISCELLANEOUS APPLICATION AGAINST ORDER D ATED 29.9.2009 OF THE TRIBUNAL WHICH HAS BEEN REJECTED. THE LEARNED DR PL ACED RELIANCE ON THE ORDERS OF AO. 3.2 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REGARDING DEDUCTION OF 90% OF INTEREST I NCOME FROM PROFIT OF BUSINESS WHILE COMPUTING DEDUCTION UNDER SECTION 80 HHF TREATING THE INTEREST INCOME AS BUSINESS INCOME. THIS ISSUE HAS ALREADY B EEN DECIDED BY THE TRIBUNAL IN THE ORDER DATED 29.9.2009 IN WHICH IT HAS BEEN H ELD THAT THE INTEREST INCOME HAD BEEN RIGHTLY TREATED AS BUSINESS INCOME AND 90% OF THE SAME HAD BEEN RIGHTLY DEDUCTED BY THE AO FROM PROFIT OF BUSINESS IN THE ORIGINAL ASSESSMENT. CIT(A) HAS FOLLOWED THE ORDER OF TRIBUNAL (SUPRA). WE THEREFORE SEE NO INFIRMITY IN THE ORDER OF CIT(A) AND THE SAME IS UPHELD. 4. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE WHEREAS THAT BY THE REVENUE IS DISMISSED. 5. THE DECISION WAS PRONOUNCED IN THE OPEN COURT ON 28.02.2011. SD/- SD/- ( V.D. RAO ) (RAJENDRA SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE : 28.02.2011 AT :MUMBAI COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 7 3. THE CIT(A) MUMBAI CONCERNED 4. THE CIT MUMBAI CITY CONCERNED 5. THE DR G BENCH ITAT MUMBAI // TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT MUMBAI BENCHES MUMBAI ALK