M/s Malayala Manoram C o .Ltd,, Kottayam v. ACIT, Kottayam

ITA 429/COCH/2010 | 2007-2008
Pronouncement Date: 25-10-2013

Appeal Details

RSA Number 42921914 RSA 2010
Assessee PAN AAACT7597G
Bench Cochin
Appeal Number ITA 429/COCH/2010
Duration Of Justice 3 year(s) 3 month(s) 19 day(s)
Appellant M/s Malayala Manoram C o .Ltd,, Kottayam
Respondent ACIT, Kottayam
Appeal Type Income Tax Appeal
Pronouncement Date 25-10-2013
Appeal Filed By Assessee
Bench Allotted DB
Tribunal Order Date 25-10-2013
Date Of Final Hearing 24-07-2013
Next Hearing Date 24-07-2013
Assessment Year 2007-2008
Appeal Filed On 06-07-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH COCHIN BEFORE S/SHRI N.R.S.GANESAN JM AND B.R.BASKAR AN AM I.T.A. NO.429/COCH/2010 ASSESSMENT YEAR : 2007-08 M/S. MALAYALA MANORAMA CO. LTD. K.K. ROAD KOTTAYAM. [PAN NO. AAACT 7597G] VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX CIRCLE-1 KOTTAYAM. (ASSESSEE -APPELLANT) (REVENUE-RESPONDEN T) I.T.A. NO. 481/COCH/2010 ASSESSMENT YEAR : 2007-08 THE ASSISTANT COMMISSIONER OF INCOME-TAX CIRCLE-1 KOTTAYAM. VS. M/S. MALAYALA MANORAMA CO. LTD. K.K. ROAD KOTTAYAM. [PAN NO. AAACT 7597G] (REVENUE -APPELLANT) (ASSESSEE-RESPONDEN T) ASSESSEE BY SHRI IYPE JOHN CA REVENUE BY SMT. S.VIJAYAPRABHA JR. DR AND SHRI M. ANIL KUMAR CIT(DR) DATE OF HEARING 24/07/2013 DATE OF PRONOUNCEMENT 25/10/2013 O R D E R PER B.R.BASKARAN ACCOUNTANT MEMBER: THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER DATED 10-05-2010 PASSED BY THE LD. CIT(A)-IV KOCHI AND THEY RELATE TO THE ASS ESSMENT YEAR 2007-08. I.T.A. NOS.429 & 481/COCH/2010 2 2. THE ASSESSEE IS ASSAILING THE DECISION OF THE LD . CIT(A) IN CONFIRMING THE FOLLOWING ADDITIONS MADE BY THE ASSESSING OFFICER. (A) DISALLOWANCE OF DEDUCTION CLAIMED UNDER RULE 9 B(4) OF THE ACT: RS. 77 50 000/-. (B) DISALLOWANCE OF CLAIM OF ADDITIONAL DEPRECIATIO N CLAIMED ON FM RADIO EQUIPMENTS: RS.34 13 194/- 3. THE REVENUE IS ASSAILING THE DECISION OF LD. CIT (A) IN DELETING THE DISALLOWANCE OF DEPRECIATION CLAIM OF RS. 12 79 945/- MADE BY THE AO ON THE FM RADIO EQUIPMENTS. 4. THE FACTS RELATING TO THE ISSUES UNDER CONSIDERA TION ARE STATED IN BRIEF. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PRINTING AND PUBLISHING OF NEWSPAPERS AND MAGAZINES. IN THE RETURN OF INCOME FILED FOR THE Y EAR UNDER CONSIDERATION THE ASSESSEE CLAIMED DEDUCTION UNDER RULE 9B(4) OF THE ACT AT RS . 77 50 000/- BEING THE COST OF ACQUISITION OF THE SATELLITE AND TERRESTRIAL TELEVI SION RIGHTS OF 5 MALAYALAM FILMS ACQUIRED DURING THE FINANCIAL YEARS 2004-05 TO 2005-06. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE DID NOT MAKE COMMERCIAL USE OF THE SAID FI LMS IN ANY OF THE FINANCIAL YEARS I.E. FROM 2004-05 TO 2006-07 AND HENCE NO INCOME W AS GENERATED OUT OF THE ACQUISITION OF FILM RIGHTS. THE ASSESSING OFFICER NOTICED THAT AS PER RULE 9B OF THE INCOME TAX RULES GENERATION OF INCOME EITHER IN TH E YEAR OF PURCHASE OF RIGHTS OR IN THE SUBSEQUENT YEAR IS THE PRIMARY CONDITION FOR ALLOWI NG DEDUCTION UNDER THAT RULE EITHER IN THE YEAR OF PURCHASE OR IN THE SUCCEEDING YEAR. AC CORDINGLY THE AO HELD THAT THE QUESTION OF DEDUCTION OF COST OF RIGHTS OF FILMS PU RCHASED DURING THE YEAR UNDER CONSIDERATION DOES NOT ARISE. SIMILARLY HE HELD TH AT DEDUCTION OF COST OF RIGHTS ACQUIRED IN THE EARLIER YEARS AND BROUGHT FORWARD DURING THE CURRENT YEAR ALSO DOES NOT ARISE AT ALL. THE ASSESSING OFFICER NOTICED THAT THE ASSESS EE HAD CLAIMED IDENTICAL DEDUCTIONS IN THE EARLIER YEARS ALSO AND IT HAS NOT BEEN ALLOWED IN THOSE YEARS ALSO. THE ASSESSING OFFICER ALSO DREW SUPPORT FOR HIS VIEW FROM THE FOL LOWING DECISIONS ALSO: (A) CIT VS. PRAKASH PICTURES (2003) 260 ITR 456 (B OM.). (B) MADATHIL BROTHERS VS. DY. CIT (2008) 301 ITR 345 (KER.). I.T.A. NOS.429 & 481/COCH/2010 3 ACCORDINGLY THE ASSESSING OFFICER DISALLOWED THE A MOUNT OF RS. 77.70 LAKHS CLAIMED BY THE ASSESSEE UNDER RULE 9B(4) OF THE INCOME TAX RUL ES. 4.1 DURING THE YEAR UNDER CONSIDERATION THE ASSESS EE HAD PURCHASED EQUIPMENTS FOR STARTING FM RADIO BROADCASTING SERVICES I.E. A NE W LINE OF BUSINESS. THE COST OF EQUIPMENTS PURCHASED BY THE ASSESSEE FOR FM RADIO O PERATIONS WAS RS. 1 70 65 938/-. THE ASSESSEE CLAIMED DEPRECIATION AT HALF THE NORMA L RATE ON THE ABOVE SAID VALUE WHICH WORKED OUT TO RS.12 79 945/-. THE ASSESSEE H AD ALSO CLAIMED ADDITIONAL DEPRECIATION U/S. 32(1)(IIA) OF THE ACT AT RS.17 06 593/-. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD CATEGORISED THE EXPENSES BOOK ED UNDER THE HEAD PRE-OPERATIVE EXPENSES FM RADIO AND LICENCE FEE FOR FM RADIO A S ASSETS UNDER CONSTRUCTION IN ITS BALANCE SHEET. IT WAS ALSO NOTICED THAT THE LICENC E FOR OPERATION OF FM RADIO WAS OBTAINED ONLY IN THE SUCCEEDING YEAR. THE AO ALSO NOTICED THAT THE ASSESSEE DID NOT GENERATE ANY INCOME FROM THIS LINE OF BUSINESS. T HE AO ALSO NOTICED THAT DEPRECIATION IS ALLOWED UNDER SECTION 32 OF THE ACT ON THE ASSET S ONLY IF THEY ARE PUT TO USE FOR THE PURPOSE OF BUSINESS. IN VIEW OF THE FACTUAL POSITI ON DISCUSSED ABOVE THE ASSESSING OFFICER HELD THAT THE ASSESSEE COULD NOT HAVE USED THE ABOVE SAID ASSETS FOR BUSINESS. ACCORDINGLY THE ASSESSING OFFICER PROPOSED TO DISA LLOW THE DEPRECIATION CLAIMED BY THE ASSESSEE. HOWEVER THE ASSESSEE CONTENDED THAT DEP RECIATION CAN BE CLAIMED WHEN THE ASSETS ARE KEPT READY FOR USE. FOR THIS PROPOSITI ON THE ASSESSEE PLACED ITS RELIANCE ON THE FOLLOWING CASE LAWS: (A) CIT VS. GEOTECH CONSTRUCTION CORPORATION (2004 ) (244 ITR 452) (KER.). (B) CIT VS. REFRIGERATOR ALLIED INDUSTRIES LTD. (2 000) 247 ITR 12 (DEL.). 4.2 THE ASSESSING OFFICER HELD THAT THE CASE LAWS R ELIED UPON BY THE ASSESSEE CAN BE DISTINGUISHED ON FACTS. THE ASSESSING OFFICER BY PLACING THE RELIANCE ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF DINSHKUMAR GULAPCHAND AGARWAL VS. CIT (2004) 267 ITR 768 HELD THAT THE ASSET HAS TO BE US ED IN THE BUSINESS FOR CLAIMING DEPRECIATION AND MERELY KEEPING IT READY DOES NOT E NTITLE THE ASSESSEE TO CLAIM DEPRECIATION. THE ASSESSEE ALSO SUBMITTED THAT THE FM RADIO OPERATIONS CAN BE DIVIDED INTO TWO DIVISIONS NAMELY CENTRAL TECHNICAL AREA ( CTA) AND COMMON TRANSMISSION I.T.A. NOS.429 & 481/COCH/2010 4 INFRASTRUCTURE (CTI). THE ASSESSEE SUBMITTED THAT THE CTA DIVISION PRODUCES THE PROGRAMMES AND HENCE THE ASSETS ACQUIRED FOR THE S AID PURPOSE ARE FULLY UNDER ITS CONTROL. THE CTI DIVISION ARE ASSETS IN THE NATURE OF INFRASTRUCTURE CREATED BY THE ASSESSEE AT ALL INDIA RADIO (AIR) FOR TRANSMITTING VARIOUS PROGRAMMES PRODUCED BY CTA. THE ASSESSEE SUBMITTED THAT THE CTA WAS READY IN THE PREVIOUS YEAR BUT THE CTI WAS NOT. ACCORDINGLY IT WAS SUBMITTED THE ASSESSEE HAS SHOWN CTI EQUIPMENTS AS ASSET UNDER CONSTRUCTION. HOWEVER THE ASSESSING OFFICER HELD THAT THE VERY FACT THAT THE CTI WAS NOT READY CLEARLY PROVES THAT THE FM RA DIO OPERATION WAS NOT EVEN SET UP DURING THE YEAR UNDER CONSIDERATION. THE AO ALSO O BSERVED THAT THE ASSESSEE COULD COMMENCE BUSINESS ONLY WHEN BOTH CTA AND CTI ARE RE ADY FOR OPERATION. ACCORDINGLY THE AO HELD THAT ASSESSEE COULD NOT HAVE USED THE A SSETS DURING THE YEAR UNDER CONSIDERATION AND ACCORDINGLY REJECTED THE CLAIM OF DEPRECIATION MADE ON FM RADIO ASSETS. 4.3 WITH REGARD TO THE CLAIM OF ADDITIONAL DEPRECIA TION THE AO NOTICED THAT THE ADDITIONAL DEPRECIATION U/S. 32(1)(IIA) OF THE ACT IS ALLOWED TO THOSE ASSESSEES WHO ARE ENGAGED IN THE BUSINESS OF MANUFACTURE OR PRODUCTION OF ANY ARTICLE OR THING . THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS CLA IMED ADDITIONAL DEPRECIATION ON FM RADIO EQUIPMENTS. THOUGH THE ASSESSEE WAS ALSO EN GAGED IN PUBLICATION OF NEWS PAPERS AND MAGAZINES THE AO HELD THAT THE ACTIVITI ES CARRIED ON IN THE FM RADIO BUSINESS CANNOT BE CATEGORISED AS MANUFACTURING ACT IVITY AND FURTHER THEY DO NOT HAVE ANY RELATIONSHIP WITH THE EXISTING MANUFACTURING AC TIVITY OF THE ASSESSEE. ACCORDINGLY HE DISALLOWED THE ADDITIONAL DEPRECIATION CLAIMED B Y THE ASSESSEE. 5. THE ASSESSEE CHALLENGED ALL THE THREE ADDITI ONS REFERRED ABOVE BY FILING APPEAL BEFORE LD. CIT(A). THE FIRST APPELLATE AUTHORITY N OTICED THAT THE DEDUCTION CLAIMED U/S. 9B(4) WAS SUBJECT MATTER OF APPEAL IN THE EARLIER Y EARS ALSO BEFORE THE TRIBUNAL AND THE TRIBUNAL VIDE ITS ORDER DATED 11-08-2009 IN THE A SSESSEES OWN CASE IN I.T.A. NO. 17/COCH/2009 RELATING TO THE ASSESSMENT YEAR 2005-0 6 HAS CONFIRMED THE IDENTICAL DISALLOWANCE MADE BY THE ASSESSING OFFICER. ACCORD INGLY THE LD. CIT(A) BY FOLLOWING I.T.A. NOS.429 & 481/COCH/2010 5 THE ORDER PASSED BY THE TRIBUNAL REFERRED ABOVE CO NFIRMED THE DISALLOWANCE OF RS.77.55 LAKHS MADE BY THE ASSESSING OFFICER. 5.1 WITH REGARD TO THE CLAIM OF DEPRECIATION THE A SSESSEE SUBMITTED THAT IT WAS IN THE PROCESS OF PREPARING PROGRAMMES FOR FUTURE BROA DCASTING BY EMPLOYING VARIOUS TYPES OF STAFFS. IT WAS SUBMITTED THAT THE ASSESSIN G OFFICER HAS ALLOWED THE SALARY PAYMENTS MADE TO THE ABOVE SAID EMPLOYEES AS DEDUCT ION. ACCORDINGLY THE ASSESSEE CONTENDED BEFORE THE LD. CIT(A) THAT THE PROCESS OF PRODUCING PROGRAMMES FOR FUTURE BROADCASTING SHOULD BE TREATED AS COMMENCEMENT OF B USINESS. THE LD. CIT(A) WAS CONVINCED WITH THE SAID CONTENTIONS AND ACCORDINGLY ALLOWED THE CLAIM OF DEPRECIATION. THE LD CIT(A) IN THIS REGARD PLACED RELIANCE ON THE FOLLOWING CASE LAWS: (A) CIT VS. SAURASHTRA CEMENT AND CHEMICALS (91 IT R 170) (GUJ.). (B) ESPN SOFTWARE INDIA P. LTD. (301 ITR 3 68) (DEL.). 5.2 WITH REGARD TO THE CLAIM OF ADDITIONAL DEPRECIA TION THE LD. CIT(A) CONCURRED WITH THE VIEW TAKEN BY THE ASSESSING OFFICER THAT T HE ACTIVITIES CARRIED ON IN FM RADIO STATION CANNOT BE CONSIDERED AS MANUFACTURE OR PRODUCTION OF ARTICLES OR THINGS . ACCORDINGLY HE CONFIRMED THE DISALLOWANCE OF ADDIT IONAL DEPRECIATION CLAIMED BY THE ASSESSEE. AGGRIEVED BY THE ORDER OF THE LD. CIT(A) BOTH THE PARTIES HAVE FILED THESE APPEALS BEFORE US. 6. BEFORE PROCEEDING TO ADJUDICATE THE ISSUES URG ED ON MERITS WE PREFER TO ADDRESS A LEGAL ISSUE URGED BY THE LD A.R. THE LD COUNSEL FO R THE ASSESSEE QUESTIONED THE RIGHT OF THE DEPARTMENT TO FILE APPEAL BEFORE THE TRIBUNA L. ACCORDING TO THE LD A.R THE ASSESSING OFFICER DID NOT APPEAR BEFORE THE LD CIT( A) DESPITE THE SERVICE OF NOTICE OF HEARING TO HIM. ACCORDING TO LD A.R THE ASSESSING OFFICER SHOULD HAVE EXERCISED HIS RIGHT BY APPEARING BEFORE LD CIT(A) AND SHOULD HAVE SUPPORTED HIS ORDER ON THE ISSUES CONTESTED BY THE ASSESSEE. SINCE THE AO DID NOT AP PEAR BEFORE THE LD CIT(A) AND EXERCISED HIS RIGHT ACCORDING TO LD A.R THE AO IS NOT ENTITLED TO FILE APPEAL BEFORE THE TRIBUNAL IN VIEW OF THE DECISION OF HONBLE JURISDI CTIONAL HIGH COURT IN THE CASE OF P.R. NARAHARI RAO VS. CIT (2008)(299 ITR 400)(KER). THE LD A.R ALSO RELIED UPON VARIOUS I.T.A. NOS.429 & 481/COCH/2010 6 CASE LAW WHEREIN IT WAS HELD THAT IT IS NOT OPEN F OR THE REVENUE TO CHALLENGE THE CORRECTNESS OF THE DECISION RENDERED BY A HIGH COUR T IN CASE OF ONE ASSESSEE WHEN IT HAD ACCEPTED THE DECISION IN THE CASE OF OTHER ASSE SSEES. 6.1 WE ARE UNABLE TO AGREE WITH THE CONTENTIONS OF THE ASSESSEE IN THIS REGARD. IN OUR VIEW THE LD A.R HAS RAISED THIS CONTENTION WIT HOUT PROPERLY APPRECIATING THE SCHEME OF THE ACT. THE REMEDY BY WAY OF APPEAL IS PROVIDED ONLY TO THE AGGRIEVED PARTY UNDER THE SCHEME OF THE INCOME TAX ACT. THE ASSESSING OFFICER WHO IS PASSING THE ASSESSMENT ORDER CANNOT BE CONSIDERED TO BE AN AGGRIEVED PARTY IN RESPECT OF HIS OWN ORDER. ONLY THE ASSESSEE MAY BE AGGRIEVED BY T HE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER. HENCE THE RIGHT OF FILING AP PEAL BEFORE LD CIT(A) AGAINST THE ASSESSMENT ORDER IS GIVEN TO THE ASSESSEE ONLY. TH E ASSESSING OFFICER CANNOT FILE APPEAL AGAINST HIS OWN ORDER. HOWEVER BOTH THE ASSESSING OFFICER AND THE ASSESSEE MAY BE AGGRIEVED BY THE ORDER PASSED BY LD CIT(A) AND HENC E THE RIGHT OF FILING APPEAL BEFORE THE TRIBUNAL IS GIVEN TO BOTH THE PARTIES. HENCE THE RIGHT TO APPEAL ACCRUES TO THE AO ONLY AGAINST THE APPELLATE ORDER PASSED BY LD CIT(A ). THE FIRST APPELLATE AUTHORITY IS OBLIGED TO GIVE THE NOTICE OF HEARING TO THE ASSESS ING OFFICER IN ORDER TO HAVE A FAIR HEARING. IF THE AO DOES NOT APPEAR BEFORE THE LD CIT(A) FOR THE REASONS BEST KNOWN TO HIM IN OUR VIEW IT DOES NOT MEAN THAT THE ASSE SSING OFFICER HAS LOST THE RIGHT TO FILE APPEAL BEFORE THE TRIBUNAL. EVEN BY APPEARING BEFOR E THE LD CIT(A) THE AO COULD UTMOST SUPPORT HIS ORDER. ON THE CONTRARY IT IS T HE RESPONSIBILITY OF THE ASSESSEE TO CHALLENGE ALL THE POINTS THAT HAVE BEEN DECIDED AGA INST HIM BY THE AO IN THE APPEAL FILED BEFORE LD CIT(A). IF THE ASSESSEE HAS ACCEPT ED CERTAIN ADVERSE POINTS BY NOT RAISING CONTENTIONS IN THE APPEAL FILED BEFORE LD C IT(A) THEN HE MAY NOT BE ENTITLED TO URGE THE SAME BEFORE THE TRIBUNAL AS HELD BY HONBL E KERALA HIGH COURT IN THE CASE OF P.R. NARAHARI RAO (SUPRA). HOWEVER THE RATIO OF SAID DECISION CANNOT BE APPLIED TO THE APPEAL FILED BY THE AO BEFORE THE TRIBUNAL SINCE T HE ASSESSING OFFICER GETS THE RIGHT TO FILE APPEAL BEFORE TRIBUNAL ONLY AFTER THE RECEIPT OF ORDER PASSED BY LD CIT(A). SINCE THE AO DOES NOT HAVE RIGHT TO FILE APPEAL BEFORE LD CIT(A) AGAINST HIS OWN ORDER IN OUR VIEW IT CANNOT BE SAID THAT HIS ABSENCE WOULD DISE NTITLE HIM TO FILE APPEAL BEFORE TRIBUNAL AGAINST THE ORDER PASSED BY LD CIT(A). T HE OTHER CASE LAW RELIED UPON BY THE I.T.A. NOS.429 & 481/COCH/2010 7 ASSESSEE IN OUR VIEW DOES NOT APPLY TO THE ISSUE URGED BY THE ASSESSEE. ACCORDINGLY WE REJECT THE CONTENTIONS RAISED BY LD A.R ON THIS ISSUE. 7. THE FIRST ISSUE IN THE APPEAL FILED BY THE A SSESSEE RELATES TO THE DISALLOWANCE OF THE CLAIM FOR DEDUCTION UNDER RULE 9B(4) OF THE INC OME TAX RULES IN RESPECT OF THE COST OF TELEVISION RIGHTS OF MALAYALAM FILMS ACQUIRED BY THE ASSESSEE. THE AO HAS GIVEN A CATEGORICAL FINDING THAT THE ASSESSEE DID NOT GENER ATE ANY INCOME BY USING THOSE FILMS. THE LD CIT(A) HAS NOTICED THAT THE TRIBUNAL HAS CON SIDERED AN IDENTICAL ISSUE IN THE ASSESSEES OWN CASE IN AN EARLIER YEAR (REFERRED SU PRA) AND HAS UPHELD THE VIEW TAKEN BY THE ASSESSING OFFICER. ACCORDINGLY BY FOLLOWIN G THE DECISION OF THE TRIBUNAL THE LD CIT(A) HAS UPHELD THE DISALLOWANCE IN THIS YEAR ALS O. 7.1 BEFORE US THE LD A.R SUBMITTED THAT THE ASS ESSEE HAS CHALLENGED THE DECISION RENDERED BY TRIBUNAL BY FILING APPEAL BEFORE THE HO NBLE HIGH COURT OF KERALA. HOWEVER THE LD A.R COULD NOT FURNISH THE DETAILS O F RESULTS OF THE SAID APPEAL. HENCE AS ON DATE THE DECISION RENDERED BY THE CO-ORDINAT E BENCH OF THE TRIBUNAL ON THIS ISSUE REMAINS IN FORCE AND WE HAVE ALREADY NOTICED THAT T HE LD CIT(A) HAS FOLLOWED THE SAID DECISION OF THE TRIBUNAL. UNDER THESE CIRCUMSTANCE S WE DO NOT FIND ANY REASON TO INTERFERE WITH THE DECISION RENDERED BY LD CIT(A) O N THIS ISSUE. ACCORDINGLY WE UPHOLD THE ORDER OF LD CIT(A) IN CONFIRMING THE DISALLOWAN CE OF CLAIM MADE U/S 9B(4) OF THE ACT. 8. THE NEXT ISSUE URGED BY THE ASSESSEE RELATES TO THE REJECTION OF CLAIM OF ADDITIONAL DEPRECIATION ON FM RADIO EQUIPMENTS. BEFORE CONSID ERING THIS ISSUE WE PREFER TO ADJUDICATE THE ISSUE URGED BY THE REVENUE VIZ. TH E ELIGIBILITY OF THE ASSESSEE TO CLAIM NORMAL DEPRECIATION ON FM RADIO EQUIPMENTS DURING T HE YEAR UNDER CONSIDERATION. 8.1 THE AO REJECTED THE CLAIM OF NORMAL DEPRECI ATION ON THE GROUND THAT THE FM RADIO EQUIPMENTS WERE NOT PUT TO USE BY THE ASSESSE E. IT IS AN ADMITTED FACT THAT THE FM RADIO OPERATION CAN BE COMMENCED ONLY AFTER RECE IPT OF LICENCE FROM THE MINISTRY OF COMMUNICATIONS & INFORMATION TECHNOLOGY GOVERNMENT OF INDIA. THE DIRECTOR OF THE I.T.A. NOS.429 & 481/COCH/2010 8 ASSESSEE COMPANY HAS FILED AN AFFIDAVIT DATED 05-02 -2013 BEFORE US WHERE IN THE ASSESSEE HAS CONFESSED THAT THE LICENCE TO OPERATE THE FM STATIONS WAS RECEIVED BY IT ONLY ON 08-08-2007. NOW THE QUESTION THAT ARISES I S WHETHER THE ASSESSEE IS ENTITLED TO CLAIM DEPRECIATION ON FM RADIO EQUIPMENTS DURING TH E YEAR UNDER CONSIDERATION EVEN IF IT DID NOT HAVE LICENCE TO OPERATION FM RADIO STATI ONS? 8.2 THE MAIN CONTENTION OF THE ASSESSEE IS THAT IT IS ELIGIBLE TO CLAIM DEPRECIATION IF THE ASSETS ARE KEPT READY FOR USE. ONE MORE IMPORT ANT SUBMISSION OF THE ASSESSEE IS THAT IT HAD TO PREPARE THE PROGRAMMES SERIALS TAL K SHOWS ETC. PRIOR TO OBTAINING THE LICENCE AND THEN ONLY IT CAN IMMEDIATELY START BROA DCASTING THE PROGRAMMES ON AIR. ACCORDING TO THE ASSESSEE IT WAS USING ALL THE EQU IPMENTS FOR PREPARING THE PROGRAMMES AND HENCE IT WAS ACTUALLY USING THEM FOR THE PURPOSE OF ITS BUSINESS. WE NOTICE THAT THE LD CIT(A) HAS ACCEPTED THE SAID CON TENTIONS OF THE ASSESSEE ONLY ON THE REASONING THAT THERE IS NOTHING ON THE RECORD TO SH OW THAT THE ABOVE SAID CLAIM OF THE ASSESSEE IS FACTUALLY INCORRECT. HOWEVER WE NOTIC E THAT NEITHER THE ASSESSEE BRING ON RECORD ANY MATERIAL TO SUBSTANTIATE ITS CLAIM THAT IT WAS IN THE PROCESS OF PREPARATION OF VARIOUS PROGRAMMES BY USING THE FM RADIO EQUIPMENTS PURCHASED BY IT NOR THE LD CIT(A) TOOK STEPS TO VERIFY THE VERACITY OF THE SAI D CLAIM. DURING THE COURSE OF HEARING THESE APPEALS ALSO THE HEARING WERE ADJOURNED TWO TIMES TO GIVE OPPORTUNITY TO THE ASSESSEE TO PRODUCE MATERIALS/EVIDENCES TO SUBSTANT IATE THE SAID CLAIM PUT FORTH BY IT. HOWEVER THE ASSESSEE HAS FAILED TO PRODUCE ANY MAT ERIAL/EVIDENCE IN SUPPORT OF ITS CLAIM REFERRED ABOVE. 8.3 WE NOTICE THAT THE ASSESSEE HAS SUBMITTED B EFORE THE ASSESSING OFFICER THAT THE FM RADIO OPERATIONS CAN BE DIVIDED INTO TWO DIVISIO NS; VIZ. CENTRAL TECHNICAL AREA (CTA) AND COMMON TRANSMISSION INFRASTRUCTURE (CTI). THE ASSESSEE HAS ADMITTED THAT THE CTI FACILITY HAS TO BE INSTALLED AT ALL INDIA RADIO (AIR) AND IT WAS NOT READY BY THE END OF THE YEAR UNDER CONSIDERATION. HENCE THE AO HAS TAKEN THE VIEW THAT THE BUSINESS OF THE ASSESSEE CANNOT BE CONSIDERED AS SET UP UNLES S BOTH THE DIVISIONS ARE MADE FUNCTIONAL. HOWEVER WE NOTICE THAT THE LD CIT(A) HAS TREATED BOTH THE DIVISIONS AS SEPARATE UNITS AND ACCORDINGLY HELD THAT THE ASSESS EE IS ENTITLED TO CLAIM DEPRECIATION I.T.A. NOS.429 & 481/COCH/2010 9 ON CTA ASSETS SINCE IT HAS USED THE EQUIPMENTS OF CTA DIVISION FOR PREPARING THE PROGRAMMES. 8.4 HOWEVER WE FIND FORCE IN THE VIEW TAKEN BY THE AO. THE PROGRAMMES IF ANY PREPARED BY USING EQUIPMENTS INSTALLED IN CTA DIVIS ION WOULD NOT BE OF ANY USE UNLESS THEY ARE BROAD CAST BY USING CTI INFRASTRUCTURE INS TALLED IN AIR. HENCE IN OUR VIEW BOTH THE DIVISIONS ARE MUTUALLY DEPENDENT UPON EACH OTHER FOR CARRYING THE FM RADIO OPERATIONS AND IT MAY NOT BE CORRECT TO VIEW BOTH T HE DIVISIONS AS INDEPENDENT OF EACH OTHER. THE ASSESSEE ITSELF HAS ADMITTED THAT THE C TI INFRASTRUCTURE WAS NOT READY BY THE END OF THE YEAR UNDER CONSIDERATION AND HENCE IN OUR VIEW THE AO WAS RIGHT IN HOLDING THAT THE BUSINESS OF THE ASSESSEE CANNOT BE CONSIDERED AS SET UP DURING THE YEAR UNDER CONSIDERATION. 8.5 THE VIEW EXPRESSED BY THE AO FINDS SUPPORT FROM THE DECISION RENDERED BY THE HONBLE JURISIDICTIONAL KERALA HIGH COURT IN THE CA SE OF CIT VS. AIR TRAVEL ENTERPRISES INDIA LTD (265 ITR 537). IN THE SAID CASE THE ASS ESSEE THEREIN TOOK DELIVERY OF VEHICLES ON MARCH 30 1992. THE ASSESSEE TOOK THE VEHICLE F ROM ERNAKULAM TO THIRUVANANTHAPURAM ON THE BASIS OF A TEMPORARY PERM IT VALID UP TO APRIL 24 1992. THE ASSESSEE GOT REGISTRATION AS NON-TRANSPORT VEHICLE ON APRIL 3 1992 WITH RETROSPECTIVE EFFECT FROM MARCH 30 1992. THEREAFTER THE ASSESSE E HAD APPLIED FOR AND OBTAINED A CONTRACT CARRIAGE LICENCE ONLY ON MAY 5 1992. BEF ORE THE AO THE ASSESSEE HAD SUBMITTED THAT IT HAD USED THE VEHICLE ON APRIL 1 1992 FOR TAKING A TOURIST PARTY. UNDER THESE FACTUAL ASPECTS THE QUESTION THAT CAME FOR C ONSIDERATION OF THE HONBLE KERALA HIGH COURT IS WHETHER IT CAN BE SAID THAT THE VEHIC LE WAS KEPT READY FOR USE ON MARCH 30 1992 OR MARCH 31 1992 WHEN THE REGULAR CONTRA CT CARRIAGE LICENCE WAS ISSUED ONLY ON MAY 5 1992. THE HONBLE HIGH COURT HELD THAT VEHICLE WAS NOT KEPT READY FOR USE FOR THE SIMPLE REASON THAT THE CONTRACT CARRIAGE PE RMIT WAS OBTAINED FOR THE VEHICLE ONLY ON MAY 5 1992. 8.6 IN THE INSTANT CASE ALSO IT IS AN ADMITTED FACT THAT THE ASSESSEE OBTAINED THE LICENCE FOR COMMENCING THE FM RADIO OPERATIONS ONL Y IN THE SUCCEEDING YEAR. HENCE I.T.A. NOS.429 & 481/COCH/2010 10 BY FOLLOWING THE DECISION OF JURISDICTIONAL HIGH CO URT REFERRED ABOVE WE HOLD THAT THE ASSETS CANNOT SAID TO HAVE BEEN KEPT READY BY MARCH 31 2006 WHEN THE LICENCE ITSELF WAS ISSUED ONLY ON 08-08-2007. 8.7 THE LD A.R ALSO RAISED AN ALTERNATIVE CONT ENTION VIZ. THE DEPARTMENT HAS NOT CHALLENGED THE CATEGORICAL FINDING OF THE LD CIT(A) TO THE EFFECT THAT AFTER THE INTRODUCTION OF BLOCK ASSETS CONCEPT IT IS NOT R EQUIRED TO IDENTIFY ABOUT THE USER OF THE INDIVIDUAL EQUIPMENTS. BEFORE US ALSO THE LD A.R VEHEMENTLY SUPPORTED THE SAID VIEW EXPRESSED BY LD CIT(A) BY PLACING RELIANCE ON THE D ECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF BHARAT ALUMINIUM CO. LTD VS. CIT (20 10)(187 TAXMAN 111). 8.8 WE HAVE CAREFULLY CONSIDERED BY THE DECISIO N RENDERED IN THE CASE OF BHARAT ALUMINIUM CO. LTD. IN THE SAID CASE THE ASSESSEE THEREIN HAD PURCHASED A MACHINERY CALLED PSL EQUIPMENT IN THE PREVIOUS YEAR RELEVAN T TO THE ASSESSMENT YEAR 1990-91 AND THE SAME HAD ENTERED INTO THE BLOCK IN THAT Y EAR ITSELF. WHILE FINALISING THE ASSESSMENT FOR THE ASSESSMENT YEAR 1995-96 THE AO DISALLOWED THE CLAIM OF DEPRECIATION ON THE ABOVE SAID ASSET ON THE REASONI NG THAT IT REMAINED AS NON- OPERATING PLANT IN THAT YEAR. UNDER THESE FACTUAL ASPECTS THE HONBLE COURT HELD THAT THE MACHINERY HAS ALREADY LOST INDIVIDUAL IDENTITY ON FORMING PART OF BLOCK ASSETS AND HENCE THE USER OF INDIVIDUAL ASSET IS NOT REQUIRED AND RELEVANT FACTOR WOULD BE USER OF BLOCK ASSET. THUS IT IS SEEN THAT THE RATIO LAID DOWN BY THE HONBLE DELHI HIGH COURT IN THE CASE OF BHARAT ALUMINIUM CO. LTD SHALL APPLY TO THE CLAIM OF DEPRECIATION ON ASSETS IN SUBSEQUENT YEARS AND NOT TO THE YEAR IN WHICH TH E ASSET WAS PURCHASED. 8.9 IN THE INSTANT CASE THE FM RADIO EQUIPMENTS ARE NEW MACHINERIES PURCHASED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION T HAT TOO AFTER SEPTEMBER 2005. THE DEPRECIATION IS ALLOWED U/S 32(1) OF THE ACT ONLY I F THE ASSETS ARE OWNED WHOLLY OR PARTLY BY THE ASSESSEE AND USED FOR THE PURPOSES OF THE BU SINESS AND FURTHER DEPRECIATION IS ALLOWED ON ANY BLOCK OF ASSETS AT SUCH PERCENTAGE O N THE WRITTEN DOWN VALUE THEREOF AS MAY BE PRESCRIBED. A CAREFUL READING OF THE PR OVISIONS OF SEC. 32(1) WOULD SHOW I.T.A. NOS.429 & 481/COCH/2010 11 THAT THE ASSESSEE HAS TO SATISFY FOLLOWING CONDITIO NS CUMULATIVELY IN ORDER TO BECOME ELIGIBLE TO CLAIM DEPRECIATION:- (A) THE ASSETS SHOULD BE IN THE CATEGORY OF ASSETS PRESCRIBED IN SEC. 32(1). (B) THE ASSETS SHOULD BE OWNED BY THE ASSESSEE EIT HER WHOLLY OR PARTLY. (C) THE ASSETS SHOULD HAVE BEEN USED FOR THE PURP OSES OF THE BUSINESS. ONCE THESE THREE CONDITIONS ARE SATISFIED THEN THE DEPRECIATION IS ALLOWED ON BLOCK OF ASSETS AT SUCH RATES AS MAY BE PRESCRIBED. A CARE FUL READING OF THE ABOVE SAID PROVISIONS WOULD SHOW THAT THE ASSET WOULD ENTER IN TO THE BLOCK ONLY ON SATISFYING ALL THE THREE CONDITIONS MENTIONED ABOVE. AFTER SO ENT ERING INTO THE BLOCK; THE ASSET WOULD LOOSE ITS INDIVIDUAL IDENTITY ONLY IN THE SUBSEQUEN T YEARS. HENCE IN OUR VIEW THE USER OF THE ASSET FOR THE PURPOSE OF BUSINESS IS THE PRI MARY CONDITION FOR INCLUDING THE SAME IN THE RELEVANT BLOCK. HENCE WE ARE UNABLE TO A GREE WITH THE CONTENTIONS OF LD A.R THAT THE ASSET WOULD LOOSE ITS IDENTITY ON ITS PURC HASE ITSELF LEST IT WOULD NULLIFY THE CONDITION OF USER OF ASSET FOR THE PURPOSE OF BUSI NESS MANDATED IN SEC. 32(1) OF THE ACT. 8.10 WE HAVE ALREADY NOTICED THAT THE ASSESSEE HAS NOT BROUGHT ANY MATERIAL ON RECORD TO SUBSTANTIATE ITS CLAIM THAT IT WAS USING THE CTA EQUIPMENTS FOR PREPARING PROGRAMMES. EVEN OTHERWISE THE FM RADIO BUSINESS C AN BE CONSIDERED AS SET UP ONLY WHEN BOTH THE CTA AND CTI DIVISIONS ARE MADE F UNCTIONAL. WE HAVE ALSO HELD THAT THE ASSETS WOULD ENTER INTO THE BLOCK ONLY UPON U SING THEM FOR THE PURPOSES OF BUSINESS. IN VIEW OF THE UNDISPUTED FACTUAL ASPECT S DISCUSSED ABOVE WE ARE UNABLE TO AGREE WITH THE VARIOUS CONTENTIONS URGED BY LD A.R ON THIS ISSUE. HENCE IN OUR VIEW THE VARIOUS CASE LAW RELIED UPON BY THE LD A.R TO S UPPORT HIS CONTENTIONS WOULD NOT COME TO THE HELP OF THE ASSESSEE. ACCORDINGLY WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND RESTORE THE DISALLOWANCE OF DEPRECIA TION MADE BY THE AO. 9. THE ONLY REMAINING ISSUE RELATES THE CLAIM O F ADDITIONAL DEPRECIATION MADE BY THE ASSESSEE U/S 32(1)(IIA) OF THE ACT. SINCE WE HAVE ALREADY HELD THAT THE ASSESSEE HAS NOT USED THE ASSETS FOR BUSINESS AND UPHELD THE DIS ALLOWANCE OF DEPRECIATION THE QUESTION OF ALLOWING ADDITIONAL DEPRECIATION DOES N OT ARISE. I.T.A. NOS.429 & 481/COCH/2010 12 9.1 WE NOTICE THAT DEPRECIATION IS ALLOWED U/S 32(1)(IIA) OF THE ACT IN RESPECT OF NEW MACHINERY OR PLANT (OTHER THAN SHIPS AND AIRCRAFT) WHICH HAS BEEN ACQUIRED AND INSTALLED AFTER THE 31 ST DAY OF MARCH 2005 BY AN ASSESSEE ENGAGED IN THE BUSINESS OF MANUFACTURE OR PRODUCTION OF ANY ARTICLE OR THING ... THIS DEPRECIATION IS ALLOWED IN ADDITION TO THE NORMAL DEPRECIATION ALLOWED U/S 32( 1) OF THE ACT. HENCE IT IS CHRISTENED AS ADDITIONAL DEPRECIATION IN THE COMMON PARLANCE . BOTH THE TAX AUTHORITIES HAVE HELD THAT THE PRODUCTION AND BROADCASTING OF PROGRA MMES DOES NOT RESULT IN MANUFACTURE OR PRODUCTION OF ARTICLE OR THING AND A CCORDINGLY THEY HAVE REJECTED THE CLAIM OF ADDITIONAL DEDUCTION MADE BY THE ASSESSEE. 9.2 BEFORE US THE LD A.R CONTENDED THAT THE A DDITIONAL DEPRECIATION IS ASSESSEE SPECIFIC AND NOT ASSET SPECIFIC SINCE THE SECTI ON USES THE WORDS AN ASSESSEE ENGAGED IN THE BUSINESS OF MANUFACTURE OR PRODUCTIO N OF ANY ARTICLE OR THING. THAT IS TO SAY ACCORDING TO LD A.R IF THE ASSESSEE IS ENG AGED IN THE BUSINESS OF MANUFACTURE OR PRODUCTION OF ANY ARTICLE OR THING HE WOULD BE ENTITLED TO CLAIM DEDUCTION OF ADDITIONAL DEPRECIATION U/S 32(1)(IIA) IN RESPECT O F ALL THE ASSETS PURCHASED BY IT EVEN IF THOSE ASSETS ARE NOT USED FOR THE PURPOSE OF PRODUC TION OR MANUFACTURE OF ARTICLES OR THINGS. SINCE THE ASSESSEE HEREIN IS ALSO ENGAGED IN THE BUSINESS OF PUBLISHING NEWS PAPERS AND MAGAZINES THE LD. A.R CONTENDED BEFORE US THAT THE ASSESSEE SHOULD BE CONSIDERED AS HAVING ENGAGED IN THE BUSINESS OF MAN UFACTURE OR PRODUCTION OF ARTICLE OR THING AND ACCORDINGLY THE ADDITIONAL DEPRECIATION S HOULD BE ALLOWED ON FM RADIO EQUIPMENTS. 9.3 WE ARE UNABLE TO AGREE WITH THE SAID CONTEN TIONS OF THE ASSESSEE. THE OBJECT OF ALLOWING ADDITIONAL DEPRECIATION AN ACCELERATED DE PRECIATION IS TO ENCOURAGE NEW INVESTMENTS. THIS IS CLEAR FROM READING OF MEMORAN DUM EXPLAINING THE PROVISIONS IN THE FINANCE BILL 2005 (273 ITR (ST.) 205). FURTHER THE PROVISO TO SEC. 32(1)(IIA) SPECIFICALLY EXCLUDES OLD MACHINERY OR PLANT AND MA CHINERY OR PLANT WHICH ARE INSTALLED IN OFFICE PREMISES OR RESIDENTIAL ACCOMMODATION OF FICE APPLIANCES ROAD TRANSPORT VEHICLES. IT CAN BE SEEN THAT THE PROVISO LISTS OU T MACHINERIES (AND NOT ASSESSEES) I.T.A. NOS.429 & 481/COCH/2010 13 WHICH ARE NOT ELIGIBLE FOR DEDUCTION U/S 32(1)(IIA) OF THE ACT EVEN IF THE ASSESSEE IS ENGAGED IN THE MANUFACTURE OR PRODUCTION OF ARTICLE S OR THING. HENCE THE PURPOSE OF ALLOWING ADDITIONAL DEPRECIATION U/S 32(1)(IIA) IS TO ALLOW DEDUCTION ONLY ON THOSE ASSETS WHICH ARE USED FOR THE PURPOSE OF MANUFACTU RE OR PRODUCTION OF ARTICLE OR THING. HENCE IN OUR VIEW ADDITIONAL DEPRECIATION IS ASS ET SPECIFIC. IN OUR VIEW ALSO THE FM RADIO OPERATIONS DO NOT RESULT IN MANUFACTURE OR PR ODUCTION OF ANY ARTICLE OR THING. FURTHER THE ASSESSEE MAY ALSO BROADCAST THE PROGRAM MES PRODUCED BY OTHERS ALSO. THUS THE PRIMARY OBJECTIVE OF THE ASSESSEE IN FM R ADIO BUSINESS IS ONLY BROADCASTING ONLY. HENCE WE AGREE WITH THE VIEW EXPRESSED BY L D CIT(A) ON THIS ISSUE AND ACCORDINGLY WE UPHOLD THE ORDER OF LD CIT(A) IN RE JECTING THE CLAIM OF ADDITIONAL DEPRECIATION. 10. IN THE RESULT THE APPEAL FILED BY THE ASSE SSEE IS DISMISSED AND THE APPEAL OF THE REVENUE STANDS ALLOWED. PRONOUNCED ACCORDINGLY ON 25-10-20 13. SD/- SD/- (N.R.S.GANESAN) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 25TH OCTOBER 2013 GJ COPY TO: 1. M/S. MALAYALA MANORAMA CO. LTD. K.K. ROAD KOTT AYAM. 2. THE ASSISTANT COMMISSIONER OF INCOME-TAX CIRCLE -1 KOTTAYAM. 3. THE COMMISSIONER OF INCOME-TAX(APPEALS)-IV KOCH I. 4.THE COMMISSIONER OF INCOME-TAX KOTTAYAM. 5. D.R. I.T.A.T. COCHIN BENCH COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T COCHIN