Expenses on News/TV programs/Film rights not having enduring benefit allowed as revenue expenditure
Citation of the Case: Zee Media Corporation Limited vs. DCIT (ITAT Mumbai), Income tax (Appeal) no. 1590 of 2015, Date of Judgment: 12/08/2015
Brief of the Case
ITAT Mumbai held In the case of Zee Media Corporation Limited vs. DCIT that regarding the nature of the news items purchased, we find it is in the common knowledge of every citizen that the news items do not have enduring benefit. Normally, the news items/non fictional items purchased by the assessee lose its value once they are telecast. Therefore, such items do not have repeat telecast value in terms of the revenue generation by way of advertisement from the sponsors. As such, it is a settled issue at the level of Hon‟ble Delhi High Court in the case of Television Eighteen India Ltd. [2014] 364 ITR 597 (Delhi), that the claims of the assessee relating to news / non-fictional items are allowable.
Regarding the nature of TV programs / Film rights, assessee amortised the inventories as per the method of accounting consistently followed by him over the years. In fact, the Revenue has consistently allowed the claim in the past. This is for the first time, AO disturbed the claim of the assessee and invoked the provisions of section 32 (ii) without any sustainable reasoning. We find similar issue of amortization of the TV Programs/Film rights came up before the Chennai Bench of the Tribunal in the case of M/s. Sun TV Networks Ltd in ITA Nos.1515 to 1520/Mds/2013 wherein the issue was decided in favour of the assessee and rejected the AO’s proposal to invoke the provisions of section 32(ii) in respect of the above programs/rights.
Facts of the Case
The assessee is engaged in the business of broadcasting and running of satellite television channel. Assessee also produces and sells programme softwares. Assessee filed the return of income originally on 29.10.2008 for the AY 2008-09 declaring the total income of Rs. 65,37,28,370/-. Subsequently, the said return of income was revised by declaring the total income of Rs. 65,75,90,650/-. Assessment was completed u/s 143(3) of the Act on 10.12.2010 and the assessed income was determined at Rs. 65,88,02,777/-. Against the said order of the AO, assessee went on appeal to the CIT (A). After considering the submissions of the assessee, CIT (A) allowed the appeal vide his order dated 14.9.2012. Aggrieved with the decision of the CIT (A), Revenue is in appeal be the Tribunal, and the same is pending for disposal. Subsequently, AO issued notice u/s 148 for allegation of debiting full amount of expenditure related to films rights acquired under operational expenses, while it is being intangible assets; only part of expenses is allowed. After considering the submissions of the assessee, AO proceeded to make addition of Rs. 74,28,80,760/-
Contention of the Assessee
Addition on account of disallowance of intangible assets ie News / TV Program / Film Rights
The ld counsel of the assessee supported the accounting method of the assessee in this regard and submitted that the „News items‟ do not have long life and they are not fit for repeated broadcasting and therefore, News and the non-fiction items have to be amortized in toto in the year of acquisition and use. Therefore, considering the same this part of the purchases of News items and non-fiction items are rightly debited to the P & L Account under the head „operational cost‟. The decision based on a scientific analysis and therefore, the decisions of the AO and the CIT (A) are required to be reversed on these claims relating to the News / non-fiction items. Ld AR relied on the judgment of the Hon‟ble Delhi High Court in the case of Television Eighteen India Ltd [2014] 364 ITR 597 (Delhi).
Similarly, on the TV Programs and Film Rights, Ld Counsel for the assessee submitted that they were amortized as per the Notes 7 to the financial statements. This method of accounting has been consistently followed by the assessee and the same was accepted by the AO in earlier assessment years without any dispute. Considering the set principle of consistency, the conclusions drawn by the AO and the CIT (A) are also required to be reversed. Further, referring to the Accounting Standard (AS) 26, relating to the intangible assets, Ld Counsel for the assessee read out the definition given to the intangible assets at para 6.1 and submitted that the Film Rights and TV Programs are outside the said definition given to the „intangible assets‟. Further, Ld Counsel for the assessee also brought our attention to the para 63 of the said AS-26, and mentioned that the amortization is very much recognized in the accounts and therefore, the claim of the assessee should be allowed in full.
Contention of the Revenue
Addition on account of disallowance of intangible assets ie News / TV Program / Film Rights
The ld counsel of the revenue submitted that the definition to the intangible assets covers the TV Programs and Film Rights. Therefore, the provisions of AS-26 should apply in full. Further, bringing our attention to the definition „current assets‟, Ld DR submitted that the current asset is defined as an asset such as receivables, inventory, work in progress or cash i.e. constantly flowing in and out of the organization in the normal course of its business, such as cash is converted into goods and then back into the goods. In accounting, any asset being in use for lesser than one year, is considered a current asset.
Relying on the above definition, Ld DR for the Revenue submitted that News / non-fictional items, TV Programs, Film Rights did not constantly flow in and out for the assessee. In fact, assessee uses these TV Programs / Film Rights as bait for attracting the advertisements and Television Rating Point (TRP) rates. In that sense, the said rights do not constitute current assets. Therefore, these items constitute intangible assets, which are eligible for depreciation and therefore, the amortization adopted by the assessee should dismissed as done by the Revenue Authorities during the assessment as well as first appellate proceedings.
Held by ITAT
We find that the AO is aware of the nature of business of the assessee. Further, AO is aware of the contents of the inventory of the assessee (ie News / non-fictional items, TV Programs, Film etc) and their valuation too. Thus, the assessee’s disclosure of information in the Note No.7 relating to the consistently maintained method of valuation to the inventories of TV Programs and Film Rights together with the questions and answers raised by the Assessing Officer during the regular assessment, suggest that the AO is directly on the issue of „inventories‟ and their method of accounting. The contents of the said „Note No.7‟ is very clear as to how the TV Programs and Film Rights are amortized, and the AO is aware of these facts during the time of regular assessment. Therefore, AO raised the said questions with the view to make disallowance on account of amortization of the inventories, if any, and also to deny the deduction claimed by the assessee. Otherwise, we find no other reason for raising such question in the regular assessment.
Hence, the AO applied his mind to the issue raised in the reasons recorded by him before the re-assessment proceedings are initiated. Of course, the language used by the AO in the reasons recorded is in different, but, otherwise, the issue raised is identical to the one which was already examined by the AO in the regular assessment on which an opinion is formed. When the Q.No. 11 relating to the method of valuation of inventories is raised, it has to be only with the view to disturb the basis of valuation ie to spread over the various assessment years, the details of which are already provided in Note No.7 of the financial statements. The same is referred by the assessee in the reply to the said Q.No. 11. The said Note No.7 was already extracted and elaborated in para 8 of this order, which is self-contained and the programs are amortized (TV Programs) for three years from the year the program is telecasted whereas the Film Rights are amortized on a straight line basis over the license period or 60 months from the date whichever is short. When this information is already and particularly available to the AO in the regular assessment, attempting to re-examine this issue through the provisions of section 147 / 148 of the Act constitutes „change of opinion‟ and the same is not permitted in law.
Further, on the arguments relating to the existence of new or tangible material for the AO before initiating the re-assessment proceedings, we find from the reasons that it is not the case of Revenue that AO has any such tangible material on the incorrectness of the claim of amortization of the inventories of programs / films or the method of valuation thereof. In the preceding paragraphs, we have extracted ratios of various case laws in the form of the assessee on the requirement of tangible / new material. On these arguments of the Ld Counsel for the assessee also, the Revenue fails. The proceedings initiated by the AO are unsustainable in law. Accordingly, Ground no.1 raised by the assessee is allowed.
Addition on account of disallowance of intangible assets i.e. News / TV Program / Film Rights
The case of the assessee on the merits is that the assessee has a method of valuation of the news items/non fictional in nature, TV programs and the film rights. The details are given in the aforementioned „Note No 7‟ to the financial statements. According to the same, while the news items purchased are debited to the P and L account as they do not have the repeat telecast value, other items like the TV program and the film rights constitutes „current assets‟, which are amortised over the years and the period of such amortization is given in the said Note.
On the debits relating to the purchases of the News items
Regarding the nature of the news items purchased by the assessee and debited to the P and L account, we find it is in the common knowledge of every citizen that the news items do not have enduring benefit. Normally, the news items/non fictional items purchased by the assessee lose its value once they are telecast. Therefore, such items do not have repeat telecast value in terms of the revenue generation by way of advertisement from the sponsors. As such, it is a settled issue at the level of Hon‟ble Delhi High Court in the case of Television Eighteen India Ltd (supra) that the claims of the assessee relating to news / non-fictional items are allowable. Even otherwise, even if some income generated, that is not criterion for describing the items as „intangible assets‟ for the purpose of invoking the provisions of section 32(ii) of the Act.
We rely on the above referred Delhi High Court‟s Judgment in the case of Television Eighteen India Ltd (supra). Further, we find that the assessee has a declared method of accounting relating to accounting of these transactions. He has been consistently following the same without any change. In fact, the Revenue has consistently allowed the claim in the past. This is for the first time, AO disturbed the claim of the assessee and invoked the provisions of section 32 (ii) of the Act, without any sustainable reasoning. Therefore, considering all the points mentioned above, we are of the firm opinion that the decision of the AO/CIT (A) is unsustainable legally. Hence, the assessee is entitled to claim the purchases of news items/non fictional items as an allowable expenditure.
On the debits relating to the purchases of the TV Programs/Film rights:
Assessee amortised the „inventories‟ as per the method of accounting consistently followed by him over the years. In fact, the Revenue has consistently allowed the claim in the past. This is for the first time, AO disturbed the claim of the assessee and invoked the provisions of section 32 (ii) of the Act without any sustainable reasoning. We have perused he judgment of Honble High Court of Delhi and the order of the Tribunal of Chennai Bench in the case of M/s Sun TV Networks Ltd (supra). We find similar issue of amortization of the TV Programs/Film rights came up before the Chennai Bench of the Tribunal wherein the issue was decided in favour of the assessee and rejected the AO‟s proposal to invoke the provisions of section 32(ii) of the Act in respect of the above programs/rights.
As such, the Ld DR‟s argument on the applicability of the AS-26 to the TV Programs and Film rights is not supported by any precedents and therefore, the arguments raised by the Revenue are not allowed. Thus, considering the covered nature of the issue as well as the consistent method of accounting followed by the assessee in this regard and also in the absence of any contrary material to support the arguments of the Revenue against the assessee‟s claim, we are of the opinion that the decision taken by the CIT (A) in the impugned order is required to be reversed.
Accordingly appeal of the assessee allowed.
