MALAYALAM COMMUNICATION LTD vs. THE DEPUTY COMMISSIONER OF INCOME TAX

ITA/145/2015HC KeralaKLHC01025546201513 September 2018Author: HONOURABLE MR.JUSTICE K.VINOD CHANDRAN,HONOURABLE MR. JUSTICE ASHOK MENON5 pages
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What were the facts?

The assessee, Malayalam Communication Ltd., filed an appeal before the High Court of Kerala against an order of the Income Tax Appellate Tribunal (ITAT), Cochin Bench. The appeal pertains to Assessment Year 2007-08 and challenges three additions made by the Assessing Officer (AO), which were confirmed by the first appellate authority and the Tribunal. The additions relate to a disallowance of Rs. 10,00,000 claimed as business expenditure, the treatment of income from renting an OB Van, and the classification of interest income from Fixed Deposits. The High Court was asked to re-frame these as questions of law.

What did the High Court hold?

The High Court decided the first issue in favour of the assessee. It held that the Rs. 10,00,000 paid as registration fees for up-linking, under the policy guidelines for down-linking television channels, was a recurring expenditure necessary for carrying on the business of existing channels. Therefore, Rs. 5,00,000 deposited in that year was considered a business expenditure for that year, reversing the Tribunal's classification as capital expenditure. For the second issue concerning OB Van rental, the Court followed its own decision in C.I.T. v. Malabar and Pioneer Hosiery (P.) Ltd., answering the question in favour of the assessee. Regarding the third issue on interest income from Fixed Deposits, the Court found that the Tribunal had not adequately addressed the facts. The assessee claimed the deposits were for business purposes, such as credit facilities and import guarantees. The Court declined to decide this issue and remanded it back to the Tribunal for reconsideration of the facts. The Court also noted that set off under Section 32(2) against unabsorbed depreciation is permissible, citing CIT v. Jaipuria China Clay Mines (P) Ltd.

What were the issues?

The High Court was asked to decide the following questions of law: 1. Whether the disallowance of Rs. 10,00,000, claimed by the assessee as business expenditure, could have been treated as a capital expenditure, concerning Section 37 of the Income Tax Act, 1961. 2. Whether the renting of an OB Van and the rental value received for it should be treated as income from other sources, concerning Section 56 of the Income Tax Act, 1961. 3. Whether the interest income obtained by the assessee from Fixed Deposits can be termed as income from other sources, concerning Section 56 of the Income Tax Act, 1961. The assessee contended that the Rs. 10,00,000 was a recurring expenditure for continuing existing channels under policy guidelines. For the OB Van rental, the assessee relied on a High Court decision. For interest income, the assessee argued the Fixed Deposits were for business purposes, including credit facilities and import guarantees. The revenue's contentions are not explicitly recorded for each issue, but the Tribunal had confirmed the additions.

Which sections of the Income-tax Act were involved?

Section 37,Section 56,Section 32(2)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON THUR AY, THE 13TH DAY OF SEPTEMBER 2018 / 22ND BHADRA, 1940 I.T.A.No.145 of 2015 [AGAINST THE ORDER DATED 21.11.2014 OF THE INCOME TAX APPELLATE TRIBUNAL, COCHCIN BENCH IN I.T.A.NO.106/COCH/2011 FOR THE ASSESSMENT YEAR 2007-08] APPELLANT/S: MALAYALAM COMMUNICATION LTD., 61, CHANDRAGIRI KURAVANKONAM, KOWDIAR P.O., THIRUVANANTHAPURAM. SRI.P.BALAKRISHNAN (E) SRI.K.S.MENON (K) SRI.MOHAN PULIKKAL SRI.P.P.NARAYANAN RESPONDENT/S: THE DEPUTY COMMISSIONER OF INCOME TAX CIRCLE I, THIRUVANANTHAPURAM. BY ADVS. SRI.CHRISTOPHER ABRAHAM, SC FOR INCOME TAX DEPARTMENT SRI.K.M.V.PANDALAI, SC FOR INCOME TAX DEPARTMENT THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 13.09.2018, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: JUDGMENT

The appeal is from the order of the Tribunal, raising questions of law with respect to three additions made by the Assessing Officer [for brevity "AO"]; confirmed by the first appellate authority and the Tribunal. The questions of law are re-framed as follows: (i) Whether the disallowance of Rs.10,00,000/-, which the assessee claim

The order continues below.

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