DY. COMMISSIONER OF INCOME TAX , CIRCLE-16(2), HYDERABAD vs. EENADU TELEVISION PRIVATE LIMITED , HYDERABAD

IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad ‘ A ‘ Bench, Hyderabad Before Shri Rama Kanta Panda, Accountant Member AND Shri Laliet Kumar, Judicial Member ITA No.2244 /Hyd/2018 Assessment Year: 2015-16 The Deputy Commissioner of Vs. M/s. Eenadu Television Income Tax, Circle – 16(2), Private Limited, Hyderabad. Hyderabad. PAN : AACCM7226P. (Appellant) (Respondent) Assessee by: Shri V. Siva Kumar Revenue by: Shri Rajendra Kumar, CIT Date of hearing: 30.06.2022 Date of pronouncement: 22.07.2022

O R D E R Per Laliet Kumar, J.M.

This appeal is filled by the Revenue feeling aggrieved with the order of ld.Commissioner of Income Tax (Appeals) – 4, Hyderabad dated 10.09.2018 for the assessment year 2015-16 on the following grounds:-

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“1. The Ld.CIT(A) erred in directing the AO to verify and allow the depreciation on non-compete fee which is in contravention to the provisions of section 251(1) of the Act. 2. The ld.CIT(A) erred in treating the cost of production of TV serials and programmes as revenue expenditure. 3. The ld.CIT(A) erred in allowing depreciation @ 25% on ‘Film Software Library’ instead of 15% allowable on ‘Plant and Machinery’.”

In appeal, the ld.CIT(A) partly allowed the appeal filed by the assessee.

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Aggrieved with such order of ld.CIT(A), the Revenue is in appeal before the Tribunal.

In this regard, the ld.DR for the revenue had drawn our attention to paragraph 5.3 of the order passed by the Ld. CIT(A) whereby the ld.CIT(A) has relied upon the order passed in the case of the sister concern of the assessee vide ITA No.466/Hyd/2015. In the said case, the Tribunal has remanded back the matter to the file of the Assessing Officer to verify this issue. Similar directions are passed by the Tribunal in the case of the assessee in ITA No.1245/Hyd/2016 wherein in paragraph 6, the Tribunal had held as under :

“6. The assessee being a resultant company out of demerger of M/s. Ushodaya Enterprises as in the case of Prism TV Pvt Ltd and the facts and circumstances being enact by the same, this ground of appeal of the assessee is also accordingly remanded to the file of the AO with similar direction and is treated as allowed for statistical purposes.”

3.1 The ld.DR had submitted that the ld.CIT(A) has wrongly considered the non compete fees as a depreciable asset and has wrongly granted the depreciation over that. He relied upon the following decisions :

• ExceleX Bio Polymers (P) Ltd vs. DCIT, Circle – 11(1) – ITA 1110/Del/2013. • CIT Vs. J.V. Eighteen – ITA 1624/2006 of Hon’ble Delhi High Court.

4 ITA No.2244/Hyd/2018 • Arkema Peroxides India (P) Ltd Vs. ACIT – 31 Taxmann.com 4. • CIT- III Vs. Sharp Business System – 27 taxmann.com 50. • Mylan Laboratories Ltd. Vs. ACIT, Range – 16 – 46 taxmann.com 76.

“2.1 The Assessing Officer while completing the assessment disallowed depreciation of Rs.16,79,62,330/- claimed by the Appellant on non-compete fee stating that business of the Appellant was devolved onto it consequent on demerger of TV business of Ushodaya Enterprises Pvt Ltd (UEPL) into different companies. Facts leading to payment of non-compete fee by UEPL and claim of depreciation on such non-compete fee by UEPL and the Appellant are as under. 2.2 In the financial year 2006-07, UEPL acquired Usha Kiron Television and Usha Kiron Movies (TV Division). In the financial year 2007-08, UEPL entered into a Non-compete Agreement with Usha Kiron Television and Usha Kiron Movies (TV division) on 30.01.2008 for not-competing in the business of TV channels directly or indirectly for a period of five years from the date of agreement. Accordingly in the previous year relevant to the Asst. year 2008- 09, UEPL paid Rs.670 crores towards non-compete fee and considered the same as intangible asset. 2.3 In the scheme of demerger, intangible asset, viz., non-compete fee whose WDV was Rs.329,76,56,250/- in the books of UEPL was distributed among demerged companies, viz., M/s.Eenadu Television Private Limited, M/s.Prism TV Private Limited and M/s.Panorama Television Private Limited, out of which Appellant's share was Rs.212,33,75,625/-. For Asst. year 2015- 16, depreciation was claimed at Rs.16,79,62,330/- @ 25% of its WDV of Rs.67,18,49,319/- by the Appellant on such intangible asset viz., Non- compete fee. 2.4 In this connection the Appellant submits that Usha Kiron Movies (UKM) and Usha Kiron Television (UKTV) are concerns of Sri Ramoji Rao (HUF), engaged in production and supply of Programmes (content) for UEPL's TV channels on a revenue share basis apart from owning satellite rights for more than 3700 feature films in different languages, many of

5 ITA No.2244/Hyd/2018 which are available either perpetually or for long periods ranging from 7 - 50 years. Programmes produced by these unit of HUF include, fiction, non-fiction, film based programmes, tele films, documentaries and special events including feature films for the entire ETV network. While UKM produced programmes (content) for ETV Telugu Channel, UKTV produced content for other language channels like Bangla, Kannada, Marathi, Gujarati, Oriya, Urdu etc. More than 100000 hours of programme software was produced and owned by these HUF Units. 2.5 The Appellant submits that the software (content) produced by UKM & UKTV was telecast by UEPL's TV network exclusively which enabled the network to gain wide reach and viewership among the audience. Such programmes attained good ratings and this helped the network to earn substantial advertisement revenue and later when the channels turned pay channels, substantial subscription revenues also are earned from viewers through cable operators and DTH operators. 2.6 In Television industry, content is most important and as long as the channel telecasts programs catering to different categories of viewers and the programmes are popular, the channel position in the market will be strong. Regional channels of ETV Network stood among the top 3 channels in the market, mainly due to the qualitative content produced by UKM & UKTV over 12 years and this helped the UEPL in earning substantial revenues as one of the three top channels. 2.7 The Appellant submits that the Television industry itself started gaining momentum in the years 1995 to 2000 and regional language television has grown from 2001-02. UKM & UKTV, are one of the earliest production houses with large base of satellite rights in feature films and tele-software and thus have a strong foothold in the TV market. The proportion of advertisement revenue attributable to the programmes produced by UKM & UKTV ranged between 45% to 65% of the total advertisement revenue earned by UEPL's TV network. The balance was contributed by news, current affairs, talk shows and other content. Such was the revenue generating capacity of the content produced by UKM & UKTV. 2.8 Therefore, it was expected by UEPL that if there is no non-compete agreement with UKM & UKTV, they would have aggressively bought rights of block buster films, produced good reality shows, feature films, etc., with quality content which would have certainly impacted viewership of its TV channels and consequently its revenues and profitability. As already mentioned, UEPL could earn 45 - 65% of its advertisement revenues only from the content produced by UKM & UKTV. It was therefore expected that 48% to 52% of the revenues and consequently profits of UEPL will decline had there been no non-compete agreement with UKM & UKTV. 2.9 Therefore UEPL entered into a Non-Compete Agreement (NCA) with UKM & UKTV on January 30, 2008. As per Clause (3) of NCA, UKTV and UKM have undertaken that they shall not, for a period of 5 years from the effective date, directly or indirectly (i) canvass, solicit or otherwise compete with UEPL in relation to the Business or (ii) solicit in any manner

6 ITA No.2244/Hyd/2018 whatsoever the employees, customers or suppliers or other business associates of UEPL. Further UKTV and UKM have agreed that they shall not directly or indirectly through any other person: Own, operate, manage, join, control, participate in the a) ownership, management, operation or control of, or be paid or employed by, or otherwise become associated with or provide assistance to, in any capacity, any business entity which is directly or indirectly engaged in the business in India. Hire, or attempt to hire, any employee or director of the buyer b) or induce or attempt to induce such employee or director to leave the employment of the buyer. The term "Business" has been defined in clause (1.1) of the NCA as under: "Business" means, the business of the first party which includes production of television programmes, other television software content, film production, acquisition of satellite rights of films, etc." 2.10 Therefore non-compete fee was paid to UKM & UKTV by UEPL, so that they do not re-enter TV business and pose serious competition to the business and earnings of UEPL. It is quite logical to conclude that UKM & UKTV had picked up considerable expertise in the business of production of TV content (software) over the years and to prevent them from reentering the same business later, non-compete fee was paid. Such non-compete fee was considered as an intangible asset by UEPL and depreciation was claimed on the same. However the Assessing Officer assessing UEPL disallowed depreciation on non-compete fee stating that non-compete fee cannot be considered as an intangible asset. The Assessing Officer disallowed depreciation on non-compete fee stating that since non-compete fee is not a right that is acquired by the payer but a restriction on the recipient, it cannot be deemed to be covered under the residuary phrase "any other business of commercial rights of similar nature", In this regard, reliance is placed on following decisions for the proposition that non-compete fee is eligible for depreciation. Kotak Forex Brokerage Ltd. vs. Assistant Commissioner of Income Tax • [2009] 33 SOT 237 (Mum - ITAT) • Hindustan Coca Cola Beverages (P) Ltd. vs. DCIT [2009] 34 SOT 171 (Del - ITAT) • Skyline Caterers (P) Ltd. vs. ITO [2008] 116 ITD 348 (Mum - ITAT) • The A.P Paper Mills Ltd. vs. ACIT [2010] 33 DTR 148 (Hyd - ITAT) • CLC Global Limited [ITA No. 2288/De1/08](Del). • Hindustan Coca Cola Beverages Pvt. Ltd [ITA No. 1391/2010, 1394/2010 & 1396/2010] (Del)

7 ITA No.2244/Hyd/2018 2.11 Therefore in view of the above decisions, the Appellant submits that the depreciation claimed on non-compete rights acquired from UKM and UKTV by UEPL which devolved onto the appellant is allowable as deduction while computing the income of the Appellant and the Assessing Officer is not justified in disallowing such depreciation. In view of the above, it is respectfully submitted that non-compete rights are "intangible assets" under section 32(1)(ii) of the Act and are eligible for depreciation @ 25%.

4.1. The ld.AR had also submitted that the above said judgments relied upon by the ld.DR are distinguishable and he relied upon the decision of Hon’ble Gujarat High Court. The ld.AR had filed the additional submissions which are to the following effect :

“3. In this connection the respondent assessee submits that the Hon'ble Gujarat High Court, has, in the case of Pr.CIT vs Ferromatic Milacron India (P) Ltd., directed allowance of depreciation on non-compete fee vide their decision dated 09-10-2018 reported in (2018) 99 Taxmann.com 194 GUJ HC (copy submitted at pages 9 to 13 annexed). This decision was followed Hon'ble Gujarat High Court in the same assessee's case vide,their decision dated 30- 07-2019 in R/Tax Appeal No.281 of 2019 (copy submitted at pages 1 to 8 annexed). 4. Hon'ble Income Tax Appellate Tribunal, Mumbai, has directed allowance of depreciation on non-competelee in the case of Piramal Glass Ltd., vs DCIT vide their decision dated 07-06-2019 in ITANo.3046/Hyd/2017, following their decision in assessee's own case for an earlier year. Kind reference is invited to paragraphs 1 to 7 of the order of the Hon'ble ITAT. (Copy submitted at pages 14 to 30 annexed) 5. Hon'ble Income Tax Appellate Tribunal, Bombay, has directed allowance of depreciation on non-compete fee in the case of India Meditronic (p) Ltd., vs ACIT vide.their decision dated 27-05-2019 in ITA No.2160/MUM/2017. (Kind reference is invited to paragraphs 11 to 13 on pages 66 to 68 annexed) 6. The respondent assessee submits that recent decisions rendered by the Hon'ble Income Tax appellate Tribunal and Hon'ble Gujarat High Court support allowability of depreciation on non compete fee in assessee's favour. It is also submitted that the respondent assessee company, was. formed as a result of demerger of M/s.Ushodaya Enterprises Pvt.Ltd., and acquired the intangible asset of non-compete fee consequent to the said demerger. The issue of allowability of depreciation claimed on non-compete fee has been considered in the assessee's own case and Hon'ble Income Tax Appellate Tribunal has remanded the same to the file of the A.0 for reconsideration after

8 ITA No.2244/Hyd/2018 a decision is taken on the allowability of the noncompete fee in the case of Ushodaya Enterprises (P) Ltd. vide paragraphs 4 to 6 of their decision in ITA No.1245/Hyd/2016 dated 09-08-2017 (Copy submitted at pages 5 to 20 annexed to earlier written submissions dated 09-05-2019) In the light of the submissions made hereinabove, the respondent assessee prays that the decision of the learned C.I.T (Appeals) on the issue of allowability of depreciation on non-compete fee may kindly be upheld.”

“11. This question arose as a direct sequel to the appellant’s alternative submission that if the expenditure is treated as a conferring capital advantage, necessarily they are depreciable. The appellant claims for depreciation of "know-how", "patents", "copyrights", "trademarks", "licenses", "franchises" or other business or commercial rights of similar ITA-492-12 Page 10 nature being intangible assets acquired on or after 1st day of April 1998. Arguing by analogy, learned counsel for the appellant relied upon the judgment of the Supreme Court in Techno Shares & Stocks Ltd. (supra) where the issue was whether the contention of the assessee that it could claim depreciation on the Bombay Stock Exchange Membership Card held by it on the plea that it was a license or "business or commercial right of similar nature" was upheld. The appellant also relied upon the decision of this Court in Hindustan Coco Cola Beverages P. Ltd. (supra) and the judgement of the Kerala High Court in B. Ravindran Pillai v. CIT 332 ITR 531 (Ker). As would be evident from Section 32(1)(ii), depreciation can be allowed in respect of

9 ITA No.2244/Hyd/2018 intangible assets. Parliament has spelt-out the nature of such assets by express reference to „know-how‟, „patents‟, „copyrights‟, „trademarks‟, „licenses‟ and „franchises‟. So far as patents, copyrights, trademarks, licenses and franchises are concerned, though they are intangible assets, the law recognizes through various enactments that specific intellectual property rights flow from them. Licenses are derivative and often are the means of conferring such intellectual property rights. The enjoyment of such intellectual property right implies exclusion of others, who do not own or have license to such rights from using them in any manner whatsoever. Similarly, in the matter of franchises and know-how, the primary brand or intellectual process owner owns the exclusive right to produce, retail and distribute the products and the advantages flowing from such brand or intellectual process owner, but for the grant of such know-how rights or franchises. In other words, out of these species of intellectual property like rights or advantages lead to the definitive assertion of a right in rem. The decisions of this Court in Hindustan Coco Cola Beverages P. Ltd. ITA-492-12 Page 11 (supra) and that of the Kerala High Court in B. Ravindran Pillai (supra) underlined that goodwill is also a species of depreciable right which can claim the benefit of Section 32. Those decisions were based on the ruling of the Supreme Court in CIT v. B.C. Srinivasa Setty 1981 (128) ITR 294 (SC) and subsequent cases which have ruled that goodwill is a depreciable capital asset. So far as the decisions in Techno Shares & Stocks Ltd. (supra) is concerned, the Supreme Court clearly limited its holding that the right to membership of Stock Exchange is in the nature of "any other business or commercial right" which was an intangible asset as is evident from the following observations: "Before concluding we wish to clarify that our present judgment is strictly confined to the right to membership conferred upon the membership under the BSE Membership Card during the relevant assessment years. We hold that the said right to membership is "business or commercial activity" which gives a non-defaulting continuing membership and right to access Exchange and to participate therein and in that sense it is a license or akin to a license, in terms of Section 32(1)(ii)......." 12. It is, therefore, apparent that the ruling in Techno Shares & Stocks Ltd. (supra) was concerned with an extremely limited controversy, i.e. depreciability of stock exchange membership. This Court observes that such nature was held to be akin to a license because it enable the member, for the duration of the membership, to access the Stock Exchange. Undoubtedly, it conferred a business advantage and was an asset which and was clearly an intangible asset. The question here, however, is whether a non-compete right of the kind acquired by the assessee against L&T for seven years amounts to a depreciable intangible asset. As discussed earlier, each of the species of rights spelt-out in Section 32(1)(ii), i.e. know-how, patent, copyright, trademark, license or franchise as or any other right of a similar kind which confers a business or commercial or any other business or commercial right of similar nature has to be "intangible asset". The nature of these rights mentioned clearly spell-out an element of exclusivity which enures to the assessee as a sequel to the ownership. In other words, but for the

10 ITA No.2244/Hyd/2018 ownership of the intellectual property or know-how or license or franchise, it would be unable to either access the advantage or assert the right and the nature of the right mentioned or spelt-out in the provision as against the world at large or in legal parlance "in rem". However, in the case of a non- competition agreement or covenant, the advantage is a restricted one, in point of time. It does not necessarily - and not in the facts of this case, confer any exclusive right to carry-on the primary business activity. The right can be asserted in the present instance only against L&T and in a sense, the right "in personam". Indeed, the 7 years period spelt-out by the non-competing covenant brings the advantage within the public policy embedded in Section 27 of the Contract Act, which enjoins a contract in restraint of trade would otherwise be void. Another way of looking at the issue is whether such rights can be treated or transferred - a proposition fully supported by the controlling object clause, i.e. intangible asset. Every species of right spelt-out expressly by the Statute - i.e. of the intellectual property right and other advantages such as know-how, franchise, license etc. and even those considered by the Courts, such as goodwill can be said to be alienable. Such is not the case with an agreement not to compete which is purely personal. As a consequence, it is held that the contentions of the assessee are without merit; this question too is answered against the appellant and in favour of the ITA-492-12 Page 13 Revenue.

11 ITA No.2244/Hyd/2018 depreciable intangible asset. This view was plainly opposed to the well settled principles. In case of Techno Shares & stocks Ltd. (supra) the Supreme Court held that payment for acquiring membership card of Bombay Stock Exchange was intangible asset on which the depreciation can be claimed. It was observed that the right of such membership included right of nomination as a license which was one of the items which would fall under section 32(1)(ii). The right to participate in the market had an economic and money value. The expenses incurred by the assessee which satisfied the test of being a license or any other business or commercial right of similar nature. ( emphasis supplied us us) 9. In case of Areva T & D India Ltd. (supra) Division Bench of Delhi High Court had an occasion to interpret the meaning of intangible assets in context of section 32(1)(ii) of the Act. It was observed that on perusal of the meaning of the categories of specific intangible assets referred to in section 32(1)(ii) of the Act preceding the term "business or commercial rights of similar nature" it is seen that intangible assets are not of the same kind and are clearly distinct from one another. The legislature thus did not intend to provide for depreciation only in respect of the specified intangible assets but also to other categories of intangible assets which may not be possible to exhaustively enumerate. It was concluded that the assessee who had acquired commercial rights to sell products under the trade name and through the network created by the seller for sale in India were entitled to depreciation.

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8.1. In this regard, the ld.DR for the revenue had drawn our attention to paragraph 5.1 to 5.3 of the order passed by the assessing officer, wherein Rule 9A and 9B of I.T. Rules had been reproduced, thereafter, it was held that the programs being “intangible assets”, the assessee is only eligible for depreciation at the rate of 25% on this expenditure of Rs.81,97,94,1477/-.

“3.2 The Assessing Officer disallowed Rs.61,48,45,610/- out of Rs.81,97,94,147/-incurred by the Appellant for production of TV serials and programmes and claimed as deduction stating that cost of production of TV serials and programmes is not covered under Rule 9A or Rule 9B but is to be considered as an intangible asset and depreciation only is allowable thereon at the rate of 25%. 3.3 In this regard, the Appellant submits that Rule 9A or Rule 9B may not directly apply to cost of production of TV serials and programmes but spirit behind framing these rules should apply. It is relevant to note that there is not much difference between feature film and TV programme. Both have a limited life except in few cases where they may have slightly longer life. When feature films costing even hundreds of crores of rupees is allowed as deduction in the year of release under Rule 9A/9B, same logic should apply to cost of TV programme/serial whose cost is far less compared to feature film and whose life is also very short like that of Motion pictures. 3.4 Hence disallowing this cost in the hands of the Appellant only is not justified. It is further submitted that one of the demerged companies of UEPL, viz., Prism TV (P) Ltd., was allowed cost of production of TV programmes as deduction by Hon'ble Income Tax Appellate Tribunal, Hyderabad Bench, in ITA No.466/Hyd/2015 & ITA No.1249/Hyd/2015 in their order dt.24.03.2016. Even in Appellant's own case, cost of TV Serials & programmes was directed to be allowed as deduction in Asst. years

13 ITA No.2244/Hyd/2018 2011-12 and 2012-13 by Hon'ble Income Tax Appellate Tribunal in ITA Nos.760/Hyd/2015 and 1245/Hyd/2016 respectively. 3.5 In this connection the Appellant further submits that cost of audio rights which also have recurring realisations was held allowable as deduction in computing the income from business of manufacturing and selling audio cassettes/ CDs etc., 3.6 Hence, the Appellant submits that the Assessing Officer is not justified in disallowing cost of production of TV serials and programmes and allowing only depreciation on such cost.”

9.1 The ld.AR had further drawn our attention to the order passed by the Tribunal in the case of the assessee in ITA No. 1806/HYD/2017 whereby the Tribunal had allowed the claim of the assessee, as per paragraphs 2 to 5 of the said order to the following effect :

“2. As regards ground Nos. 1 & 2 regarding disallowance of cost of production on TV Serials and programs of Rs. 50,03,09,683, the AO observed that the assessee company debited an amount of Rs. 66,70,79,577/- towards cost of production of TV serials and programs and this expenditure relates to the year under consideration. Further, he observed that instead of claiming depreciation, the entire expenditure was claimed as revenue expenditure and debited to P&L a/c. The cost of production of TV serials and programs was not covered under Rule 9A or Rule 9B. In view of the observations, AO considered the programs as intangible assets of the company and allowed the depreciation @ 25% on the said expenditure. 3. Aggrieved, the assessee preferred an appeal before the CIT(A). The CIT(A) after considering the submissions of the assessee, which were extracted at page 5 of his order, allowed the assessee's ground by following the decision of ITAT in assessee's own case for AY 2011-12 in ITA No. 760/Hyd/2015 vide order dated 13/05/2016. 4. Aggrieved by the order of CIT(A), the revenue is in appeal before us. 5. Considered the rival submissions and perused the material on record. Similar issue came up for consideration before the ITAT, Hyderabad in assessee's own case for AY 2012-13 in ITA No. 1245/Hyd/2016, order dated 09/08/2017 wherein the coordinate bench has held as under: "8. The learned Counsel for the assessee submitted that this issue had arisen in the case of M/s. Prism Television (P) Ltd also in the case cited Supra wherein the Coordinate Bench of this Tribunal has considered the issue at length ITA No. 1806/Hyd/17 Eenadu Television Pvt. Ltd. and has allowed the assessee's ground of appeal. The relevant portion is reproduced hereunder for the sake of clarity and ready reference:

14 ITA No.2244/Hyd/2018 "9. Having regard to the rival contentions and the material on record, we find that the 'A' Bench of this Tribunal at Chennai in the case of ACIT, Media Circle- II, Chennai vs. M/s. Sun TV Network Ltd., Chennai in ITA.Nos.1515 to 1520/Mds/2013 by 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 from the date of release in theatres depending upon the success at the box office and other factors. Till the time, such films are broadcasted, they are to be treated as stock in trade. Once the films are broadcasted, the purchase value of the films is written-off. The expenditure on purchase of films is claimed in the first year itself. The assessee has got only satellite telecasting rights and has no universal rights for airing the films or serials. Once the film or the serial is aired, its value 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 broadcasting such serials are also treated as stock in trade till the time they are aired and the expenses are debited to the Profit & Loss account. The assessee treats the films and the serials at par and applied the provisions of Rule 9A and 98 of the Income Tax Rules, as are applicable in case of films on serials as well. On the other hand, the contention of the Revenue is that the film and serial broadcasting rights acquired by assessee are perpetual in nature. After first telecast, the assessee 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 ITA No. 1806/Hyd/17 Eenadu Television Pvt. Ltd. within the purview of Section 37(1). The assessee is entitled to claim depreciation on same. 9. The issue of amortization of cost of movie and serial rights, programme production expenses, consumable and media expenses by treating them as intangible assets u/s.32(1)(ii) has been dealt in detail by the CIT (Appeals) in his order dated 23-02-2013 relevant to the A Y. 2006-07 and 2007-08. We fully agree with the detailed findings and the reasoning given by the CIT(Appeals) in his order allowing this ground of appeal of the assessee. For the sake of brevity, we are not reproducing the findings of CIT (Appeals) 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

15 ITA No.2244/Hyd/2018 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 respect of all the AYs is dismissed." 9.1. In the case of Zee Media Corporation Ltd., (Formerly known Zee News Limited), Mumbai vs. DCIT, Circle-7(3), Mumbai, the 'G' Bench of Tribunal at Mumbai in ITA.No.1590/Mum/2015 by order dated 12.08.2015 has held as under : "25. We have heard both the parties and perused the orders of the Revenue Authorities as well as the cited precedents and paper book filed before us. 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. Per contra, the case of the revenue on these issues is that these items constitute 'intangible depreciable capital assets' and provisions of section 32 of the Act apply. Considering the same, we shall now undertake to discuss the item wise adjudication as follows. a. 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 ITA No. 1806/Hyd/17 Eenadu Television Pvt. Ltd. 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. Accordingly, we direct the AO to delete the relevant addition.

16 ITA No.2244/Hyd/2018 b. 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 have also extracted the relevant paragraphs and already placed in this order above. 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 AD'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, Ground nos. 2 and 3 raised by the assessee are allowed. 9.2. In coming to this conclusion, the Tribunal has followed the judgment of the Hon'ble Delhi High Court in the case of CIT vs. Television Eighteen India Limited reported in (2014) 364 ITR 597 ITA No. 1806/Hyd/17 Eenadu Television Pvt. Ltd. (Del.). The relevant portion of the judgment of the Hon'ble Delhi High Court is reproduced as under : "The revenue has preferred this appeal claiming to be aggrieved by an order of the Income Tax Appellant Tribunal (ITAT) dated 17.03.2006. The question of law framed in this case is:- (i) Whether the Income Tax Appellate Tribunal was right in holding that the entire expenditure incurred by the assessee on production of programmes which became part of news archives should be allowed as a revenue expense under Section 37 of the Income Tax Act, 1961 and should not be treated as incurred for creating a capital asset? The assessee, at the relevant time, was in the business of television programme production. The assessee reflected Rs.88,83,128/- being 10% of the total expenditure incurred by it as value of "news archives" under the head of fixed assets. In the return filed by the assessee for the Assessment Year 1997, the said amount was claimed as revenue expenditure. According to the assessee this expenditure was allocated for the creation of "news achieves", which comprised of its published or telecasted programmes. The AO capitalised this amount holding that the expenditure led to creation of an asset of enduring advantage. The CIT (Appeals) on appeal, however, reversed the findings of the AO. It was noticed that the news archives were not in the nature of plant or income generating apparatus but part of the product. It was also

17 ITA No.2244/Hyd/2018 held that the unavailability of any objective basis, to quantify with any decree of accuracy future revenue that were likely to be generated and the proportionate cost of production that could be deferred, led to the conclusion that the 10% of the total expenditure earmarked for creation of "news archives" could not be treated as a capital expenditure. On the revenue's appeal, the ITAT held as follows:-

"12. It is admitted that no separate account was maintained wherein any expenditure was debited which could be earmarked towards creation of News Archives library. The assessee felt a part of footage of the news based on programmes produced has repeat value which could be used for the production of programme in future. The assessee, therefore, estimated 10% expenditure incurred as reasonable to be attributable to the News Archives library. The assessee has been engaged in the production of such programmes since assessment year 1994-95 and all along the cost of production of such expenditure has been treated as revenue expenditure and also allowed by the Department. Learned A.R. has referred to judgment of Hon'ble Supreme Court in the case of Alembic Chemical Works Ltd. vs. CIT 177 ITR 377 which laid down that what is capital expenditure and what is revenue are not eternal verities but must needs to be ITA No. 1806/Hyd/17 Eenadu Television Pvt. Ltd. flexible so as to respond to the changing economic realities of business. Viewed in that perspective, we are of the opinion that the estimated value assigned to the News Archives cannot be treated to be an expenditure incurred in the capital field. We, therefore, uphold the order of CIT (A) on this ground. In this case, there is no dispute that the data base of the programmes which are utilised for the creation of "news archives" belonged to the assessee. The future likelihood of these resources being a possible source of revenue, cannot in the opinion of this Court justify its inclusion in the capital stream. Furthermore, this Court notices that the expenditure i.e. 10% Rs.88,83,128/- is a part of the entire total expenditure incurred by the assessee which is concededly treated as revenue, even otherwise. In view of the above discussions, this Court is of the opinion that the question of law framed is answered in favour of the assessee and against the revenue. The appeal is dismissed." 9.3. Thus, it is seen that the issue is fairly covered in favour of the assessee by the above decision and the A.O. is directed to treat the expenditure incurred by the assessee on cost of production of TV programmes as revenue expenditure. This ground of appeal of the assessee is accordingly allowed. Following the said decision, we uphold the decision of the CIT(A) and dismiss the grounds raised by the revenue on this issue.”

18 ITA No.2244/Hyd/2018

11.1 In this regard, the ld.DR for the revenue had drawn our attention to paragraph 6.1 to 6.5 of the order passed by the assessing officer. It was submitted by the ld.DR that the Ld. CIT(A) had wrongly decided the issue and our attention was drawn to paragraph 7.3 of the order.

19 ITA No.2244/Hyd/2018 “4.2 The Assessing Officer disallowed Rs. 10,01,27,605/- out of depreciation taking its WDV as per Assessment Order for asst. year 2014-15 and considering rate of depreciation @ 15% only against 25% claimed by the Appellant. The Assessing Officer charged WDV stating that cost of acquisition of this asset was not accepted in the case of Ushodaya Enterprises Ltd from whom this asset was taken over by the Appellant and accordingly arrived at the WDV proportionately. It is further stated by the Assessing Officer that this asset is not an intangible asset but represents only General Plant and Machinery and therefore depreciation is allowable at 15% only against 25% claimed by the Appellant. 4.2 It is further submitted that in Assessment year 2006-07 Department itself had allowed depreciation on Software Library @25% considering it as Intangible Asset in the case of Sri Ramoji Rao (HUF). The company had acquired the rights from the same HUF and hence it is not justified in stating that the copy rights are not 'intangible assets', The Supreme Court in Tata Consultancy Services vs State of Andhra Pradesh (2004) 271 ITR 401 (SC) observed that when a customer buys a CD he does not pay for the disc or the CD and he pays for the software contained in the CD. Relevant observations of the Supreme Court are as under. "Sale is not just of the media which by itself has very little value. The software and the media cannot be split up. What the buyer purchases and pays for is not the disc or the CD. As in the case of paintings or books or music or films the buyer is purchasing the intellectual property and not the media i.e. the paper or cassette or disc or CD". 4.3 It is further submitted that Accounting Standard (AS) 26 defines intangible asset as under. "6.1 An intangible asset is an identifiable non-monetary asset, without physical substance, held for use in the production or supply of goods or services, for rental to others, or for administrative purposes. 6.2 An asset is a resource: controlled by an enterprise as a result of past events; and (a)

from which future economic benefits are expected to flow to the (b) enterprise. " As could be seen from the above any non-monetary asset without physical substance and used for providing services is an intangible asset. 4.4 It is also relevant to note that the Assessing Officer himself had allowed depreciation at 25% on cost of Software (TV Serials and Programmes) in this Asst. year itself in earlier part of the Order while declining to grant such cost as deduction while computing Appellant's income for this asst. year.

20 ITA No.2244/Hyd/2018 4.5 In view of what is explained above, Appellant submits that Software Library is rightly and correctly considered as Intangible Asset and therefore depreciation claimed at 25% rate applicable to Intangible Assets is justified and allowable and the assessing officer is not justified in treating the software as general Plant & Machinery and allowing depreciation thereon at 15% only. 4.6 Regarding rate of depreciation, the appellant submits that the Assessing Officer ought to have seen that on appeal filed against the order passed by the Assessing Officer u/s.143(3) r.w.s. 263 for the Asst. year 2007-08 in the case of Ushodaya Enterprises Pvt Ltd (UEPL), Commissioner of Income Tax Appeals-V in his order dated 24.06.2013 in ITA No.0361/DC-16(2)/CIT(A)-V/2012-13 directed the Assessing Officer to allow depreciation @ 25% thereon on Film software library. 4.7. Regarding WDV of Film software Library, Appellant submits that the Assessing Officer erred in stating that cost of this asset in the hands of Ushodaya Enterprises Pvt Ltd from whom the Appellant succeeded to Film Software Library was reduced to Rs.160,96,47,766/- against its cost of acquisition at Rs.775 Cr and therefore WDV of Film Software Library in the hands of the Appellant is to be reduced accordingly. The Assessing Officer is further not justified in not considering Orders of Commissioner of Income Tax (Appeals) and Hon'ble Income Tax Appellate Tribunal on this issue in Asst. year 2007-08. 4.8 Hence the Assessing Officer is not justified in disallowing Rs.10,01,27,605/- out of depreciation claimed on Film Software Library. The Assessing Officer while computing the tax payable granted 5. credit for TDS of Rs.6,57,25,703/- against Rs.6,76,21,038/- claimed by the Appellant and did not even state anything as to why credit is not given for the difference. In this regard, Appellant submits that it had claimed credit for TDS on account of the income earned and credited to profit and loss account during the year. Thus when the income was offered during the year as income, credit has to be given for the TDS deducted from such income in accordance with the provisions of Sec.199 of the Income Tax Acct. Therefore the Assessing Officer ought to have given credit for differential TDS, TCS and TDS by NRI's amounting to Rs18,95,335/- also.”

21 ITA No.2244/Hyd/2018 done from M/s. E&Y was rejected by giving the reasons vide para 6.3 of the assessment order. However, the Assessing Officer had not made any efforts for conducting the independent valuation of the film library as per section 142A of the Act. In the light of the above, we deem it appropriate to remand back this issue to the file of Assessing Officer by following the decision of Tribunal in ITA No.760/Hyd/2015 by issuing the identical direction. The Assessing Officer shall decide the issue as per fact and law and after giving the due opportunity of being heard to the assessee. Thus, ground No.3 is allowed for statistical purposes.

Sd/- Sd/- (RAMA KANTA PANDA) (LALIET KUMAR) ACCOUNTANT MEMBER JUDICIAL MEMBER Hyderabad, dated 22nd July, 2022. TYNM/Sr.P.S. Copy to: S.No Addresses 1 The Deputy Commissioner of Income Tax, Circle 16(2), Hyderabad. 2 M/s. Eenadu Television Private Limited, H.No.1-10-76, Fair Field, Begumpet, Hyderabad – 500 016. 3 Commissioner of Income Tax (Appeals) – 4, Hyderabad. 4 Principal Commissioner of Income Tax – 4, Hyderabad. 5 DR, ITAT ‘A’ Bench, Hyderabad. 6 Guard File By Order