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Income Tax Appellate Tribunal, F Bench, Mumbai
Before: Shri Jason P. Boaz & Shri Sandeep Gosain
This appeal by Revenue is directed against the order of the CIT(A)-14, Mumbai dated 19.12.2014 for A.Y. 2010-11.
The facts of the case, briefly, are as under: - 2.1 The assessee, a company engaged in running a television channel named ‘Hungama’, filed its return of income for A.Y. 2010-11 on 30.09.2013 declaring income of `4,35,59,437/- under the normal provisions of the Act and ‘book profits’ under section 115JB of the Income Tax Act, 1961 (in short 'the Act') at `2,54,16,069/-. The case was taken up for scrutiny and the assessment was completed under section 143(3) of the Act vide order dated 31.01.2013 wherein the assessee’s income under the normal provisions of the Act was determined at `10,74,94,593/- in view of the following additions/disallowances: - (i) Disallowance under section 40A(2)(b) ` 3,56,00,000/- (ii) Non reconciliation of ITS details ` 25,81,822/- (iii) Proportionate dubbing cost (4/5) ` 2,57,53,334/- M/s. United Home Entertainment Pvt. Ltd. Book profits under section 115JB of the Act were accepted as computed at Rs.2,54,16,069/-. 2.2 Aggrieved by the order of assessment dated 31.01.2013 for A.Y. 2010- 11, the assessee preferred an appeal before the CIT(A)-14, Mumbai. The learned CIT(A) disposed of the appeal vide the impugned order dated 19.12.2014 allowing the assessee partial relief; by, inter alia, allowing the assessee’s appeal on the items listed at (ii) and (iii) in para 2.1 (supra) and upheld the AO’s order in respect of the disallowance at S. No. (i) (supra).
Aggrieved by the impugned order of the learned CIT(A)-14, Mumbai dated 19.12.2014, Revenue has preferred this appeal raising the following grounds: - “
(i) The Learned CIT(A) has erred on facts and in law in deleting disallowance of dubbing cost of Rs.2,57,33,334/- relying on the decision given in the case of Ajay Singh Deol in ITA O. 7404/M UNH/2003 for A.Y. 2000-01, without properly appreciating the factual and legal matrix as clearly brought out by the Assessing Officer. (ii) The Learned CIT(A) has erred on facts and in law in deleting the disallowance of dubbing cost of Rs.2,57,33,334/-, as in the immediate preceding year i.e. A.Y. 2009-10 in assessee’s own case, the Ld. CIT(A) has dismissed the appeal of the assessee on identical grounds.
2. The Ld. CIT(A)’s order is contrary to law and on facts and deserves to be set aside and A.O’s order may be restored.
3. The appellant craves leave to amend or alter any ground or add a new ground that may be necessary. 4. Ïnspite of fixing the hearing of this case on atleast two occasions, none was present for the assessee nor was any adjournment sought on its behalf. On 20.12.2016 also when the case was called for hearing, none was present for the assessee but the learned D.R. was present and ready to present the case on behalf of Revenue. In these circumstances, we proceed to dispose off this appeal with the assistance of the learned D.R. for Revenue and the material on record.
5. Ground Nos. (i) to 3 – Treatment of Dubbing Costs 5.1 In the grounds raised by Revenue, the sole issue that has been raised for the consideration of the Bench is whether or not the dubbing cost
M/s. United Home Entertainment Pvt. Ltd. incurred on translating the foreign language entertainment programmes into Indian languages for making them ready for use/broadcast on the assessee’s T.V. Channel ‘Hungama’ should have formed part and parcel of the licence fee for use of the foreign language entertainment programme and amortised along with the cost of such licences. The learned D.R. was heard in support of the grounds raised and he vehemently assailed the finding of the learned CIT(A) in the impugned order in holding that dubbing costs were to be treated as revenue in nature and following the decision of the Coordinate Bench in the case of Ajay Singh Deol (2004)
91. ITD 196 (Mum) without appreciating that the facts of the cited case were distinct and different and clearly not applicable to the case on hand. 5.2.1 We have heard the learned D.R. for Revenue and perused and carefully considered the material on record; including the judicial pronouncement cited. The facts of the matter as emerge from the record are that in the course of assessment proceedings the AO observed that the assessee company is engaged in running a television channel, ‘Hungama’- an entertainment channel for children. In this regard, they acquire the right to broadcast programmes by paying licence fee to various channels/ production houses for broadcast of live action programmes, animated series and films. The licence fee for acquiring the aforesaid rights is amortised over the period of licence which varies from one to 12 years. Subsequently, the programmes, films, animated series, etc. are dubbed to the local language and broadcast on ‘Hungama Channel’. On being queried in this regard, the assessee submitted before the AO that dubbing costs represent revenue expenditure and should be allowed entirely in the year in which it is incurred. The assessee’s claim did not find favour with the AO, who was of the view that dubbing cost is incurred in relation to the context i.e. programmes, films, etc. rights acquired under licence and therefore the treatment of dubbing cost should be treated the same as inventory and therefore should form part of the cost of acquisition for such rights, as part of licence fees, etc. and amortized over the years depending of the tenure of the licence. In this view of the matter, the AO disallowed the assessee’s claim in respect of dubbing cost being revenue expenditure. On appeal, the M/s. United Home Entertainment Pvt. Ltd. learned CIT(A) following the decision of the Coordinate Bench of the Tribunal in Ajay Singh Deol (supra) held them to be revenue in nature. 5.2.2 We have perused the impugned order of the learned CIT(A) wherein he has allowed the assessee’s claim at para 5.2 thereof holding as under: - “5.2 I have gone through both the orders. After going through the decision given by Hon'ble ITAT Mumbai in addressing dubbing expense case, I am in agreement with the appellant that dubbing expenses having paid to dubbing studio and the artist are revenue in nature. The appellant have already submitted that they are related to programs which are their inventory, meaning thereby they were their source of revenue and hence expenses incurred to earn the revenue with are directly linked so have to be treated as revenue expenses. For the reasons discussed and relying upon the decision given by Hon'ble ITAT Mumbai in the case of Ajay Singh Deol, the claim for dubbing cost has to be allowed and hence addition made for Rs.25,81,822/- i.e. Rs.25,75,334/- incurred as dubbing cost is allowed.” The facts of the case on hand as per details on record are that the assessee was in the business of running a television channel ‘Hungama’ – an entertainment channel for children for broadcasting entertainment programmes; which it procured by payment of licence fees to various channels and production houses. The cost of such licence fees was amortised by the assessee over the period of the licence. It is seen that the dubbing cost was incurred for translating the foreign language entertainment programmes into Indian languages; without incurring of which, such foreign language programmes could not have been broadcast on the assessee’s channels since the viewers, mostly children, could not have understood or appreciated them. In this factual matrix of the case, we are of the considered view that without the incurring of dubbing costs, the asset, i.e. the licence could not be utilised for earning revenue. In our view, all expenditure incurred for setting up the asset, for making it ready for use, would amount to and be in the nature of capital expenditure and therefore the dubbing cost incurred by the assessee should form part and parcel of the cost of acquisition of such rights as part of licence, i.e. the foreign language entertainment programme and should be amortised alongwith the cost of the licence. We hold and direct accordingly and consequently reverse the order of the learned CIT(A) and restore the order/finding of the AO on this issue. Revenue’s grounds of appeal are accordingly allowed.
M/s. United Home Entertainment Pvt. Ltd. 5.2.3 We have carefully perused the decision of the Coordinate Bench of the Tribunal in the case of Ajay Singh Deol (supra) relied upon by the learned CIT(A) and find that the facts of that case are different, distinct and distinguishable from those of the case on hand and would not come to the rescue of the assessee in the case on hand. In that case, the assessee incurred certain expenditure towards medical treatment of the wife of one of his employees who was unable to meet such expenditure with his limited resources, and claimed deduction thereof as business expenditure. Though the authorities below disallowed the assessee’s claim, the Coordinate Bench allowed the assessee’s appeal holding that as long as expenses are incurred wholly and exclusively for earning income from business or profession, merely because some of the expenses are incurred voluntarily, these expenses do not cease to be deductible. It is beyond our comprehension as to how this case was held to be applicable to the case on hand and followed by the learned CIT(A) to allow the assessee’s claim that dubbing costs incurred to render the asset, i.e. the films and programmes, ready for use/broadcast as revenue expenditure.