Commissioner of Income Tax vs Television Eighteen India Ltd.

The Revenue has preferred this appeal claiming to be aggrieved by an order of the income tax Appellate Tribunal ("the ITAT") dated March 17, 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 u/s 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 per cent 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 its published or telecasted programmes. The Assessing Officer capitalised this amount holding that the expenditure led to creation of an asset of enduring advantage. The Commissioner of income tax (Appeals), on appeal, however, reversed the findings of the Assessing Officer. 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 held that the unavailability of any objective basis to quantify with any degree 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 10 per cent, of the total expenditure earmarked for creation of news archives could not be treated as a capital expenditure.

On the Revenue''s appeal, the income tax Appellate Tribunal held as follows:

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 assesses therefore, estimated 10 per cent, 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 authorised representative has referred to the judgment of the hon''ble Supreme Court in the case of Alembic Chemical Works Co. Ltd. Vs. Commissioner of Income Tax, Gujarat, which laid down that what is capital expenditure and what is revenue are not eternal verities but must needs to be 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 the Commissioner of income tax (Appeals) 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 per cent. 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.