$ * IN HIGH COURT OF DELHI AT NEW DELHI 4. + ITA 190/2015 CIT-7 ..... Appellant Through: Mr N. P. Sahni, Senior Standing Counsel with Mr Nitin Gulati, Junior Standing Counsel. versus RADIO TODAY BROADCASTING LTD ..... Respondent Through: Mr Salil Aggarwal and Mr Ravi Pratap, Advocates. CORAM: JUSTICE S. MURALIDHAR JUSTICE VIBHU BAKHRU ORDER % 09.12.2015 Dr. S. Muralidhar, J. 1. This appeal by Revenue under Section 260A of Income Tax Act, 1961 ( Act ) is directed against impugned order dated 9th September 2014 passed by Income Tax Appellate Tribunal ( ITAT ) in ITA No. 2186/Del/2012 for Assessment Year ( AY ) 2008-09. Questions of law 2. On 13th March 2015 while admitting this appeal, following questions of law were framed for consideration: (a) Whether ITAT fell into error in holding that Assessee was entitled to additional depreciation for machinery used by it to broadcast radio programs in FM channel given definition of manufacture as it existed at time assessment was taken up in this case? (b) Did ITAT fall into error in its opinion with respect to depreciation on broadcasting rights for centres where assets were not put to use, in facts and circumstances of case? ITA 190/2015 Page 1 of 15 Background facts 3. facts leading to filing of present appeal are that Respondent-Assessee is engaged in business of FM radio broadcasting. Respondent was granted permission on 8th December 2006 for operating FM Radio Broadcasting channels at Delhi, Kolkatta, Mumbai, Jodhpur, Patiala, Amritsar and Shimla against payment of prescribed one Time Entry Fees. Out of 7 stations, Assessee went on air in AY 2008-09 from three radio stations, i.e., Delhi, Kolkata and Mumbai. three stations at Jodhpur, Patiala and Amritsar were made ready to go on air by 8th December 2007 but due to unfavourable market conditions, marketing team of Assessee decided against going on air for said stations in AY 2008-09. However, on advice of marketing team, Assessee started taking trial runs by running radio programs within office premises at Jodhpur, Patiala and Amritsar in AY 2008-09. 4. Assessee filed its return of income on 28th September 2008 at loss of Rs. 21,59,67,400. In its return Assessee claimed additional depreciation amounting to Rs. 1,92,06,254 under Section 32 (1) (iia) of Act. Apart from above, Assessee claimed depreciation in sum of Rs. 47,25,000 on One Time Entry Fee (licence fee) paid for FM channels. 5. return was picked up for scrutiny and statutory notices were issued to Assessee. In response to query by Assessing Officer ( AO ) as to why additional depreciation should not be disallowed, written submission was filed by Assessee on 2nd December 2010 through its authorized representative ( AR ) stating as under: "As per section 32(1)(iia) for purpose of additional depreciation following conditions need to be satisfied: 1. assessee is engaged in manufacture/production of article or thing; ITA 190/2015 Page 2 of 15 2. New plant and machinery is acquired and installed after 31st March 2005; 3. It should be eligible plant and machinery Assessee company is engaged in business of FM radio broadcasting and following are some of Radio Programs produced by it during Financial Year 2007-08: (a) Medical Meow; (b) Top Cat; (c) Sports Cat; (d) Meow Zindagi; (e) Meow Matinee; (f) Mama Meow; (g) Tutu Meow Meow Further, during financial year 2007-08 Assessee company has purchased only new plant and machinery and used same in production of programs on which additional depreciation has been claimed by it" Assessment order 6. However, AO rejected Assessee s contention that above radio programmes were articles or things produced by it . AO held that by no stretch of imagination can production of radio programmes be considered as production of article or thing . additional depreciation claimed was disallowed and added back to total income of Assessee. 7. As regards depreciation claimed on One Time Entry Fee for stations not operational, AO observed noted that Note 8 in accounts submitted by Assessee stated as under: "According to terms & conditions of Grant of Permission Agreement (GOPA) by Ministry of Information & Broadcasting (MIB), Govt. of India for operating FM Radio Broadcasting Channels, term of permission has been fixed for 10 year commencing from date of operationalisation of Channel or upon expiry of one year from date of grant of permission, ITA 190/2015 Page 3 of 15 whichever occurs first. company was granted permission for seven stations on 8th December 2006. One against payment of prescribed One Time Entry Fee ( OTEF ). As at end of year, three Channels (Delhi, Kolkata, Mumbai) were made operational while other three Jodhpur, Patiala and Amritsar) were made operational subsequent to year end and seventh channel SIMLA could not be made operational because of MIB's inability to provide basic infrastructure. Accordingly, amount of OTEF for six channels upon getting operational or upon expiry of one year from date of GOPA has now been considered as License Fee paid for Licencing Period and has suitably been capitalized as Intangible Asset in accordance with Accounting Standard AS-26. amount of Licence Fee capitalized as Intangible Asset would be written off over period of permission/licence i.e. 10 year, in accordance with Accounting Standard AS-26. OTEF for seventh Channel, however, has been considered as advance as at end of financial year as in previous year in view of basic infrastructure not provided by MIB." 8. AO held that since assets under question, that is licence fee for Jodhpur, Patiala and Amritsar stations, were not put to use during relevant previous year depreciation could not be allowed. plea of Assessee that these three stations were made ready-to-use on 8th December 2007 and since when these stations were made ready-to-use Assessee company had started taking trial runs , was not accepted by AO on ground that depreciation shall not be allowed unless asset is actually used for business. Order of CIT (A) 9. Aggrieved by above order, Assessee went in appeal before Commissioner of Income Tax (Appeals) [ CIT (A) ]. By order dated 10 th February 2012 CIT (A) dismissed appeal by concurring with AO that airing of radio programmes cannot be said to be manufacturing or producing of article or thing as defined under Section 32 (1) (iia) of Act. CIT (A) further held as under: ITA 190/2015 Page 4 of 15 In commercial sense no article or thing can be said to be produced by airing radio programme as appellant is not manufacturing or producing any article or thing which can be sold or commercially exploited. radio programs cannot be regarded as article or thing as per definition given by various courts and process involved for airing programs cannot be regarded as manufacturing or production. Further, channels earn revenue from advertisement and not from sale of radio programs. public does not have to incur any expense to log on to any channel of any radio program. expenses is only been incurred by various companies who are providing revenue by advertising their products. Further, floppy or CD of radio programs are not tradable there are large number of programmes which are aired live for example cricket matches. All these clearly shows that appellant cannot be said to be engaged in business manufacture or production of article or thing as required under Section 32(1) (iia) for claim of additional depreciation. Therefore, appellant's claim of additional depreciation is rejected. 10. As regards disallowing of depreciation on licence fee, CIT (A) held that Assessee had claimed depreciation only on licence fee but not on other tangible asset. If claim of Appellant is valid then Appellant s claim should not have been restricted to claim of depreciation only on licence fee. Further since Assessee had had not claimed that programmes were actually aired but had clarified that airing was postponed, its claim for depreciation on licence fee could not be permitted. Order of ITAT 11. Assessee then appealed to ITAT by filing ITA No. 2186/Del/ 2012. In impugned order allowing Assessee's appeal, ITAT relied on decision of Supreme Court in CIT v. Oracle Software India Limited (2010) 320 ITR 546 (SC) and held that radio programmes consist of editorial and specific stanza of songs and same is first recorded then edited and then broadcasted. Further, guest/callers etc. would have their questions and answers/interviews/suggestions etc. recorded at ITA 190/2015 Page 5 of 15 earlier date and same would subsequently be aired. It was further held that Assessee thus uses plant and machinery in production of this pre-recorded radio programmes. It was concluded that in all these processes, some plant and machineries are required for recording, editing and finally for broadcasting through FM channel. It was found that case of Assessee stood on better footing than one in CIT v. Oracle Software India Limited (supra) where Assessee after importing master media of software was duplicating it on blank discs, packing and selling it in market along with relevant brochures. Thus it was held that Assessee was very much eligible for claiming additional depreciation under Section 32 (1) (iia) of Act. 12. Turning to issue of depreciation on in tangible asset, i.e., FM Radio licence fee, ITAT accepted plea of Assessee that AO was not justified in disallowing claim since plant and machinery in question was ready to use and was actually run on trial basis at three stations. ITAT referred to decisions in CIT v. Reetu Finleys Pvt. Ltd. 286 ITR 652 (Del) and CIT v. Refrigeration & Allied Ind. Ltd. 247 ITR 12 (Del). Submissions of counsel 13. This Court has heard submissions of Mr. N.P. Sahni, learned Senior standing counsel for Revenue and Mr. Salil Aggarwal, learned counsel for Respondent-Assessee. 14. Mr. Sahni sought to distinguish decision of Supreme Court in CIT v. Oracle Software India Limited (supra) on ground that what was involved in said case was processing of CDs which was envisaged by Section 80-IA of Act, whereas for purpose of Section 32 (1) (iia) of Act it had to be examined whether equipment in respect of which ITA 190/2015 Page 6 of 15 additional depreciation was claimed, was in fact used for main business of Assessee which in this case was broadcasting. In other words, Assessee was not in fact engaged in business of manufacture or production of any article or thing and 'broadcasting' was not processing . 15. Mr. Sahni submitted that definition of manufacture under Section 2 (29BA) would not apply in present case as it was introduced only with effect from 1st April 2009. Reliance was placed on decision of Supreme Court in Commissioner of Income Tax v. Tara Agencies (2007) 292 ITR 444 (SC) where for purposes of Section 35B (1A) of Act (as it then stood) it was held that process of blending of tea by Assessee falls short of either manufacturing or production . 16. Mr. Sahni referred to definition of thing, article and manufacture in Black's Law Dictionary. He is submitted that 'manufacture' implies change, but every change is not manufacture "and yet every change in article is result of treatment, labour and manipulation. Reliance was placed on decision in Empire Industries Limited v. Union of India (1985) 3 SCC 314 to urge that there must be transformation and that new and different article must emerge, having distinctive name, character or use. Further in Union of India v. J.G. Glass Industries Limited (1998) 2 SCC 32 two-fold test was laid down. It was held that printing on bottles did not amount to manufacture. Reliance was also placed on decision in Gramophone Co. of India v. Collector of Customs (2000) 1 SCC 549 in which it was held that processing would not qualify as 'manufacture'. word manufacture had to be interpreted in context of object and language used in section. Reliance was also placed on decisions in Collector of Central Excise, Jaipur v. Rajasthan State Chemical Works (1991) 4 SCC 473, Collector of Central Excise v. Technoweld Industries (2003) 11 SCC 798, Marble Industries (P) Ltd. v. Collector of Central ITA 190/2015 Page 7 of 15 Excise (2005) 1 SCC 279 and Aspinwall & Co. Ltd. v. Commissioner of Income Tax, Ernakulam (2001) 7 SCC 525. 17. As regards depreciation on One Time Entry Fee, it was submitted that both decisions referred to in impugned order of ITAT were distinguishable on facts. Reliance was placed on decision in Deputy Commissioner of Income Tax v. Yellamma Dasappa Hospital (2007) 159 Taxman 58 (Kar) in which it was held that kept ready theory is not available to Assessee for purpose of claiming depreciation when Legislature has chosen to use word used . 18. Replying to above submissions, Mr. Salil Aggarwal, learned counsel for Assessee pointed out that as regards question of additional depreciation, while there is no dispute that Assessee did acquire or install new and eligible plant and machinery after 31st March 2005. only dispute raised by Revenue was that Assessee did not 'use' said plant and machinery for producing or manufacturing article or thing. ITAT held that production of radio programmes, since it involves technical process of recording, editing, copying and then broadcasting, amounted to production of article or thing and therefore, Assessee was eligible for additional depreciation. 19. Apart from decision of Supreme Court in CIT v. Oracle Software India Limited (supra), reliance was placed on decision in Commissioner of Income Tax-VIII v. Ms. Kiran Kapoor 372 ITR 321 (Del). Reference was made by Mr. Aggarwal to decision of learned Single Judge of this Court dated 7th October 2013 in CS (OS) No. 1085 of 2005 (T.V. Today Network Limited v. Kesari Singh Gujjar) to urge that dissemination of news and news reporting would be covered under goods classified under Clauses 38 and 41 of Schedule to Trade Marks Rules. Mr. Aggarwal ITA 190/2015 Page 8 of 15 also submitted that in succeeding AYs, i.e., 2009-10 and 2010-11 claim for additional depreciation on production of radio programmes was allowed by AO. While return for AY 2009-10 was processed under Section 143 (1) of Act, return for AY 2010-11 was processed under Section 143 (3) of Act. 20. As regards second question, in support of his plea that depreciation would be allowed as long as asset is kept ready and has been used for undertaking trial. Reliance was placed on decisions in CIT v. Refrigeration & Allied Industries Ltd (supra), Capital Bus Service Pvt. Ltd. v. CIT (Del) 123 ITR 404 and Assistant Commissioner of Income Tax v. Ashima Syntex Ltd. 251 ITR 133 (Guj). Question No. 1: Additional Depreciation 21. first question concerns claim of Assessee to additional depreciation under Section 32 (1) (iia) of Act. said provision reads as under: 32. Depreciation (1) In respect of depreciation of (i) buildings, machinery, plant or furniture, being tangible assets; (ii) know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after 1st day of April 1998 owned, wholly or partly, by Assessee and used for purposes of business or profession, following deductions shall be allowed (i) ....... (iia) in case of any new machinery or plant (other than ships and aircraft), which has been acquired and installed after 31st day of March, 2005, by assessee engaged in business of manufacture or production of any article or thing 19[or in business of generation or generation and distribution of power], further sum equal to twenty per cent of actual cost of such machinery or plant shall be allowed as deduction under clause (ii): ITA 190/2015 Page 9 of 15 Provided that where assessee, sets up undertaking or enterprise for manufacture or production of any article or thing, on or after 1st day of April, 2015 in any backward area notified by Central Government in this behalf, in State of Andhra Pradesh or in State of Bihar or in State of Telangana or in State of West Bengal, and acquires and installs any new machinery or plant (other than ships and aircraft) for purposes of said undertaking or enterprise during period beginning on 1 st day of April 2015 and ending before 1st day of April 2020 in said backward area, then, provisions of clause (iia) shall have effect, as if for words "twenty per cent.", words "thirty-five per cent." had been substituted. Provided further that no deduction shall be allowed in respect of (A) any machinery or plant which, before its installation by assessee, was used either within or outside India by any other person; or (B) any machinery or plant installed in any office premises or any residential accommodation, including accommodation in nature of guest-house; or (C) any office appliances or road transport vehicles; or (D) any machinery or plant, whole of actual cost of which is allowed as deduction (whether by way of depreciation or otherwise) in computing income chargeable under head Profits and gains of business or profession of any one previous year. 22. For purpose of above provision, following conditions will have to be satisfied: (i) new plant and machinery has to be acquired and installed by Assessee after 31st March 2005; and (ii) Assessee should be engaged in business of manufacture or production of any article or thing. ITA 190/2015 Page 10 of 15 23. If above conditions are satisfied, then additional depreciation of 20% of actual cost of such machinery would be allowed as deduction. 24. At outset it must be noted that it is not case of Revenue that activity of broadcasting undertaken by Assessee does not tantamount to business of manufacture or production . Revenue's case is that Assessee was not using new machinery acquired and installed by it for producing 'article or thing'. 25. As part of its 'broadcasting' activity, Assessee might be engaged in several incidental and distinct activities. Therefore, in given case it may be possible that some part of plant and machinery acquired and installed by Assessee after 31st March 2005 might be used for production of programmes and some others for broadcasting. It is not necessary, therefore, that all of machinery is used for production of radio programmes. Another aspect might be that Assessee might be only 'broadcasting' programmes produced by others in which case it would be arguable whether in first place it could be said that Assessee is "engaged in business of manufacture or production of any article or thing". However, as far as present appeal is concerned these questions do not arise. In any event, no factual details on above alternative scenarios are available in present case. As already noted, case projected by Revenue is in much narrower compass, viz., that Assessee has not used machinery acquired and installed by it after 31st March 2005 used for production of 'article' or 'thing'. It is this case of Revenue that is required to be addressed by Court 26. careful perusal of orders of CIT and ITAT reveal that case of Assessee was that it was using new plant and machinery for producing radio programmes for broadcasting through its FM channels. This ITA 190/2015 Page 11 of 15 was informed to AO by Assessee in response to queries posed to it during assessment proceedings. 27. production of radio programmes, as explained by Assessee, involved processes of recording, editing and making copies prior to broadcasting. When radio programmes is made there comes into existence thing which is intangible, and which can be transmitted and even sold by making copies. Therefore, it can definitely be stated that radio programmes produced by Assessee is thing , if not article. This satisfies understood definition of thing in terms of Black's Law Dictionary as under: (A) "thing":- "the subject matter of right, whether it is material object or not; , any subject matter if ownership within sphere of proprietary or valuable rights. Things are divided into three categories (1) things real or immovable, such as land, tenements, and hereditaments, (2) things personal or movable, such as goods and chattels, and (3) things having both real and personal characteristics, such as title deed and tenancy for term. civil law divided things' into corporeal or incorporeal. 28. Thing could, therefore, have intangible characteristic. word manufacture envisages subjecting any material or thing to certain processes in order to produce something which has distinct characteristic. In other words, process must result in transformation of thing or article to result in new or different article. 29. definition of manufacture inserted with effect from 1 st April 2009 in form of Section 2 (29BA) of Act reads as under: "2(29BA) manufacture , with its grammatical variations, means change in non-living physical object or article or thing- (a) resulting in transformation of object or article or thing into new and distinct object or article or thing having different name, character and use. ITA 190/2015 Page 12 of 15 (b) bringing into existence of new and distinct object or article or thing with different chemical composition or integral structure. 30. Although this definition was introduced with effect from 1 st April 2009 it must be understood as being clarificatory in nature given common parlance understanding of term manufacture . definition is in consonance with law explained in decisions cited by Mr. Sahni. 31. In Gramophone Co. India Ltd v. Collector of Customs (supra) was observed that manufacture implies change, but every change is not manufacture and yet every change of article is result of treatment, labour and manipulation. But something more is necessary and there must be transformation; new and different article must emerge having distinctive name, character and use. In Collector of Central Excise, Jaipur v. Rajasthan State Chemical Works (supra) it was emphasized that it is cumulative effect of various processes to which raw material is subjected to, that manufactured product emerges. Therefore, each step towards such production would be process in relation to manufacture. 32. Mr. Sahni sought to draw distinction between 'manufacture' as contemplated in Section 32 (1) (iia) in context of claim for additional depreciation. However, 'manufacture' could include combination of processes. In context of 'broadcast' it could encompass processes of producing, recording, editing and making copies of radio programme followed by its broadcasting. activity of broadcasting, in above context, would necessarily envisage all above incidental activities which are nevertheless integral to business of broadcasting. 33. In that view of matter, Court concurs with view of ITAT and holds that in facts and circumstances of present case, Assessee can be said to have used plant and machinery acquired and ITA 190/2015 Page 13 of 15 installed by it after 31st March 2005 for manufacture/production of article or thing. Since Assessee has satisfied requirements of Section 32 (1) (iia) of Act, it is entitled to additional depreciation as claimed by it for AY in question. Revenue has also no answer to submission of Assessee for AYs 2009-10 and 2010-11 its claim for additional depreciation has been allowed by AO. 34. Question No. 1 is accordingly answered in favour of Assessee and against Revenue. Question 2: Depreciation on Licence Fee 35. Turning to Question No. 2, it is seen that fact is that Assessee kept ready for use intangible assets in respect of three radio stations at Jodhpur, Amritsar and Patiala. This has not been denied even by Revenue. order of AO recorded as under: 4.6.5 Assessee has further submitted vide his letter dated 22.12.2010, that depreciation has not been claimed on any of other assets in case of other three stations, i.e., Patiala, Amritsar and Jodhpur, apart from One Time Entry Fee. This is not in consonance with Assessee's statement of his written submission dated 2nd December 2010,wherein he has that stated that depreciation was claimed because of existing case laws in his knowledge. He has stated that based on decisions of above cited case laws, depreciation has been claimed on assets kept ready to use and on which trial run was being done. This being case, Assessee has not given any reason why depreciation has been claimed on Licence Fee, but not on tangible assets also being used on trial runs. (emphasis supplied) 36. above passage reveals that AO was not questioning fact that intangible asset has been kept ready for use. AO disallowed it because depreciation was claimed on licence fee, i.e. non-intangible asset and not on tangible asset. order of CIT (A) also proceeded on same footing. No provision of Act has been brought to notice of ITA 190/2015 Page 14 of 15 Court which states that Assessee would be denied claim of depreciation on intangible assets only because there was no claim also on tangible asset. 37. For purpose of Section 32 it is sufficient that assets be kept ready for use in order to claim depreciation thereon. This has been reiterated by this Court in two decisions relied upon by Assessee, i.e., CIT v. Refrigeration & Allied Ind. Ltd. (supra) and Capital Bus Service Pvt. Ltd. v. CIT (Del) (supra). In former decision it was held that asset can be said to be 'used' when it is kept 'ready for use'. Likewise in Capital Bus Service Pvt. Ltd. (supra) it was held that while interpreting expression used it would be more appropriate to envisage expression as comprehending cases where machinery is kept ready by owner for its use in business and failure to use it actively in business is not on account of its incapacity for being used for that purpose or its non- availability. 38. For all aforementioned reasons, question No. 2 is also answered in favour of Assessee and against Revenue. 39. appeal is accordingly dismissed but in circumstances with no orders as to costs. S. MURALIDHAR, J VIBHU BAKHRU, J DECEMBER 9, 2015 Rk ITA 190/2015 Page 15 of 15 CIT-7 v. Radio Today Broadcasting Ltd