By TIOL News Service

NEW DELHI, FEB 01, 2016: THE issue is - Whether radio programmes produced by the assessee can be construed as 'thing', if not an 'article' as defined u/s 32(1)(iia) for the purpose of additional depreciation. YES is the verdict.

Facts of the case

The Assessee is engaged in the business of FM radio broadcasting. The assessee was granted permission for operating FM Radio Broadcasting channels at seven stations against payment of prescribed one Time Entry Fees. Out of 7 stations, the Assessee went on air in AY 2008-09 from three radio stations. Due to unfavourable market conditions, the marketing team of the Assessee decided against going on air for three other stations in AY 2008-09. However, on the advice of the marketing team, the Assessee started taking trial runs by running radio programs within the office premises at those three stations in AY 2008-09. Assessee filed its return of income at loss and claiming additional depreciation under Section 32(1)(iia). AO raised query as to why the additional depreciation should not be disallowed. AO held that "by no stretch of imagination can 'production of radio programmes' be considered as 'production of article or thing'. The additional depreciation claimed was disallowed and added back to the total income of the Assessee. The CIT(A) concurred with the 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 the Act." The ITAT held that Assessee was eligible for claiming the additional depreciation under Section 32 (1)(iia).

Having heard the parties, the Court held that,

++ The production of radio programmes involved the processes of recording, editing and making copies prior to broadcasting. When the radio programmes is made there comes into existence a 'thing' which is intangible, and which can be transmitted and even sold by making copies. Therefore, it can definitely be stated that the radio programmes produced by the Assessee is 'thing', if not an 'article.'

++ the word 'manufacture' envisages subjecting any material or thing to certain processes in order to produce something which has a distinct characteristic. In other words, the process must result in the transformation of a thing or article to result in a new or different article.

++ 'manufacture' could include a combination of processes. In the context of 'broadcast' it could encompass the processes of producing, recording, editing and making copies of the radio programme followed by its broadcasting. The activity of broadcasting, in the above context, would necessarily envisage all the above incidental activities which are nevertheless integral to the business of broadcasting.

++ assessee can be said to have used the plant and machinery acquired and installed by it after 31st March 2005 for manufacture/production of an 'article or thing.' Since the Assessee has satisfied the requirements of Section 32 (1) (iia), it is entitled to the additional depreciation as claimed by it for the AY in question.

(See 2016-TIOL-171-HC-DEL-IT)