ITAT Allows Deduction of Interest on Delayed Radio Migration Fees, Grants Depreciation on Acquired Workforce Intangibles

The assessee, TV Today Network Ltd., is engaged in the business of broadcasting television news channels and operating FM radio stations. For AY 2018-19, the assessment was completed under the Faceless Assessment Scheme, resulting in multiple disallowances.

The Assessing Officer (AO) treated Rs.10.33 crore out of the interest paid to the Ministry of Information and Broadcasting (MIB) on delayed payment of Non-Refundable One Time Migration Fees (NOTMF) for migration of FM radio stations from Phase-II to Phase-III as capital expenditure. Although the assessee had capitalised the migration fee itself, it claimed the interest as a revenue expense, contending that it was incurred merely for delayed payment.

The AO also made a disallowance of Rs.67.71 lakh under Section 14A read with Rule 8D despite the assessee not earning any exempt income during the year. Further, he denied deduction under Section 80G amounting to Rs.1.41 crore in respect of donations made to the Care Today Fund, holding that Corporate Social Responsibility (CSR) expenditure could not qualify for deduction as it was a statutory obligation.

Separately, the assessee challenged the disallowance of depreciation of Rs.1.52 crore on an intangible asset representing an acquired workforce. The workforce had been valued at Rs.6.09 crore by Price Waterhouse & Co. (PWC) as part of a slump sale through which the assessee acquired the digital business of its holding company, Living Media India Ltd. The tax authorities denied depreciation, holding that workforce was not an eligible intangible asset and that the sixth proviso to Section 32(1) barred the claim.

The ITAT dismissed the Revenue’s appeal and allowed the assessee’s cross-appeal on all issues. On the issue of delayed migration fee interest, the Tribunal held that the payment was compensatory in nature and did not bring into existence any new capital asset. Since the interest was incurred to continue operating the existing radio business after migration to Phase-III, it constituted a normal business expenditure allowable as revenue expenditure. The Tribunal relied on earlier coordinate bench decisions, including Bharti Airtel Ltd., to uphold the assessee’s claim.

The Tribunal also upheld the deletion of the disallowance under Section 14A. Following the binding judgment of the Delhi High Court in Cheminvest Ltd., it reiterated that where no exempt income is earned during the relevant year, no disallowance under Section 14A read with Rule 8D can be made.

On the deduction claimed under Section 80G, the Tribunal observed that although Explanation 2 to Section 37(1) prohibits deduction of CSR expenditure as a business expense, it does not bar a deduction available under Chapter VI-A. Since the donation was made to an approved charitable fund eligible under Section 80G, the Tribunal held that the assessee was entitled to the deduction. Applying the principle laid down by the Supreme Court in Vegetable Products Ltd., it adopted the interpretation favourable to the taxpayer.

Allowing the assessee’s cross-appeal on depreciation, the Tribunal held that the sixth proviso to Section 32(1) applies only to cases of amalgamation, merger or demerger and cannot be extended to a slump sale. Relying on the Delhi High Court’s decision in Areva T&D India Ltd., it held that an acquired skilled workforce forms part of the bundle of business or commercial rights that enables a business to function immediately after acquisition and therefore qualifies as an intangible asset eligible for depreciation. Since the PWC valuation had not been disproved by the AO and the slump sale consideration itself had been accepted in the seller’s assessment, the Tribunal directed the AO to allow depreciation of Rs. 1,52,42,500 on the acquired workforce intangible.

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