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2012 (9) TMI 367 - AT - Income TaxRoyalty expenditure - Capital OR Revenue - assessee purchased distribution rights of the Punjabi film ‘Jee Aayan Nu’ for three years - AO stated to treat the expenditure as capital and deducted depreciation @25% thereon - Held that:- On observing a detailed chart of income and expenses from film “Jee Aayan Nu” it reveals that the assessee paid Rs.34,34,406 for film development and Rs.75,00,000/- as expenditure for payment of royalty and both these expenses have been segregated in four years. As per Auditors’ Report and final accounts of the assessee the assessee claimed Rs.20,60,706 as film developing charges and Rs.45,00,000 as royalty expenses i.e. 60% of actual expenditure in the assessment year under consideration and remaining 40% expenditure left to be claimed in another three years to come (subsequent to the first year of actual payment expenditure). As AO did not dispute the fact that 60% of the film development expenses was allowed in the year of expenditure and the rest 40% to be treated as deferred revenue expenditure in the forthcoming years but he deviated from this stand while considering the royalty expenditure allowability and held that the same expenditure was capital in nature. As the AO has ignored the Board Circular No. 92 dated 18.9.1972 pertaining to writing off royalty/distribution expenses of films which is binding on tax authorities thus the action of the AO was based on surmises and conjectures, without considering the nature of business of the assessee which was supported by hyper approach ignoring the Board Circular - in favour of assessee.
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