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TMI Blog1991 (4) TMI 175X X X X Extracts X X X X X X X X Extracts X X X X ..... 10 Car repairs expenses separately debited 39,064 . 7,18,241 3. According to the ITO the total expenditure covered by the provisions of s. 37(3A), thus, came to Rs. 19,60,584. From out of the total expenditure, he singled out part of the expenditure for separate disallowance and then quantified the amount to be disallowed under s. 37(3A). The computation is as follows: . . Rs. Total items covered by provisions of s. 37(3A) . 19,60,584 Less: Portion of expenses separately disallowed: . . Fuel & Petrol 1,273 . Car repairs 9,766 . Car repairs debited under produce expenses 46,109 . . 57,148 57,148 Less: Basic deduction . 19,03,436 Balance . 1,00,000 Disallowance at 20 per cent . 18,03,436 . . 3,60,687 As a result, the assessee suffered a disallowance of Rs. 3,60,687 as against the admitted amount of Rs. 2,28,468. Aggrieved, the assessee appealed. 4. The first appellate authority accepted the contention of the assessee that the provisions of s. 37 does not deal with capital expenditure and, therefore, the provisions of s. 37(3A) which takes its colour from s. 37 is not purported to deal with expenditure of a capital nature. On this basis, he ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rints of the film; and (b) the expenditure incurred in connection with the advertisement of the film after it is certified for release by the Board of Film Censors." The first reason is that the expenditure upto the stage of production of negative film is capital in nature. A negative film is one which is initially produced from out of which a number of positive films can be copied. It is the positive film that are exhibited and not the negative ones. Thus, the negative films partake of the nature of the mould or the castings as it were and, hence, the expenditure on the production of negative films can be classified only as capital expenditure. The second reason is that specific rules have been prescribed for deduction of expenditure on production of feature films. 8. Relevant rules for deduction of expenditure on feature film are found in r. 9A of the IT Rules. Sub-rr. (2) to (4) of r. 9A deal with regional feature films and sub-r. (5) to sub-r. (7) deal with non-regional feature films. The cost of production will be allowed only if the feature film is certified by the Board of Film Censors in a previous year and in such previous year certain other conditions are fulfilled. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade. On the contrary, it was shown as work-in-progress (in the course of production) and on completion was shown as an asset in the balance sheet. Of course, though this fact was relevant, it might not be conclusive one way or the other. One had, therefore, to see how the assessee had dealt with this asset. There was substance in the assessee's claim that the asset in question, viz., the negative, had been all along treated by the assessee as his capital asset. He never parted with it. He entered into an agreement with a distributor for the distribution rights, the consideration being a share of the profits on commercial exploitation of the prints taken out from the negative. The value of the negative was never brought into the trading account and had been shown in the balance sheet as an asset. It may not be valid to argue that the negative was an intermediate (or the penultimate) product of the assessee's business activity. If that was so, it should have disappeared the moment the ultimate product came into view. On the contrary, the so-called ultimate product (positive prints) disappeared or rather never appeared. They were never the property of the assessee. It was the so-calle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee is carried out. The assessee is a film producer and both the studio and the outdoor unit bus are plants in his hands. He relied on the following decisions: 1. CIT vs. Indian Metal & Metallurgical Corpn. (1990) 182 ITR 460 (Mad) 2. Scientific Engineering House Pvt. Ltd. vs. CIT (1986) 157 ITR 86 (SC) 3. CIT vs. Coromandel Fertilisers Ltd. (1985) 156 ITR 283 (AP) 4. CIT vs. Oil India Ltd. (1983) 30 CTR (Cal) 85 : (1983) 143 ITR 848 (Cal) 5. Orissa Minerals Development Co. Ltd. vs. CIT (1979) 117 ITR 434 (Cal) 6. CIT vs. Elecon Engineering Co. Ltd. (1974) 96 ITR 672 (Guj) 7. Patel Enterprises vs. ITO (1986) 15 ITD 114 (Ahd) (TM) 8. V.N. Sarpotdar vs. ITO 9. Indian Hotels Co. Ltd. vs. IAC (1989) 34 TTJ (Bom) 526 10. Payal Theatre vs. ITO (1986) 26 TTJ (Jp) 273 11. Garg Cold Storage vs. ITO (1985) 21 TTJ (All) 425 12. L.M.B. Hotel vs. ITO (1984) 19 TTJ (Jp) 297 13. Universal Spices vs. ITO (1983) 4 ITD 367 (Hyd) It was further submitted that when cinema theatre buildings are considered as plant where only exhibition of films takes place there is no reason why the studio where the films are shot should not be treated as plant. It is only layman's v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... low the roof to enable the "Light boys" to move about and choose lines so that the picture comes out with proper lighting. Serpent shrines made of clay and caves made of bamboos mats and artificial cobwebs have also been designed. At the time of the visit the platforms were also artificially designed in such a manner that floor was converted into a cave shrine, etc., for a scene in a picture "Kadathanadan Ambadi". This is a picture which Mr. Appachan has to work on to complete the same and release it on the directions of the Supreme Court. The walls have the canvass on which colour is sprayed to create a sky scene or the horizon and it is even stated that in this floor the effect of a large sea could be made out. In a television serial on the Holy Bible which is being produced by Mr. Appachan in this very floor with the setting up of a false wall filling it with water to a depth of 3 to 4 feet and with the canopy of the horizon in the wall and with the help of propellers the sea effect was created. The scene is about "Noah's Arc". The Bench alongwith the Deptl. representative and the assessee's counsel viewed it on the television. We also saw a model of the tower intended for a sce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,608. From the accounts, it is not possible to bifurcate the cost of the main floor and the cost of other buildings because the assessee had debited all the expenditure in one account. Therefore, in the absence of details, a reasonable estimate would be necessary. Even if the matter is restored to the ITO to ascertain the cost of the main floor and other part of the building it has to be made only on an estimated basis. Therefore, no useful purpose will be served in remitting the issue. The first floor and annexe building which is treated as a building alongwith staircase consists of an area of about 2,800 sq. ft. (67x30+50x30—area of movable set). The main floor consists of about 12,000 sq ft. The first floor and other parts are pucca constructions. The sum of Rs. 3 lakhs and odd which was incurred in this year was in relation to the other building which is not considered as a plant. Therefore, taking all these facts into consideration, we estimate the written down cost of the main floor considered as plant at Rs. 8 lakhs being about 80 per cent of Rs. 10,06,251 and hold that the assessee is entitled to higher depreciation at the rate applicable to plant and machinery. We confine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us to consider whether the assessee is entitled to the same rate of depreciation on the air-conditioners and the generators fitted in the bus. In CIT vs. Smt. Urmila Goyal (1986) 52 CTR (Del) 276 the question was whether depreciation on air-conditioner fixed in a bus was allowable at the rate applicable to the bus instead of the rate applicable to the air-conditioners when separate rate of depreciation had been provided for motor vehicles and air-conditioning plant respectively. The Delhi High Court answered the question in favour of the assessee holding that so long as the parts form part of the motor bus they are to be depreciated at the same rate as motor bus. 25. Shri Menon vehemently contended that the case before the Delhi High Court was that of a transport bus which earned income by offering additional facilities and, therefore, the High Court viewed the bus alongwith the fixtures as one and same and, thus, the facts are distinguishable. From the report appearing in (1986) 52 CTR (Del) 276 it is not stated whether the assessee was a fleet owner and whether the bus was used for carrying the passengers and, therefore, it is not clear from where Shri Menon got the information ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore, even if the movie camera is not considered as a reproducing equipment, it is still an equipment in the production of films and as such no extra shift allowance can be granted on the same. Moreover, for claiming extra shift allowance it is for the assessee to establish that the equipment was used for more than one shift and in the absence of particulars the claim cannot be entertained. 30. We find force in the submissions of the Revenue. The distinction sought to be made by Mr. Srinivasan that movie camera is not a reproducing equipment and such reproduction is made only through the projector equipment is not acceptable. The projecting equipment is associated with the exhibition of the film and that is covered by cl. (b) of sub-heading III. The list under the cinematograph film covers machinery used in the production as well as exhibition of the cinematographic films and, therefore, the items of equipments of machinery enumerated in cls. (a) and (b) can be considered only as illustrative but not exhaustive. Therefore, the question whether the movie camera really reproduces the image or not is not relevant to decide the issue. The issue can be decided on the simple proposit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... determine the quantum. However, on the mobile unit with the air-conditioner and generator attached to it, we hold that the assessee is not entitled to extra shift allowance as the entire unit has to be viewed only as mini bus, entitled to 30 per cent depreciation. On the cinematographic equipments including the camera, the assessee is not entitled to extra shift allowance as these equipments or machinery belong to the category of NESA. 34. The assessee would be entitled to investment allowance on the studio building and the cinematographic equipments provided other conditions for the grant of such relief have been fulfilled by the assessee regarding the creation of the reserve, etc. If for some reason the reserve created by the assessee falls short of the reserve to be created, the ITO is directed to give an opportunity to the assessee to make up the deficiency. 35. The first point in the departmental appeal is against the relief granted by the CIT(A) holding that the provisions of s. 37(3A) are not attracted to the expenditure in incurred on motor car, payments to hotels and pre-release advertisements as forming part of cost of production and thus capital expenditure in natur ..... X X X X Extracts X X X X X X X X Extracts X X X X
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