TMI Blog1990 (7) TMI 196X X X X Extracts X X X X X X X X Extracts X X X X ..... ubsidy. The CIT(A) also upheld the disallowance of selling commission of Rs. 76,718 claimed by the assessee but disallowed by the Assessing Officer. While the assessee is in appeal against the disallowance sustained by the CIT(A), the revenue is in appeal against the direction given by the CIT(A) for carrying forward of the cost of production of the feature film to the next following previous year and allowed as a deduction in that year. 3. The relevant facts of the case have been enumerated in the orders of the authorities. However, the facts relevant to the grounds are as under. The assessee is a registered firm and as per the deed of amendment of partnership deed it deals in all varieties of liquor, besides producing, manufacturing, financing, directing and/or dealing in any film in Hindi or any other language and any other connected line of business as the partners mutually agreed from time to time. The assessee incurred total expenses of Rs. 8,02,560 on production of a Hindi feature film titled "Yeh Kahani Nahin" in eastman colour. The Government of Orissa granted a special subsidy of Rs. 35,725 by way of inducement. After adjusting the subsidy etc. a net amount of Rs. 7,55, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... increase in turnover was due to the special services or efforts made by the company to procure new customers by relying on the statement of one of the regular customers of the assessee Shri J.R. Agarwal of Pune who stated that the goods were procured directly from the assessee without any middleman or agency by submitting indent and paying Excise Duty on behalf of the assessee firm. Shri J.R. Agarwal also denied knowledge of the agency of the company. Therefore, the Assessing Officer concluded that there was no evidence for the services rendered by the company and therefore payment of commission was not necessitated by commercial expediency and there was purely an arrangement to divert part of the income of the assessee to sister company in which the partners were interested. Therefore, he disallowed the commission claimed under section 40A(2) of the Income Tax Act, 1961. 5. On appeal, the CIT(A) considered the decisions relied upon by the learned counsel for the assessee and distinguished the case of the assessee from those decisions. According to him, the assessee's case clearly falls under Rule 9A and sub-rule (7) of Rule 9A and therefore, there was no question of making any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les, 1962 would be attracted so as to enable the ITO to allow deduction of cost of production of film in such other manner as he may deem suitable. In other words, he urged that the case of the assessee is one of exceptional circumstances in which it is not practicable to apply the provisions of Rule 9A. He also submitted that the subsidy received from the Orissa Government was capital in nature and for this purpose he relied on the Third Member decision of the Tribunal, Pune Bench, in the case of ITO v. V.N. Sarpotdar. 8. As regards the selling commission, he urged that similar claim was considered by the ITO for the assessment year 1985-86 and the claim was allowed. He also stated that in the assessment year 1988-89, said claim was allowed by the ITO, though it was made under section 143(1). As regards the services rendered by the agency company, he contended that he actually took four of the dealers before the Assessing Officer as well as before the CIT(A) but they were not examined by either of them regarding the services rendered by the agency company. However, affidavits were filed before us by the assessee obtained from the parties concerned which were not filed before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re not applicable as stated by the CIT(A). On the other hand, Rule 9A would be applicable for consideration. In the instant case, admittedly the assessee has produced 'Yeh Kahani Nahin' in Hindi and therefore, it is not a regional language feature film as contained in Explanation to Rule 9A. This being the case provisions of sub-rules 5 to 7 would be applicable for the purpose of deduction of cost of feature film specified in clause (b) of Rule 9A(1). The relevant sub-rules read as under :---- " 5. Where a feature film (not being a regional language feature film) is certified for release by the Board of Film Censors, in any previous year and in such previous year;--- (a) the film producer sells the rights of exhibition of the film in respect of all the territories specified in the Table below sub-rule (11) (hereafter in this rule referred to as the said Table), the entire cost of production of the film shall be allowed as a deduction in computing the profits and gains of such previous year; or (b) the film producer---- (i) himself exhibits the film on a commercial basis in all the territories specified in the said Table ; or (ii) himself exhibits the film on a commercial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may be, the aggregate of the sums, specified in column (2) of the said Table against the territory or territories specified in column (1) thereof in which the film producer has himself exhibited the feature film on a commercial basis, or in respect of which the film producer has sold the rights of exhibition of the feature film, or in which the feature film has been so exhibited and in respect of which the rights of exhibition have been sold during the previous year, and the denominator of which is one hundred. (7) Where, during the previous year in which a feature film (not being a regional language feature film) is certified for release by the Board of Film Censors, the film producer does not himself exhibit such feature film in any of the territories specified in the said Table, or does not sell the rights of exhibition of such feature film in respect of any of the territories specified in the said Table, no deduction shall be allowed in respect of the cost of production of the film in computing the profits and gains of such previous year; and the entire cost of production of the film shall be carried forward to the next following previous year and allowed as a deduction in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as transferred the rights of exhibition of the feature film on a minimum guarantee basis, the minimum amount guaranteed and the amount, if any, received or due in excess of the guaranteed amount or where the film producer follows cash system of accounting, the amount received towards the minimum guarantee and the amount, if any, received in excess of the guaranteed amount, are credited in the books of account maintained by him in respect of the year in which the deduction is admissible. " A perusal of the aforesaid Sub-rule would clearly show that the sub-rule would apply in a case where the film producer has himself exhibited or has sold the rights exhibition or exhibited in some areas and sold rights of exhibition in respect of all or some of the remaining territories and in such a case the amount realised should be credited to the books of accounts maintained by the assessee in respect of the year in which the deduction is admissible. In this connection, it is necessary to refer back to the provisions of sub-rules (5) and (6) which would show that the deduction would be complete in the year of complete exploitation covered by sub-rule (5), but proportionate in the year of part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee, if not to the fullest extent. Thus the decisions of the Tribunal in these cases could not be applied to the case of the assessee insofar as application of provisions of sub-rule 9(c) of Rule 9A on facts of the case. In other words, the decisions of the Tribunal relied upon by the learned counsel for the assessee are not on all fours with the facts of the assessee's case and hence they are not helpful to the assessee. 14. As regards the six-fold reasons given by the assessee showing the circumstances under which the assessee could not exploit the feature film commercially, we are of the opinion that the fact remains that the assessee was waiting for an appropriate opportunity to televise the feature film and earn profits and as such the circumstances would not make the case fall under the exceptional circumstances contemplated under sub-rule 9(c) of Rule 9A to come to the conclusion that it is not practicable for the ITO to apply the provisions of Rule to such a case. Sub-rule 9 reads as under :--- " (9): Where the ITO is of opinion that--- (a) the exhibition of the feature film on a commercial basis by the film producer in, or the sale by the film producer of the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s amount was disallowed by the Assessing Officer holding that the case of the assessee would not fall within the exceptional circumstances. 16. The CIT(A) considered this claim of the assessee and distinguished the facts of the case of V.N. Sarpotdar which has been relied upon by the learned counsel for the assessee and pointed out that it was held by the Tribunal that the subsidy granted by the Maharashtra Government was not revenue in nature. In the case of the assessee, however, he pointed out that the assessee itself had reduced the cost of production by the subsidy received from the Orissa Government and had claimed only the net expenditure. It is for this reason he held that there was no question of allowing subsidy as a deduction. 17. After hearing the submissions of the learned counsel of the assessee as well as the learned departmental representative, we agree with the finding and conclusion of the CIT(A) in this regard. The subsidy was given towards the cost of producing the film which went to reduce the cost of the film produced. It would not be the other way round in any case. The assessee has rightly claimed the net amount as a deduction and therefore, the question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent given by one Shri J.R. Agarwal later on before the Assessing Officer was obviously behind the back of the assessee. This is clear from the affidavit given by Shri J.R. Agarwal dt. 13-6-1980 a copy of which has been filed before us in the paper book at pages 40 41 thereof wherein he has clearly stated the Assessing Officer had asked certain questions in respect of M/s S.N. Products when neither the representative of the assessee nor his tax consultant was present. He also stated that it was but natural for a businessman like him to agree with the Income Tax authorities. In other words, he has implied that he has given the statement before the Assessing Officer not out of free will but on duress. The assessee also filed in paper compilation affidavit from M/s Gangawari Bros. Pimpri dt. 18-2-89 contained in page 37 of the paper book. Affidavit of Shri H. Rajeev Adyanthaya, partner of M/s Royal Agencies, Bombay is also filed contained in page 38 of the paper book. Similarly, affidavit of Shri J.S. Godbole, son of Shri S.V. Godbole affirming canvassing and procurement of export order without remuneration for the assessee firm is also filed contained in page 42 of the paper book fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered and produced before us by the assessee is not admissible, inasmuch as it was not adduced before the authorities. The main reason for disallowing the commission by the Assessing Officer was the adverse statement given by the dealer namely Shri J.R. Agarwal who has gone back on his statement as seen from his affidavit dt. 13-6-1990 a copy of which has been filed before us. The agreement for payment of commission in the form of affidavit dt. 27-7-83 has not been properly dealt with by the authorities though it was treated as an affidavit as such. The assessee has asserted that the agency company had rendered services and therefore, commission was deductible and therefore the onus is on the assessee to produce evidence and establish the same. In these circumstances, therefore, we shall not entertain the fresh evidence produced by the assessee before us, but in the interest of justice the matter should be restored to the Assessing Officer for fresh consideration and adjudication in accordance with law. Consequently, we set aside the orders of the authorities on this specific point and restore the issue to the file of the Assessing Officer for fresh adjudication in accordance with l ..... 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